George Hawks may well have been the mayor of Gateshead but his contribution to economy and society was in no way constrained to this place. He borrowed ideas and technologies from much further afield: the Naysmith’s steam hammer which was so critical to his company’s success was bought from Patricroft in Greater Manchester, invented by a Scottish engineer, but it was a technology first perfected in Le Creusot in France.
Indeed, much of Hawks’ success was predicated on the idea that Gateshead needed to be connected to the wider world. He first fashioned the production of railway carriage wheels for the booming railway industry of the mid-nineteenth century. And he was the man who laid the final piece of steel – produced at his own steel works – in the High Level Bridge which in many ways is symbolic in linking Gateshead to the wider world.
By drawing attention to what Hawks recognised all those years ago, I am setting out one key strand of my argument here this evening: Gateshead has been, continues to be and indeed will always be a place that is connected up with the wider national and global economy. And I want to show that thinking about the North’s contribution to the global economy is essential in forging the new kind of rebalanced and responsible capitalism that at present so many people are looking for. And that without thinking hard about those connections and new technologies and indeed new forms of leadership that were paramount for Hawks, Gateshead – indeed the whole of the North East – risks getting left a long way behind.
But let me bring us right up to date with a bit of context too. As we meet here today, Lord Adonis and his small team of commissioners are beginning to put together a new economic strategy for the North East. The North Eastern Independent Economic Review has been meeting and gathering evidence for several months now and for those of us who met two weeks ago in the Baltic to hear about its progress, I am sure that you will share with me the sense that this will probably be the most serious and important contribution to thinking about regional economic development in several years.
And it comes at a time when thinking and strategizing about economic growth is so badly needed. Not only does it feel as though the economic chill that began back in 2007 and 2008 in the financial markets is still blighting us here in the North today, but policy-making to help turn around the present situation seems to have been both thin and piecemeal.
In recent years we have seen a number of policy developments such as City Deals, Enterprise Zones, the Regional Growth Fund and some welcome promised investment in transport infrastructure. But whether you believe that policy-making is a very weak tool for influencing the global economy or whether you believe that this government has failed in its attempts to rebalance the economy, the results are the same: a stagnant economy.
Which is why I have long believed, that in actual fact the only way to really make a difference to our economic situation is for the people of the North to do things for themselves. To this end, nearly two years ago now, IPPR North established the Northern Economic Futures Commission – 16 men and women from across the North of England, largely from business backgrounds – who sought to come up with a 10-year strategy for economic growth across the North of England. Our full report was published at the end of last year and although the Commission has now disbanded, it remains the key focus for IPPR North’s work in the months ahead and I want to spend a few minutes now articulating some of its key arguments.
The Commission set out a number of propositions which we believe are vital to our understanding of the Northern economy – indeed the national economy!
The economic fortunes of the North of England are too important to be ignored – our economy is twice the size of that of Scotland and if it were a nation in its own right it would be the 8th biggest in the EU – bigger than Sweden, Belgium and Denmark.
The North also holds huge potential. Places like Leeds, Sheffield, Newcastle-Gateshead and Manchester have been leading the way but are still smaller than second tier cities overseas and sectors like advanced manufacturing, biohealth and renewable energy all hold huge potential for growth. The North also holds the key to a more resilient and sustainable national economy, less dependent on financial services and with an abundance of natural assets – land, water and energy.
So what’s holding the Northern economy back? There are significant disparities between the North and the south of England which date back well over a century, in part they are a function of our industrial past which still needs to be transformed, but they are also the result various waves of regional policy and a self-reinforcing policy bias towards our capital city. This is why one of the key themes of our report is the need for a radical decentralisation of economic development powers and funding. We also think that we should stop comparing ourselves with London and the south east and instead look further afield for similar regions with which to compare our progress.
So the Commission set out a clear vision:
We believe that the north of England is capable of taking its place in the ranks of the most successful northern European economies, with competitive companies trading in global markets, a fully employed and well skilled workforce, and strong civic leadership that supports growth and shared prosperity.
If the UK is to rebalance its economy towards higher business investment and stronger export performance, it is essential that the North is at the forefront of economic change.
So how do we get there?
Put simply, there is no proverbial silver bullet, but that is not to say we don’t know the kind of economic drivers that are particularly important in a region like the North East. Recent OECD research has provided quite a sophisticated understanding that getting the right mix of economic drivers for a particular region is key – simply pumping in infrastructure funding and hoping does not work.
So based on the OECD research, we have put together a framework for Northern Prosperity which starts with a call for good jobs and skills but goes on to look at innovation and business growth, natural assets and infrastructure, finance and investment, and the institutional environment necessary to drive growth. I’d like to look briefly at each of these in turn.
First of all, we have calculated that we have to increase private sector employment in the North by 500,000 people in the next decade. Unemployment is currently running at 9.6% - this is 2% higher than the rest of the country and we have to tackle this to stop the welfare budget getting any higher which leaves the North so vulnerable to what you might call ‘fiscal attack’. The proposals in the Commission’s report go a long way to reaching this number but this is first and foremost a challenge to Northern businesses and just as George Hawks and his fellow Victorian industrialists saw part of their vocation as the need to create employment, so we need businesses in the North to recognise the signs of the times and consider jobs growth as equally, if not more important than, making returns for distant shareholders.
Similarly we also need a focus on quality jobs – particularly in lower level jobs such as childcare and elderly care. As part of this, we need to double the number of young people in advanced apprenticeships. At the moment there are too many intermediate level apprenticeships which are not good quality and aren’t targeted at the growing numbers of young people who are unemployed. We also need an expansion of pre-apprenticeship training so that employers are more enthusiastic to take apprentices on
One of the most important things we know about driving economic improvements in areas like the North is that skills are critical. Last week we published a new report making the case for a more localised approach to skills policy with a significant proportion of skills and welfare to work funding devolved to local authorities and their partners across LEP areas. In turn they need to develop vocational centres of excellence linked to their local economic strengths and they need to bring together employers and training providers in local employers networks around key growth sectors.
Whilst my basic research about Mr Hawks hasn’t thrown very much light on the HR policies of Hawks, Crawshays & Sons Ltd I have very little doubt that they would have taken a very proactive approach to skills development and training within their company and would not have looked to the state to serve up ready-made engineers for them. I’m sure there is something for our business colleagues to learn from this.
Secondly, we know that innovation is critical to long-term success – in the Commission’s report we have identified a number of sectoral specialisms where the North might enjoy some comparative advantage – especially in terms of its export potential.
But the problem is that most Local Enterprise Partnerships are identifying similar priorities. It is our view that rather than compete with one another, there needs to be greater collaboration between LEP areas to identify and invest in a small number of key ‘innovation assets’ and to ensure that we co-operate between places to ensure that supply chains are developed across a wide geography and around a variety of different technologies.
So we have recommended the formation of a Northern Innovation Council which brings together businesses, universities and local authorities from right across the North of England. Sadly, the Chancellor would appear to have squandered the proceeds of the sale of the 4G spectrum which would have been ideal for this purpose but we believe that such a Council should have at its disposal a significant endowment to invest in these innovation assets without having to keep going cap in hand to central government.
And whilst the Commission didn’t want to prescribe too many new ‘structures’ – in fact there are only three – it did also argue for a Northern Investment and Trade Board. This would have greater engagement with UKTI and could be instrumental in some significant changes to the way that UKTI is currently working to attract more foreign direct investment back to the North. It could also make sure that we’ve got some big projects ready for investment at the kind of scale that will have a significant regional impact.
Thirdly, we know that infrastructure is a vital driver of growth and in recent times the north has fared very badly in comparison with London and the South East.
IPPR North has made significant headlines for its analysis of the 2011 National Infrastructure Plan and the startling divide in projected spending on transport projects between London and the rest of the country. Well, I can reveal for the first time this evening that the 2012 National Infrastructure Plan is not much better, with every man woman and child living in London likely to have 100 times more money spent on them in the years ahead than their counterparts in the North East.
In part this requires a re-examination of the way government allocates transport funding. But the most significant thing that government can do is to decentralise significant amounts of transport powers and funding: some to existing local authorities and Passenger Transport Executives; and some to a new body – Transport for the North – which we believe should take power over the northern rail and transpennine franchises, the major hub stations, rolling stock and smart ticketing.
There is already an initiative of this nature being led by Manchester and Leeds and whilst there is surely going to be devil in the details, I think there is a very strong case that the North East should get on board before that particular train pulls out of the proverbial station.
Housing is another key area which can stimulate economic growth but at present far too much housing funding is spent on housing benefits and far too little on house building. For this reason IPPR has recommended the decentralisation of housing benefit funding and capital funding into a sub-regional housing fund. This fund could be used flexibly by local authorities both to subsidise rents but crucially to build more affordable homes.
This is no quick fix solution but we believe that by putting power and finance into the hands of our city regions we have a much greater chance of addressing the specific needs of local housing markets than by trying to transform the housing agenda from the corridors of Whitehall.
Fourthly, there has been much talk in recent times about boosting access to finance and investment in infrastructure through the formation of a British Investment Bank. This is a good idea but that it needs a sizeable endowment – much bigger than the £1bn that Vince Cable has so far promised. And we also want to make sure it has a clearly identifiable regional allocation of funds which can be directed according to strategic funding priorities in the North.
We agree with Michael Heseltine’s proposal that we should devolve a wide range of different government funding streams into a single pot for economic development for local enterprise areas. Unlike Heseltine we believe this should be allocated according to a transparent formula rather than by competitive tendering.
But the fundamental problem with driving investment – public and private – is that we depend too heavily on London. If we consider the public finances – only about 12 per cent of sub-national taxes are raised and spent in the local areas in which we live. This means that we have to look to London for our house-keeping money – and when London decides to turn the tap off or go on a bender there’s not a lot we can do.
Rather than being like Romania or Bulgaria – as we are in this chart – we need to be much more like Germany and Sweden where local areas raise as much as half of their own budgets through local tax-raising and charging powers.
Before I come onto the final aspect of the framework for Northern prosperity allow me to recap for a moment:
An onus on Northern businesses to create jobs, apprenticeships and improve skills; a more localised approach to the skills and training system; greater co-ordination across innovation, trade and transport; rebalancing national funding for infrastructure, science and technology; and greater local fiscal autonomy.
These are the things that we know will drive growth – these are things that George Hawks would no doubt have understood then and advocated now.
But before our spectacles become too rose-tinted allow me to say a few things about the implications of all of this for the North East – and Gateshead in particular.
There is a lot of talk in the North East about its manufacturing and export strengths. Whilst it is true that the region – and Gateshead in particular – do indeed have many companies that are world leaders in this regard, we need to exercise caution not to overstate these strengths or to ignore the signs of the times.
Whilst advanced manufacturing must be part of the North East’s future and there are many benefits that ‘high-end’ skilled jobs bring, manufacturing jobs continue to decline and – as with elsewhere in the country – the North East must look to business and professional services as the mainstay to future jobs growth. UKCES Working Futures projections show that manufacturing jobs will fall by more than 5000 in the years to 2020 whilst business and professional services are due to grow by 38,000 in the region and we must not take our eye off this ball – or the relationships between manufacturing and service sector jobs - if the majority are to benefit from growth.
And there needs to be similar circumspection about the North East ‘punching above its weight’ in relation to exports. The North East is indeed the only region in the country with a positive balance of trade. But put in context, this is almost entirely dependent upon one company: Nissan. Without vehicle exports, the positive balance of trade for the third quarter in 2012 was around £400k – less than half a percent of the quarter’s total exports. Again, three cheers for Nissan, but let us remember the consequences of being too dependent upon a single firm and its supply chain and not be complacent about our export performance in other sectors too.
My third word of warning concerns scale. As we have analysed the region over numerous years now, graph after graph, stat after stat shows the North East looking quantitatively weak alongside every other region. This is no surprise: it is so much smaller. In population size it is half the size of Yorkshire & Humber and around a third as big as the North West. This is mirrored in its economic output. For public and private investors alike, it is not so much regional prejudice that inhibits their interest in the North East, far more the fact that investment opportunities elsewhere offer so much greater scope.
It is for this reason that pan-Northern collaboration becomes so important for the North East. Strong local and regional identity may well be an asset, but it can also be a hindrance if it means that the North East fails to recognise the importance of allegiances with the other big cities of the North – or indeed Scotland. In the past we have seen parochial loyalties blocking and fudging good decision-making in the North East, and too often we have heard Leeds and Manchester treated as threats rather than opportunities, predators rather than partners. This I perceive is now changing, which brings me to my final topic: leadership.
Governments across the centuries have deployed divide and rule tactics to subject distant administrations to the wishes of the centre. And this government has been no different. The destruction of the Regional Development Agencies and other regional offices and their replacement with Local Enterprise Partnerships – stripped of any real capacity to drive economic growth – has been at best a disruption and at worst a crude ploy.
But now is not the time to change things once again, LEPs – including the one here in the North East – are now beginning to find their feet. In many respects they do represent better geographies than RDAs ever did, and what they need now more than anything else I think is our support – not as the only decision-making body for the region but as a vitally important one.
Whilst the models of governance are slightly different in each city region, it is clear to me that there is huge merit in some form of combined authority working closely with the LEP Board to develop and deliver a local economic strategy. And, if combined authorities, city regions and LEP areas are going to get all of these new powers then they need to be clearly accountable and more democratically run.
I note with interest that George Hawks was the mayor of Gateshead – so somewhere in its proud history, the people of the North East believed in mayors! Whilst I share the popular opinion that toothless city mayors of the sort offered last May are not what we want, I do advocate the idea of a metro mayor who – like Boris Johnson – has wide ranging powers, hard and soft, and who can speak up for the city region in a way that at the moment seems impossible.
And wider than this, I believe that if the whole of the North of England is to compete with the Mayor of London or the First Minister in Scotland to get its priorities heard then it needs to speak with a more coherent voice. Whilst I don’t think there is a particular desire for a ‘Council for the North’ there would be value in an annual Northern Leadership Convention which would be followed by an N11 Leaders’ Summit comprising one business leader and one political leader from each of the 11 northern LEP areas. In the model developed by the Northern Economic Futures Commission it was suggested that such a summit could develop an annual communique setting out key Northern priorities and it could be led by an chair elected for a four-year term.
Together, I believe these recommendations constitute a serious and systematic strategy to drive economic growth in the North.
They are not all targeted at central government – in fact many of them are things we can do for ourselves without the need to go begging to London.
And they aren’t particularly expensive. In most case additional investment comes as a result of better prioritising and rebalancing existing national spending.
So what would George Hawks make of them? Well that we’ll never know. But one thing we can be sure of is this: the contribution that George Hawks made in Gateshead had a clear and consistent benefit to the national economy that nobody would ever now doubt. He quite literally shaped the national economy of the nineteenth century. The opportunity is once again ours today: with some of the measures I’ve described here today, the north of England can reshape and remould 21st century capitalism so that once again all will see that northern prosperity is national prosperity.