Northern Powerhouse – guiding light for area reviews or a damp squib?

So the government have announced a loan facility for colleges going through a post area review restructure.

The days when government issued grants seems to be coming to an end not just for FE but in other areas of public spending too.

Under investment in public goods has been a hallmark of Conservative administrations since the days of Margaret Thatcher. 

It shouldn’t surprise us too much. But then again this administration under George Osborne’s Chancellorship seemed to be bucking the trend a little when it came to re-booting the economy. The Northern Powerhouse was announced with great fanfare. Northern MP George was going to make sure the North received its fair share of investment. The great economic divide between North and South would be reduced by joining up the great Northern cities of Manchester, Leeds, Liverpool, Sheffield and Newcastle. The new high speed train line (HS2) from Manchester/Leeds to London would be part of the scheme.

So imagine my surprise when I attended a seminar at which Dr Neil Lee from the LSE was speaking (about his new research into the Northern Powerhouse) to find that the whole idea could be little more than a branding exercise with very little fiscal oomph behind it. 

In essence his analysis made clear that the UK has a big city problem. Or should that be a London problem. London dominates the UK economy in a way that is almost unique.

In other countries their second city is usually around half the size of their biggest city. This sort of distribution has an anchoring effect and ensures that more growth is shared more evenly. In the UK this doesn’t happen. London dominates all she surveys. So the idea of creating a Northern megalopolis is potentially (at least theoretically) sound.

In order to do so four ingredients were identified:

1. Improving transport links
2. Investment in science and innovation capacity
3. Decentralisation and devolution; and finally
4. Culture

However in all of these areas there has been a lot of activity but not really much output to date. Obviously it could be cautioned that it is early days. But as Dr Lee points out the strategy of joining up Northern cities isn’t new and as such the current set of policies on which the Northern Powerhouse is constructed are also largely not that new and focused on differing principles and pragmatic practicalities (such as who it is easiest for Whitehall to work with in the North– answer Manchester).

This leaves the queasy possibility that the name is indeed a useful brand around which to group disparate policy initiatives. As William Hague said in 2015 (as quoted in the Economist), ‘The clearest most coherent thing for the North of England is the Northern Powerhouse initiative offered by the Conservative party.’

As Dr Lee points out, at the moment there is no single body to distribute money for developing the Powerhouse. The Treasury controls the cash and its distribution. And that is where the evidence of real intent is truly lacking.

Dr Lee’s analysis finds a paltry £7 billion of new money at best, and as he argues, some of this may already have been earmarked for spending before the Northern Powerhouse was invented. There is also little clarity around how much cash devolution will deliver.

So what does this mean for the rest of England now going through Local Area Reviews and being promised devolution with cash attached?

Is this whole process merely an example of policy making that is emperor’s new clothes? Is the attachment to austerity first and devolution second stymying any serious attempt to spread the jam more evenly and create the conditions for stronger regional growth?

Certainly what is not at issue is that the London effect continues. Those areas benefiting from that continue to grow – look at Milton Keynes and other London orbital cities and see how they are flourishing. And productivity is a growing problem, with our skills’ providers and employers resolutely refusing to talk to each other in anything other than monosyllables when we need a proper discourse.

For what Dr Lee also found in his research (research backed up by many other empirical studies) is that without investment in skills local economies just won’t and can’t grow. Skills acquisition makes local economies larger.

So in next week’s Budget George go large on skills. It might just turn the Northern Powerhouse into the exemplar the rest of the country so desperately wants to follow.

Nick Isles is chief executive of Corporate Agenda advice consultancy