Osborne

More Evidence That the North-South Divide is Growing

North South Divide

There was little surprise with the news this week that for every one job created in the North since 2004, twelve have been created in the South, according to a Centre for Cities report that is summarised here.

The fact that this latest study covers the past decade also shows that neither the previous Labour government, with its push towards regionalism, nor the current coalition administration, have been able to reverse what is an unhealthy and unacceptable trend that has been part of the UK economic landscape for generations now.

The devolution programme that George Osborne has been driving through his ‘Northern Powerhouse’ initiative has not, of course, had a chance to prove whether it will be the key to finally solve this long-standing conundrum, but if the regions and cities across the north grasp the opportunities he is offering, then I have no doubt that more strategic planning and spending on transport, skills, training and economic development at a local level will contribute to a growth in city region jobs and wealth.

However, more radical proposals are necessary too, not least identifying new ways of supporting existing businesses, and as importantly encouraging start up’s.

The Northwest and Yorkshire is still way short of where it needs to be in terms of VAT registered businesses, and the ‘enterprise culture’ that successive governments have attempted to establish has not been delivered.

There are still too many public sector led ‘business support’ projects – I still shake my head in disbelief when I hear local government officers who wouldn’t know a balance sheet from the back end of a bus waxing lyrical about what business needs – and a range of financial incentives in place that actually favour larger companies who would have ample access to finance in the mainstream market anyway. The Regional Growth Fund is the most obvious culprit, but it is not on its own.

Our man in Manchester Michael Taylor has restated Downtown’s belief that we need a regional investment bank in his blog here and it would certainly be on the menu of change that is required if we are not to be talking about an even bigger North-South gap in 2025.

But a much bigger infrastructure spend than Osborne has announced, with house building and improving the regions motorway network at the centre of the plan; a drive within city regions to focus at least as much attention on growing our own talent as we do on inward investment; and a new range of genuine financial incentives for small companies who have ambitions to grow, with tax credits for those who take on more staff are just a few possibilities to be considered.

As we approach the General Election in May, Downtown will be agitating for change and suggesting as many new ideas as we can. Join the conversation and let me know what you think could begin to close the North-South economic gap.

One North

George Osborne

Another week, another major announcement by the chancellor about big investment into infrastructure projects in the North, as the cities of Manchester, Leeds and Liverpool joined forces to launch the ‘One North’ document, which was duly supported by George Osborne.

Cynics suggest that this series of recent announcements is simply electioneering; a way of convincing northern voters that the Tories have not forgotten them. In reality there are few votes for the Conservatives in Liverpool or Manchester- though in Lancashire and Yorkshire several seats will be keenly contested at next year’s General Election.

In truth, post recession, all the mainstream political parties have woken up to the fact that a UK solely reliant on the success of its capital city is not a sensible long term economic strategy. The huge gap between the South East and the rest of the country has needed addressing for generations, and the planned investment in ambitious transport projects, improving links between northern cities, as well as the much debated HS2 project which provides greater capacity for the routes to and from London are good first steps.

However, it is still in the area of governance that the north can and must make more immediate progress.

HS2, HS3 and the other potential investments into the road network are medium to long term initiatives. Greater power to our region can happen now. Our political leaders, backed by the business community, should demand we get on with it.

What about Lancashire?

George Osborne

The chancellor announced plans for city region mayors for Manchester, Leeds and Liverpool at an event earlier this week.

His proclamation that economic growth in these three great northern cities is the way to rebalance an economy that is so badly skewered towards London and the South East was welcome in many ways, if only because there appears to be a genuine recognition that power needs to be devolved from Westminster to the regions and we need to be allowed to take control of our own destiny.

But if cities are the future, rather than garlic bread, then where does that leave counties such as Lancashire?

With no city hub, no recognised figurehead for the entire region, and no mention from George Osborne in his speech on Monday, will Lancashire begin to see resources reduced and transferred to the big urban conurbations?

How Lancashire reacts to this new political agenda was the subject of much discussion and debate throughout Downtown’s Lancashire Business Week, which we hosted this week.

Though there was inevitably some concern about the possibility of the cities winning more resources in the future, there was also an acknowledgement that Lancashire had to react in a positive way, demonstrate its own key strengths that can significantly contribute to the economic growth of the North and come up with a positive vision that the county’s private and public sectors can share and articulate.

Cities do not have a monopoly on good ideas, as our not too distant past proves.

It was Lancashire, not Manchester, which established the first arms length local authority managed economic development company. Lancashire Enterprises went on to become a blueprint for council’s up and down the country.

It was Lancashire, not Leeds, which established an office in the heart of Brussels to influence European policy and win significant financial support for a whole range of initiatives for the county. Lancashire House, as it was named, ended up renting space to other local authorities, and made money from what was seen by some as a risky project.

It was Lancashire, not Liverpool, which pioneered the idea of a Northwest Partnership, consisting of the top 20 businesses in the region and the leaders of all the Northwest’s council leaders. This was the forerunner to the Northwest Regional Assembly, a body that was led for a number of years not by the leader of Manchester or Liverpool – but by the Deputy Leader of Lancashire.

When the county is confident, bold and takes calculated risks it is at its strongest. For too long we have lacked the necessary confidence, and indeed collective ambition and unity of purpose, to put the county on any government’s economic growth agenda.

I got the sense this week that the confidence and desire, from the business community at least, is returning. We must now press our politicians to join us, and create a vision that George Osborne & co cannot ignore.

Labour’s 50% Gamble

Labour

Depending on your politics and point of view a 50% tax rate for those earning more than £150,000 per year may seem fair.

However, there is absolutely no economic sense in taxing the highest earners at this level as it leads to a fall rather than an increase in the tax take for the exchequer.

How can this be so? Well, at 45p in the pound a successful business owner or entrepreneur may wince a little, but psychologically they will live with it.

Once you tell someone you want half of their income, it is of little surprise that they start to aggressively investigate the many loopholes that exist to stop HMRC getting their mitts on their hard earned cash.

The other problem with the 50p rate though is that is does cap aspiration and ambition; it signals a culture of envy rather than enterprise; and most worryingly it prevents business owners from investing in growing their companies. What is the point of adding £500K to your bottom line if the return you get is likely to be less than 10% of that? It is a risk that is not worth taking.

That is why I think that Ed Balls announcement that a Labour government would re-introduce the 50p rate is wrong, and more ‘gesture politics’ than economically savvy.

Labour believes that the majority of us who can only dream of a salary of 150K support the measure and will vote accordingly.

I think it will enable the Tories to paint Labour as anti ambition, anti business and as the party of taxation. It was a road tried and tested by Neil Kinnock and John Smith in 1992, much to John Major’s delight.

It didn’t work for Labour then, and although scandals with banks and our big financial institutions means we are in a different place today, I doubt if it will work in eighteen months time when the country goes to the polls again.

Nonetheless, the battle lines have been drawn and it will be interesting to see if Cameron and Osborne take a gamble of their own by announcing a further cut in top rate tax to 40p; and how shadow business secretary Chuka Umunna convinces business leaders that Labour support his ‘British Dream’.