UK: ECONOMIC TRUTHS - North and south are poles apart - With every economic boom optimists predict that the ...

UK: ECONOMIC TRUTHS - North and south are poles apart - With every economic boom optimists predict that the ... - ECONOMIC TRUTHS - North and south are poles apart - With every economic boom optimists predict that the UK's poorer regions will catch up wi

by DAVID SMITH, economics editor of the Sunday Times.
Last Updated: 31 Aug 2010

ECONOMIC TRUTHS - North and south are poles apart - With every economic boom optimists predict that the UK's poorer regions will catch up with the wealthier ones. But it's not going to happen.

The big picture for Britain's economy for the past couple of years has been that, while manufacturing has struggled, the services sector has continued to prosper. Had the UK been a manufacturing-only economy we would have had a serious recession. We aren't, so we didn't - services saved the day.

Within that bigger picture, something else has been happening. For many parts of Britain, when manufacturing goes down with a dose of flu, the whole regional economy suffers. In the Southeast, the effect is no more serious than a bout of hay fever. Britain's tale of two economies means that the north-south divide has grown, probably to its widest-ever level.

In 1989, at the height of the 1980s boom, gross domestic product per head in the Northeast was just over 77% of that in the Southeast excluding Greater London. Now it is 73%.

The differences appear to be less stark than before, however, in terms of unemployment - always the most potent measure of regional differences.

Unemployment in the Northeast at time of writing was 9.3%, well above the Southeast's 3.8%. But other northern regions, such as the Northwest (6.3%), did not appear to be faring so badly.

Unemployment, however, is only one measure of labour market differences.

Employment rates - the proportion of people of working age in work - are substantially higher in the Southeast (nearly 80%), compared with northern regions. In the Northeast the figure is just 66%.

We are also seeing significant migration from parts of the North to the more-prosperous and economically vibrant South - Britain's famously immobile workers are discovering some geographical mobility.

The 1999 mini-boom in the housing market has once more been led by London and the Southeast, where average house prices are roughly double those in the Northeast and Northwest.

Many people, confronted with the evidence of a widening north-south divide, will argue that there is a significant tortoise-and-hare quality to this debate. The South speeds away but then gets into trouble, giving the more-cautious North a chance to close the gap.

In the late 1980s, when I wrote a book called North and South, we were at one of those points where the southern hare had raced away. By 1994, when I revised the book, the northern tortoise had made up some of the difference.

So it has been throughout Britain's 20th-century economic history. In the 1930s, when coal, steel, cotton and shipbuilding were giving the North such a grim time, the South's new industries were booming. In the inter-war years, the Southeast enjoyed a massive housing boom.

We have been here before, but each time it is different. In particular, the northern tortoise never quite makes up the ground it lost during the previous boom. At each peak, the southern advantage is even bigger than it was before.

Moreover, there are forces at work which will tend to widen the divide and which are more powerful than before. The first is the increasing economic importance of the City of London, which enjoys a dominance in European financial markets out of all proportion to Britain's economic weight.

That dominance, in terms of the wealth and high-salaried employment it brings to the Southeast, is a huge factor in determining regional differences.

Bigger still, however, is the pull of Europe. The idea of Europe's pull on southern Britain is long established. When the UK joined the then European Economic Community in 1973, the talk was of a 'golden triangle' with Milan, Lyon and Birmingham at its points. Now a more popular idea is of a 'hot banana', stretching from Milan to London, and taking in northern Italy, southern Germany, southeast France, the Ruhr, the Ile de France, Belgium, the Netherlands and southeast England. In Britain, then, the hot area of the EU has moved southwards.

This does not mean that the rest of Britain misses out, just as it does not mean that Spain or Ireland fail to benefit from European integration.

What it does mean, however, is that the South's existing advantages will be bolstered by this European dimension. Britain's clogged transport system - although the channel tunnel is plainly not the only route to the Continent - will add to the relative disadvantage of the North.

If I had written this three years ago, I would also have noted the effective abandonment of regional policy. Under the present government, of course, this is no longer valid. Devolution for both Scotland and Wales, along with the coming regional development agencies, will reintroduce a significant regional element into government policy.

Will they be enough to tilt the balance back? I doubt it very much. Even supporters of regional policy would concede that its main effect, even in its heyday, was to ease the north-to-south economic flow, not prevent it. As things stand now, the challenges are far greater, and the chances of success no better. The north-south divide is enduring and, it appears, inevitable.

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