Whitepaper: The Northern Powerhouse
The economic imbalance between the north and south of England is well established. The decline of industry in the north in the 1970s and 1980s hit hard and there has been no industrial resurgence or replacement. For this, and other reasons, economies in the north are not growing at the same pace as those in the south. In 2014, the Office for National Statistics established that the gap continues to widen – in that year the economy of the north grew by 3% while in London this figure was 6.8%. In response, the 2010 – 2015 Coalition government proposed an incentive described as the ‘Northern Powerhouse.’ While this was initially meant only to be a concept is has now begun to gather real momentum.
In this paper we will be looking at the Northern Powerhouse, its impact and the cities that it affects. We will also examine its benefits to the north in general, the advantages for the construction industry, as well as the potential impact of Brexit.
How did the Northern Powerhouse come about?
George Osborne coined the phrase ‘Northern Powerhouse’ in 2014, explaining it as a “a collection of northern cities sufficiently close to each other that combined they can take on the world.” Today, the concept has grown from just political catchphrasing to a true initiative. There is even a minister for the Northern Powerhouse whose focus is to encourage investment in the major cities of the north of the UK, including Manchester, Leeds, Hull, Newcastle, Sheffield and Liverpool.
What does business in the north of the UK look like?
Private sector businesses in the north number 1+ million and every year this part of the country exports more than £50 billion of goods globally. Many view Manchester as the unofficial capital of the Northern Powerhouse – although residents of cities such as Liverpool and Leeds may not agree. London remains the focal point for UK business and northern business owners often have to travel south in order to expand and grow. As a result, northern cities are inconvenienced, isolated and also experience an ongoing talent drain of young people to the south, where all the opportunities are seen to lie. Investment via the Northern Powerhouse is designed to reshape this.
The component parts of the Northern Powerhouse
The underlying idea behind the Northern Powerhouse is to drive more investment into core cities in the UK – in GBP amounts that are higher than cross-UK averages. This investment is spread across a number of different key areas that will benefit businesses in the area, including:
Education – £70 million has been allocated to the Northern Powerhouse Schools Strategy to increase educational opportunities in the region.
Innovation skills based development – millions in investment money has been funnelled into a range of research institutions, including the Graphene Institute, the Sir Henry Royce Institute in Manchester.
Transport infrastructure – around £13 million has been allocated to improve transport infrastructure between the major cities of the north.
City links – cash is being funnelled into roads, railways and airports to provide more connectivity between the cities of the north, as well as other regions in the UK.
Digital infrastructure – part of the Northern Powerhouse agenda is to ensure that increasing numbers of homes in the north of the UK have access to superfast broadband.
Devolving power – local authorities in northern cities are to be given a wider remit to make decisions about local areas and where investment monies should be allocated. The first step is the allocation of budgets to the mayors of various northern cities who can choose where to channel resources based on their own local knowledge.
Growth deals – around £3.4 billion is being channelled via the Northern Powerhouse into growth deals, which will provide the necessary support for local projects and help to boost economic growth in the area.
The property market – properties in the north are notoriously cheaper than those in the south. 6 of the Top 10 cheapest places to buy (as identified in 2016 Savills research) are located in the North West. The knock-on effect of increased growth in the north is predicted to be significant when it comes to property. Both residential and commercial properties are likely to experience a significant boom as more businesses and people turn north for business opportunities, as well as more affordable homes. The effect on the construction industry should be noticeable.
The true impact of the Northern Powerhouse
The main premise of the Northern Powerhouse is to encourage business growth across the whole of the north of the UK. However, the key question is whether this new initiative will really impact right across the north or simply affect those living in the big cities where the growth might be easier to achieve. Concerns have been raised over whether the strategy behind the Northern Powerhouse embraces any of the smaller towns in the north of the UK. Many of these smaller locations are not currently that well equipped for exponential growth – for example, Leigh (15 miles from the centre of Manchester) doesn’t even have a railway station.
For the Northern Powerhouse to be truly effective it needs to reach out to the less well-populated areas. Currently, even news of the initiative has not reached that far, with less than a third of those living in the North of England telling a BBC commissioned survey that they even knew of the Northern Powerhouse. Among those who do have knowledge of the scheme there isn’t much confidence in its ability to deliver – only 50% of people agreed that the Northern Powerhouse could really have the intended impact on the economy of the north. This is something that the government needs to address, as it is crucial to the successful impact of the scheme to educate local people about the benefits of the Northern Powerhouse, as well as the opportunities it offers – so that everyone can have a say in decisions and resource allocation.
Achieving a power shift
On its own, the provision of resources to cities to unlock the great potential they have to grow and improve is not enough. What is notable about the Northern Powerhouse initiative is that it also involves a switch to more local control to areas in the north. Instead of decisions being made 200 miles away in London, local northern politicians will be given a much greater degree of control over the handling of Northern Powerhouse investment finance. 82% of people in the north agree that this is a good idea, putting decision making control into the hands of those who live and work in the area, as opposed to London politicians with no personal investment.
Competing with London – and beyond
Although the initial aim of the Northern Powerhouse was simply to reduce the imbalance between north and south on an economic basis, the objectives for success have now gone much further. Investment in infrastructure, transportation and housing to boost development and growth in the area is designed to help major northern cities rival the success and global impact of London. According to Tom Forth, an associate at ODILeeds, part of the Open Data Institute, “Each city in the North is too small to fight against that. We can only drag some of that investment northwards if we work together.” However, London isn’t the only target for the initiative – some hope that the Northern Powerhouse will result in cities in the north also becoming rivals to other European cities and economic areas.
The reality is that the kind of change the Northern Powerhouse is driving simply doesn’t happen over night. High speed rail links, roads, tunnels and digital infrastructure, for example, can take years to implement. The hope is that although many of those living in the north of the UK have yet to be impressed by the scheme, in the coming years and months this will change as the impact begins to be felt.
The impact of Brexit on the Northern Powerhouse
It’s impossible to evaluate any new scheme that has come into play over the past couple of years without considering the impact that Brexit could have on it. In theory, a renewed focus on what lies inside British borders should result in a further boost for schemes such as the Northern Powerhouse which seek to drive up growth in areas such as Manchester, Liverpool and Leeds, competing with the power of London. However, the reality of Brexit is that it presents a big obstacle to growth in the north of the UK.
The end of European investment. Between 2007 and 2013, the European Regional Development Fund (ERDD) and the European Social Fund (ESF) invested 9.8 billion Euros in the UK and nearly 2.9 billion of that went to three regions in the north of England. Although Brexit negotiations have yet to conclude, it’s highly likely that this is now the end of any future investment from European sources.
A stall in job creation. EU investment created 700,00 jobs in the north and was used to improve training and regeneration to support improved infrastructure. Without this investment the north is unlikely to see the same level of growth or job creation and this could be a concern for the Northern Powerhouse, which may end up without a solid foundation on which to start building.
Combating the Brexit effect
With EU resources now out of reach, the UK needs to find a way to combat the Brexit effect. The Northern Powerhouse could contribute significantly to the broader promotion of UK trade and investment, helping to make up for the lost EU support. If the initiative is a success then cities in the north could play a much more active role in supporting the UK economy and making the country a more attractive location for investors. Currently, the north of the UK makes up around a fifth of the total UK economy. However the stimulation of the Northern Powerhouse could greatly increase this.
The Great North Plan (GNP) is another initiative that has also been put into place and, together with the Northern Powerhouse, could significantly boost the size, growth and impact of counties in the north of the UK. The GNP is designed to provide a boost to northern growth with the IPPR North and RTPI working together with the UK government, as well as northern authorities and businesses, to drive change and channel resources into this part of the country. As far as making up for the Brexit effect goes, the GNP and the Northern Powerhouse could be an important part of the plan.
The process of Brexit: uncertainty rules
Although the potential final impact of Brexit is still up for debate, what is obvious is that this huge political change is currently responsible for a vast amount of uncertainty. However, what is clear is that the UK is going to have to use the time before the Brexit hammer finally falls to continue to develop an economy that is strong in its own right. Already, changes since the EU referendum took place have shown that the Northern Powerhouse remains a priority – such as the appoint of the new Northern Powerhouse Minister Lancashire MP, Jake Berry. This is a hopeful sign that the Northern Powerhouse will continue to gather momentum and contribute towards a stronger economy for the UK as a whole.
Although relations with the EU could be more difficult post-Brexit, it may well open up avenues with other countries. China, for example, may see more opportunity to invest in UK infrastructure and transportation. So, while there is highly likely to be a period of transition once Brexit has been finalised, the opportunities for attracting investment after Brexit are not altogether minimised, particularly where the construction industry is concerned.
The north needs to respond
Brexit will have an impact on the construction industry and in the context of the Northern Powerhouse this is particularly focused on the housing market. London is a hot spot for unaffordable housing, principally because of huge shortages. The UK needs more housing and development in northern cities to reduce this pressure on the capital. It may also require northern firms and workers to respond to the talent shortage that the industry faces – which is likely to be exacerbated by the fact that the UK construction industry will no longer have a cheap and plentiful supply of workers from the EU.
Why recruitment into the construction sector is now vital
In a very unpredictable political situation, the Northern Powerhouse highlights one very specific task for the construction sector: recruitment. From failing to recruit millennials in large numbers, to a lack of training and skills programmes, there are many ways in which the sector could do better. The twin focus of the stimulation of the impending Northern Powerhouse and the pressure of Brexit could provide just the right incentive for the construction industry to start firing on all cylinders.
The link between the Northern Powerhouse and the UK construction industry
The main knock on effect of the Northern Powerhouse on the UK construction industry is likely to come from growth. Growth in the economy of the north will result in an increase in the need for development of housing, infrastructure and commercial and retail projects – as well as renovation and refurbishment. This presents a real opportunity for UK construction sector businesses.
After the EU referendum, the construction industry felt the same seismic shift as many others with uncertainty the overwhelming feeling about the future of the market. In construction one of the biggest fears has been a loss of funds for commercial property projects, as well as general uncertainty over a post-Brexit UK economy and where resources for the construction sector will come from. The Northern Powerhouse could help to restabilise the sector.
However, it’s also possible that the reverse could be true – if the funding is cut for the Northern Powerhouse then the UK construction sector could also suffer. As economies in the north are already predicted to be some of the hardest hit by the EU withdrawal, protecting the Northern Powerhouse initiative may be even more crucial.
Supporting the Northern Powerhouse
So far, the UK government seems entirely committed to the Northern Powerhouse vision. Not only has a new minister been appointed but, since the EU referendum, a devolution deal for Sheffield has been signed off, indicating that it is all systems go in terms of fulfilling the promises of the Northern Powerhouse, such as putting more power in the hands of local politicians.
At RG Group we understand the importance of the Northern Powerhouse, both for the wider UK economy and also for our sector as a whole. We are strong supporters of the initiative and the opportunities it offers for construction companies to get involved in new schemes for development and growth in the north. We believe that this won’t just boost the economy but also help to create jobs and revitalise communities in areas in the north. It could also play a key role in helping to reverse the drop in worker numbers in the construction sector and open up a wide range of new opportunities for construction sector businesses to fulfill.
Stay up to date with any development with the Northern Powerhouse and other government initiatives by getting in touch with The RG Group today on 01732 526 850.