Is the “Northern Powerhouse” really fuelling business growth?

If you follow business of politics at all you can't have failed to hear the term Northern Powerhouse: but is the rhetoric converting into action that benefits business in the region?

George Osborne used his first speech as chancellor of the new majority government to announce plans to transform the North of England into an economic “powerhouse” with an investment of up to £15 billion.

Since then, the “northern powerhouse” has become central to Osborne’s economic vision and personal political reputation, but over a year on, is it really delivering on the hype?

Steady progress

In some respects, it seems so. While media attention has focused on Manchester, there’s evidence that satellite towns in the North West region are also reaping rewards. Burnley, for example, has seen the benefits of infrastructure investment in the new Manchester direct train line, which is expected to result in a rapid £12m economic benefit for the town.

Osborne’s belief in the project also seems unwavering, as last month saw his confirmation that the Sheffield city region will become a “second northern powerhouse”, with its own elected mayor and a funding envelope of £30m a year for 30 years, even if this is a notably modest portion of £15 billion earmarked for public investment.

Questions of attribution

The centre of Osborne’s powerhouse, Manchester, also seems to be performing well. But whether the region’s economic health is really all down to Osborne’s ambitious plans is questionable.

>See also: Devolved business rates – local power or race to the bottom?

Although the International Festival for Business’ recent ‘Beyond the City’ report places Manchester as the seventh best employment hotspot in the UK, it also indicates that the city has been on an upward growth trajectory since 2010 – long before plans for the powerhouse were announced.

While stories such as Amazon’s new fulfilment centre are promising, it would be surprising for this decision to be a consequence of giving the Sheffield city region more administrative control at a public level, as the company has existing fulfilment capabilities based in the town.

More pressing concerns

There are also more pressing concerns over the progression (or lack of) of Osborne’s pet project. In June, plans were temporarily shelved for the electrification of the Trans Pennine railway line between Manchester and Leeds, an improvement that will have marked economic benefits for Northern England according to almost all feasibility studies.

Although the plans were ‘un-paused’ at the end of September, the delay and seeming favour towards the electrification of the London-Bristol line have not helped concerns.

A wider question remains around whether improvements to regional rail links with London should be prioritised over inter-regional ones. While these may support regional growth, they could just as easily create satellite cities, housing commuters that work in the capital.

Reductions in travel times from towns such as Milton Keynes and Luton, and the consequent movement of London commuters to these areas, are already causing house prices to rise. Such consequences in actuality detract talent from regional centres, drawing further talent back into London from the regions.

The Southern Powerhouse

A recent report from the Centre of Economics and Business Research gives reason for further unease. The report indicates that the economic divide between the North and South of the UK will continue to grow over the next decade, with small business revenues in London set to increase by £160,000 per business, compared to £65,000 for Northern enterprises.

This stark difference equates to a figure of £110bn. It seems that the chancellor’s plans still have some way to go if then they are to achieve economic equality throughout the UK by end of this parliament.

Addressing the imbalances

In reality, there are three things that will enable the North’s economy to begin catching up with the pace of Southern England’s. The first, and most important, is the investment in inter-regional connectivity and infrastructure, including airports, creating a trading area which becomes independent of London for growth.

>Related: How SMEs are making a home in the Northern Powerhouse

The second, is better access to finance, which at this point seemingly can only be achieved with the input of public funds due to private financial institutions relative lack of desire to lend to Northern England over Southern regions.

The final, and potentially most potent, would be to allow independent regions to have greater control over corporate taxation, attracting businesses to their respective city areas with regional taxation benefits.

This could be achieved by regions decreasing the corporation tax rate for businesses operating in their regions or, more controversially, creating an additional levy at the state level for businesses whose operations are exclusively or heavily weighted towards London – thus incentivising them to gradually move operations to more favourable jurisdictions.

If the chancellor really wants to create a sustainable “northern powerhouse” that is more than just hot air, the government needs to support SME growth – including most likely at least two of the three points above. It is only by having a supportive financial, as well as infrastructural, framework in place than the northern powerhouse will truly be able to fire on all cylinders.

Further reading: Strong regional investment focus in Budget

Praseeda Nair

Kellen Rempel

Praseeda was Editor for from 2016 to 2018.

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