The ‘Northern Powerhouse’ Could Help Solve The ‘Productivity Puzzle’

Roy Beckett, Partner and Head of Business Legal Services at Irwin Mitchell in Manchester.

The Government’s plan to create a ‘Northern Powerhouse’ could provide a long-term answer to improving productivity within the UK.

Since the General Election result over a week ago, the Northern Powerhouse concept has started to hit the headlines again with the Government looking keen to ensure the momentum for its flagship initiative isn’t lost.

Already the Prime Minister, David Cameron, has appointed Teesside MP James Wharton as the minister responsible for helping to boost the economy of the north.

This was followed by George Osborne claiming that his ‘door was open’ to other large cities that were interested in following Manchester’s lead of having an elected mayor in return for greater powers over housing, transport, planning and policing.

The speech, Osborne’s first since the General Election result, highlighted that a Cities Devolution Bill will be in the Queen’s Speech later this month.

These announcements interestingly coincided with the Governor of the Bank of England, Mark Carney, stating that the key to UK wide economic prosperity is an improvement in productivity.

Commenting on the state of the UK economy, Mr Carney said: “Going forward, growth in the UK economy’s potential will increasingly depend on productivity. . . In the meantime, productivity growth – doing more with less – is the key determinant of income growth. Our shared prosperity depends on it.”

According to statistics from the ONS, UK labour productivity in 2013 was 17% below the average of the group of seven leading nations – the widest gap in more than two decades.

ONS figures also show that the UK’s GVA in inner London stands at £71,162, whilst in other large cities in the north of England it is much lower. In Leeds, for example the figure stands at £26,742, in Liverpool it is £22,613 and in North Manchester, GVA is just £14,375.

It is clear that the economy as a whole needs to become more balanced, but also productive.

Although there is uncertainty within the Bank of England in relation to why productivity is still lagging behind where it should be, as well as when it will start to improve, the debate does highlight the importance of attempting to redistribute wealth and investment into the north.

The Northern Powerhouse has the potential to allow the region to work closely together, attract skills and investment and essentially use its expertise and strengths in a more effective way which can generate wealth for the region.

The productivity gains which could be achieved through this investment and allowing large northern cities to be more in control of their own destinies is vital. From my point of view, the Northern Powerhouse initiative is crucial and should be a priority for the new Government.