Almost a year ago Chancellor George Osborne stood up in Manchester's Museum of Science and Industry and declared his intention to create a ‘Northern Powerhouse’.
Cynics viewed this as a ploy to gain votes in northern seats, and to a degree they might be right. But it is also true that ‘rebalancing’ has been a core part of the Conservative economic strategy.
The goal is to cement the north as a global centre for innovation and trade, rebalancing reliance on growth away from London. The Cities Devolution Bill, outlined in the Queen’s Speech, is a strong first step towards achieving this, with measures to empower cities with elected mayors and devolved powers from Westminster.
This has also been accompanied by pledges to improve road links, increase investment in science, and to unveil a new high-speed rail link between Manchester and Leeds – the first example of European 'polycentrism' in the UK.
What is particularly interesting is that the Conservative party – currently debating whether or not the UK should remain in the EU – is at the same time promoting a European-style approach to building multiple regional economies.
This can to a large degree be explained by taking a closer look at what is driving growth. On the surface, the UK economy is growing at a faster rate than most other EU member states. Yet it is disproportionately reliant on service sectors for growth – especially the dominant London-based financial and professional services companies.
By contrast, many European countries have long applied polycentrism to their urban models and the EU actively encourages decentralisation from central cities to emergent ones. Undoubtedly, the Chancellor is watching other member states very closely to learn from their regional successes, and to understand how cities outside of the country’s capital have created healthy economies that can compete well with each other.
There are instances where (in cities that have far more control over taxes and spending) the gap between the capital and second tier cities is far smaller. Germany is especially unique; with its strong manufacturing base, it is often looked upon by Conservatives with a degree of awe – yet it does not have a single economic centre.
Success in countries like Germany and the Netherlands has been achieved by using infrastructure to bring cities closer to one another and enable them to perform collectively to create economic growth. We see a degree of this in the government’s approach to create better links between Leeds and Manchester. Key to this will also be electing strong local leaders, while capital should also be injected into the north’s dormant industries, while simultaneously building its innovation base.
Rebalancing the UK’s economy could make the north a more attractive prospect to large and small businesses and increase investment from abroad. Small businesses can particularly benefit from a northern powerhouse thanks to a new wave of regional funding for SMEs and improved transport links that could narrow the gap between major cities in the UK, which means SMEs will be able to benefit from the low costs of the North while still having easy access to the capital. With an estimated 5.2 million SMEs in the UK, there is vast competition for start-up owners to contend with, but residing in the North would give an opportunity to cut expenses and fuel business. If the Government truly wants to create a Northern Powerhouse and a breeding ground for the UK’s SMEs, much more support for transport, housing and infrastructure is indeed needed.
Businesses looking to ensure success in the northern powerhouse must communicate the value of and learnings from cases of best practice that have been proven to work in major European economies. Furthermore, they should prompt the Government to be more radical on devolution of powers and funding over key economic issues, such as transport and infrastructure, and reward additional growth to the local business rate base. This may be a tall order at a time in which the government is preparing a referendum on EU membership. But, despite being one of the world’s most advanced economies, the UK is certainly trailing behind its European counterparts on rebalancing the economy. Time will tell if the northern powerhouse can change this.
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