August 13, 2017    9 minute read

UK’s Northern Powerhouse: Is Decentralisation the Answer?

The Rise of the North    August 13, 2017    9 minute read

UK’s Northern Powerhouse: Is Decentralisation the Answer?

The concept of ‘rebalancing’ the UK’s economy has dominated policy debate over the past 40 years, with numerous policies addressing the ‘North-South Divide’, or the disparity between the UK’s slower-growing less prosperous northern regions and high-growing prosperous London and the South-East. Of particular note is the recent discussion of the ‘Northern Powerhouse’. Can this decentralisation initiative overcome the differences of the past?

Given the globalisation of the production system, Northern regions reliant on manufacturing, have faced rapid decline. Global division of labour has entailed a decoupling effect of invention and production – with UK labour failing to diversify (e.g. into knowledge based industry) and move up the supply chain to replace previous jobs. This is seen starkly in the steel industry such as Tata Steel’s process of selling operations. It has led to cumulatively unbalanced decline as areas fail to attract sufficient investment leading to low demand for public infrastructure and housing. This coupled with poor connectivity with the rest of the UK has exacerbated spatial disparities, evident in a 100% difference between UK’s fastest and slowest growing urban regions (Gardiner et al., 2013).

All of this has led to a clear southern bias in terms of private sector job creation, especially in the knowledge industry, seen in Figure 1 (Cox and Raikes, 2015a).  Urban areas are over-reliant on the growth of London – accounting for 22% of total UK GDP whilst the UK’s second-tier cities lag behind (The Economist, 2016a). Disparities are cyclical in nature. For example, educated workers in Northern towns migrate to Southern towns. This deters high-skill firms from locating to Northern regions – setting in motion a ‘chicken and egg’ problem. Poor development leads to poor performance in education indicators and overall GVA deviation.

Figure 1. Southern bias in Private Sector Knowledge intensive business services (KIBS) share of total jobs (%) (Cox and Raikes, 2015b)

Regional urban disparities have been accentuated in the context of Brexit (BBC Business, 2016). Sectors which rely extensively on EU subsidies, like aerospace, will become more vulnerable than before. Decline in private sector investment raises concerns for the North which has been more reliant on public sector employment than the South. For example, austerity measures have disproportionately affected the North with a predicted loss of 1.2m jobs in 2017-18 even prior to Brexit predictions (Emmerson et al., 2013).

Agglomeration of service sector jobs in London has been viewed as a threat to Northern jobs (reflected in the geography of Brexit vote). Yet, many refute this “anti-regional policy” argument, since the assumed trade-off between national growth and greater spatial economic balance is not empirically or theoretically well substantiated (Gardiner et al., 2013). Instead, experts call for public sector investment which is location specific, as opposed to “trickle-down” policies solely relying on market forces. Decentralisation has been one strategy, gaining traction in policy from Regional Development Agencies (RDAs), Local Enterprise Partnerships (LEPs), City Deals, to the government’s recent “Northern Powerhouse “devolution agenda.

The Northern Powerhouse comes as a response to low level entrepreneurial activity, poor labour mobility and lock-in inertia. What distinguishes it from previous policies is greater sovereignty at the local level, with powers like transport, land use planning, housing, and health and social care. There are four main drivers of decentralization stated by the government: infrastructure and connectivity, human capital, innovation and business support, and leadership and policy development (HM Government, 2011).

Infrastructure and connectivity ties in with a place-based policy approach. Examples includes Birmingham’s airport expansion which is estimated to create an additional 250,000 jobs. This has facilitated labour mobility as well as flows of goods and services within the North and globally. There are also significant productivity gains from projects like HS2 (high speed rail investment) which is estimated to be worth 2.1–3.2bn per annum in the North by 2037 (HM Government, 2011). Nonetheless, critics argue HS2 demonstrates “no coordinated thinking” in infrastructure planning (UK Commission for Employment and Skills, 2011). Others, like the IPPR emphasise the intricacies of labour and firm matching, dynamism of smaller fast growing cities and of the urban core (attracting key services).

Human Capital

Human capital, like school performance improvement, has seen slower progress when compared to infrastructural investment. Policymakers advocate capitalizing on Northern universities as contributors to learning, especially in areas like science and technology, and as employers themselves. Successful models from the South, like Cambridge’s Silicon Fen, where knowledge intensive companies benefit from educational externalities, can be tailored to fit the Northern context.  In areas like healthcare, King’s Fund found that whilst decentralisation does not reduce costs, it has potential for improved quality of service, as seen in Manchester (The Economist, 2016b).
Innovation and business links to human capital with regards to innovation through university partnerships such as the N8 Research Partnership. Innovative technologies can also be better capitalized, like the world’s first tidal turbine launched in Belfast, speculated to drive “future green growth”(Joseph Rowntree Foundation, 2009). Such innovations can spearhead the new wave of environment focused urban (Alexandra Jones, 2016; Centre for Cities, 2016). As, Dickinson and Cox (2016) find, the “North in particular has world-class energy assets, kit, know-how and people” and should capitalise this given changing policies related to energy production and distribution in context of Brexit.

Finally, in terms of leadership and policy development, decentralization has started a new city-mayor wave, seen in Manchester and Birmingham. Local political representation and autonomy has various benefits. Economically, devolution is giving Northern cities greater fiscal autonomy, say in trade negotiations, and wider access to global production networks. This is essential in the context of changing EU relations post Brexit.

Proponents have suggested numerous policies as part of the Northern Powerhouse agenda. These include the Northern Negotiating Committee (experts speaking on behalf of the North like in Brexit negotiations (Dickinson and Cox, 2016), Council of the North (Ward, 2011), Northern Powerhouse Independent Economic Review Committee (Dickinson and Cox, 2016) and other forms of enabling institutions for policy development. Cox et al. (2014) suggest a devolution roadmap leading to legislation like the Scotland and Wales Act. Furthermore, Cox and Raikes (2015b) highlight the need for transition from low knowledge to high knowledge pathways, or a place and skills based turnaround of Northern cities.

Yet, there are various drawbacks of decentralization. The lack of a cost benefit analysis means value-added of policies is very hard to gauge. For example, place-based policies may merely lead to out-migration of the poorest from regenerated areas. Moreover, the sustainability of some government initiatives can be questioned given their reliance on subsidies. Heavy involvement of the public sector also risks crowding out private investment.

Given the post-Brexit risks like slump in infrastructure and businesses relocation, Northern cities face great challenges. This is primarily due to low capacity of devolved institutions. For example, different standalone devolution ‘deals’ have resulted in lack of a “coherent response”(Dickinson and Cox, 2016). Moreover, political discontent with Westminster (reflected in Northern Brexit vote), may make securing EU funding more challenging. To this end, LEPs should provide sub-regional responses to Brexit. However, since the North has 11 LEPs, coordination may be difficult, especially when competing against Southern LEPs wishing to secure their best interests.  In such cases, preferential treatment may be given to London over Northern banking and finance cities like Leeds or Liverpool.

Conclusions

Overall, decentralization can be a viable means of overcoming differences of the past. Cox and Raikes (2015c) estimate that if the North was able to halve the gap between its own economic output per head and the national level, then its economy would be £34bn bigger. This may seem overly optimistic given Northern cities’ path dependency. For example, many towns have historically relied on large MNCs like Nissan in Sunderland. Politically, changes seem infeasible with a rejection of the global economy witnessed in a strong Brexit vote; cutting off the nose to spite the face given Northern towns’ dependence on EU trade and subsidies.

This beckons policy response. Critics contest the extent to which global drivers of economic growth like investment, skills, and connectivity, will be altered by Brexit. Nonetheless, Brexit is a key opportunity for the North. For example, it can collaboratively negotiate deals with Scotland  like “enhanced borrowing and taxation power for local authorities, developed management of immigration, free ports, research and innovation functions and improved transport connectivity”(Dickinson and Cox, 2016). Northern cities like Manchester should indicate that they are open to business, as London has.

Whilst it is conceded that some problems are better addressed at the national level, there are many local initiatives Northern institutions can take. Most policies so far have encouraged “replication” as opposed to reinvention”, with novel ideas being scarce, as per the Centre for Cities. Thus, decentralization must be accompanied with contextualization of the problem. This includes getting the scaling, funding and timeline of need-based programmes right. This is reflected in initiatives like Cox et al. (2014)’s “ten year plan” and suggestion of a change in spending. They show up to £50bn can be used to leverage even greater private investment for the North. To this end, decentralisation provides an opportunity to empower local leaders whilst driving change through private sector partnerships.

There is no question that regional urban disparities across the UK have accentuated challenges faced in moving towards a balanced economy.  Disparities have been exacerbated by austerity measures, economic downturn and Brexit uncertainty. At the same time, past policies like RDAs and LEPs have had limited success. In view of this the Northern Powerhouse may be a viable answer. Whilst path-dependent factors are fundamental drawbacks such as infrastructural decline, strong local institutions can deliver context relevant change, providing a first step to overcoming the differences of the past.

 

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