A Northern Brew

By Mike Emmerich & Irene Guillet

When there’s a beer named after a Government initiative, something unusual is happening. Thus it is with the Northern Powerhouse. What’s more, the beer in question, a first joint concoction of the Bradford and Leeds Breweries, is a deliberate homage to the spirit of intercity cooperation. And yet to a lot of people the Powerhouse is a failure (because the North-South gap remains) or a con (the work of a Chancellor bent on devolving cuts to gullible local politicians). A little over eighteen months after it was launched, this idea is consumer product, a failure and a conspiracy, or so some would have you believe. There is evidence to sustain only the first of these.

There are reasons to believe that the economy of the North is being harmed by cuts in public spending, and that austerity, far from delivering reductions in public spending, is generating additional and unaffordable social cost. But the process of building a Northern Powerhouse, of growing the Northern cities together to stimulate the economy, is without doubt one policy that makes economic sense. This is as evident for the experienced and worldly wise local politicians who have backed it as it is for the Chancellor. What unites them in supporting the idea is the notion that we have to carry on the process of rebuilding the Northern economy with some boldness of vision and action. More than this, local leaders recognise that we are starting something that is going to take a very long time. That is why the second charge above, that the idea is a failure, is so absurd. The purpose of this blog is to set out why this is the case.

As set out in his June 2014 speech, the Chancellor’s priorities for the Northern Powerhouse were governance change, supported by transport, science and culture. We now have an Act of Parliament enabling changes in governance, proposals for new science projects (albeit small ones) throughout the North, transport schemes initially paused but now back on track and with Transport for the North to take forward the next round, along with cultural investment planned in Manchester, Yorkshire and elsewhere.

But scarcely a brick has been laid. Hardly surprising eighteen months after an announcement and not bad by UK Government standards. A con? Hardly. Where the sceptics are right is that what has been announced thus far is small beer by the standards of what is going to be needed. So whether the Northern Powerhouse is a success or not is in the balance and will only be decided by the cities and regions of the North, along with the Government, thinking and investing at scale for a long time. To illustrate what this might mean, let’s take a look at the best example we have of a poorly performing part of the UK economy and its transformation into the most successful city in the world today: London.

Younger readers in the capital not inclined to read the extensive literature need only to talk to their parents to learn how London was indeed seen as a failure in the post war period. Using data on house prices and transport investment (and trying hard not to over infer) let’s look at the journey of the capital from failure to preeminent success.

To start with, the journey of the London economy’s renaissance is a long one. And it doesn’t begin with the Olympics, or even with Canary Wharf and the policies of financial deregulation in the 1980s. In fact, on one reading, the renaissance of London can be seen in the last gasp of old fashioned social democracy in the late 1960s and 1970s.

Even in 1969, London house prices were higher than those in the North. A decade later, before Margaret Thatcher had entered office, the trend of London pulling away from the North was already well established and has never really changed since. But looking at some of the big events that shaped the London we see today, the number of major transport and other major initiatives and the centrality of Government in each of these is really quite arresting. How important in this story, one wonders, was the impact of the Victoria Line opening in 1968 and the Jubilee Line a decade or so later? Most commentators see the 1980s as the decade when London’s transformation took place. The housing market data show why, and even more clearly how, since then, London has roared ahead.

The twenty years that separate the opening of the Jubilee line in 1979 and its extension in 1999 were a period of remarkable growth in the economy of the city. This tube line, the development of Canary Wharf and the DLR, the 'big bang' in the city and the opening of the Channel Tunnel rail link with direct services to Waterloo in 1994, to name but a few of the most obvious developments, all contributed to the flowering of London’s potential, the growth in its population and the massive increase in house prices seen in the chart. The gap is widening relentlessly and all of this is before the £15bn investment in Crossrail starts to pay off. 

So what are the implications of this for the Northern Powerhouse?

The first, to restate the point above, is that the foundations of London’s renaissance are nearly 50 years old and not just the product of Thatcherism in the 1980s. City building takes a very long time. On this reading any notion that the Northern Powerhouse is a failure is clearly absurd: the work is just starting.

Secondly, there is no one policy lever to make a successful Northern Powerhouse, just as there wasn’t in London. Policies are needed that facilitate growth, above all transport. But regeneration has a role to play as does policy to support key sectors, like the 'big bang' in financial services. The nature of industrial policy to support the North isn’t yet clear, but the job of working it out is upon us.

Thirdly, this is an expensive business. It is almost impossible to provide even rough estimates of the sums involved in London’s renaissance. But even once the scale of London’s economy, its roles as the growth engine of the nation and a global visitor attraction are taken into account, the disparity between the billions of serial annual investment in London and what is currently on the table for the cities of the North is large indeed.

To illustrate, the cost of station refurbishment of just two (albeit very large) London underground stations at Bank and Victoria, at over £1.2bn, would have funded much of the Manchester Metrolink system: track, trains and signalling. Sustaining growth in London isn’t cheap. Creating the conditions for it in the North won’t be either. And in case anyone wants to argue that the comparison between an underground and a light rail system is unfair, consider this: the rate of growth of commuting in Manchester is such that an underground system for the city should now be on the planning horizon.

So it’s clearly too early to say that the Northern Powerhouse is a failure. It will only be a con if as a nation we fail to heed the lessons that our great urban success story shows us are needed for the North to follow suit, that is: investment in the right things, at scale and for a very long time. As would-be Prime Ministers contemplate this, they might need a drink. A pint of Northern Powerhouse anyone?