Empowering the North is the key to solving the country’s productivity puzzle - Lord Jim O’Neill

As anyone who has read all 332 pages of the Levelling Up White Paper will tell you, addressing the UK’s long-standing regional divides is extremely complex, with many interconnected moving parts, much like a game of 3D chess.

However, the Northern Powerhouse economic vision has one very simple idea at its core. By uniting the North’s towns and cities into one cohesive entity, you would create a large single market, both for consumers and producers, indeed, one as large as London. By doing so, one by-product would be to attract far more global investment than each area acting in isolation – what’s known as agglomeration.

The North’s economic geography is unique. The relatively short distances between cities - particularly Liverpool, Manchester, Leeds, Bradford and Sheffield - are nothing to an investor from Asia or the US. With the right investment in transport, those distances become, in effect, even shorter - think of a Northern version of the Elizabeth line, which is already adding to the existing agglomeration benefits for London.

Taken as a whole, you’re looking at a much bigger (read “attractive to investors”) labour market and a much wider, higher quality pool of job opportunities, as well as for consumers. While, to put it mildly, there’s still some way to go on improving our transport, we have made huge strides in the mission to put the Northern Powerhouse on the global map over the past decade.

A report from the Northern Powerhouse Partnership (NPP) found that overseas investment into the North recently overtook the amount spent in London due to growth in the renewable energy, biotechnology and chemicals sectors. Foreign direct investment (FDI) into the North between 2017 and 2021 rose 72 per cent on the previous five years, despite dropping across the rest of the UK.

This meant the region increased its share of overall FDI into England, from 19 per cent to 33 per cent over the same period. The North – which makes up roughly 28 per cent of England’s population - is now punching above its weight and drawing in more inward investment on a per capita basis.

Data also showed this growth was supporting employment opportunities in the region, with the number of jobs created in the North from inward investment rising roughly 18 per cent.

This is encouraging news and will be key, if the trend continues, to boosting the North’s sluggish productivity - roughly 40 per cent lower than that of London and the South East.

As it stands, the North’s persistent economic underperformance remains a key driver of the country’s mammoth productivity problem. The UK lags way behind our OECD counterparts on this metric, with output per hour worked £47 compared with £56 in Germany and France, and £59 in the US, according to ONS data.

This isn’t just a worry for economists, it has massive implications for each and every one of us. Low productivity means lower wages, lower living standards, lower tax revenues leading to less money for spending on public services like schools and hospitals.

On Monday, the Northern Powerhouse Partnership (NPP) will set out a five-point plan to turbocharge our productivity and transform the economy at the annual Great Northern Summit in Bradford.

It’s an ambitious plan but a realistic one, with a laser-like focus on the fundamental drivers of growth - transport, education, skills, innovation, as well as the net zero transition.

We’re not shy about the fact that we want these policies to be adopted by parties in their election manifestos. This is a mission that will take decades to fix and we want to build that broad cross-party consensus to ensure the ambition of the Northern Powerhouse lives beyond any one election cycle. However, I would go even further and say we need to change the rules of the game entirely, overhauling our approach to investment spending and pushing forwards with a radical devolution agenda. For some time now, UK investment spending (both public and private) has languished near the bottom of the G7. There are a growing number of economists who have expressed concern over the impact of the government’s rigid fiscal rules, which have limited the government’s ability to invest in key infrastructure and public assets that stimulate growth. That has had a knock-on effect on the private sector and we’ve ended up with an anaemic growth rate that is too weak to boost revenues to underpin fiscal surpluses.

I also hope that what happens in Westminster becomes less and less important to the North over time as more responsibility is devolved to our growing number of metro mayors.

I will end on a note of optimism. We are starting to see the beginnings of a productivity resurgence in those parts of the North with empowered local leadership and improved transport links.

We’ve got a plan, now the real work begins.

Lord Jim O’Neill is chair of the Northern Powerhouse Partnership.