Recession will widen north south divide

Eighteen months ago, we were being told that the credit crunch was a southern phenomenon, something which will hit the investment bankers in London but not necessarily the rest of the country. Not anymore.

According to the Centre for Cities think tank, the north is being hardest hit with what they call the marginal cities (such as Sunderland and Hull) suffering far more than the core cities (like Manchester and Leeds). Monthly unemployment figures seem to be confirming this trend.

This is one of the most bizarre and unexplainable trends of this recession.

So far, almost all the pain has been in the private sector – the public sector has been relatively insulated from the downturn. Yet, the public sector accounts for around two-thirds of economic activity in regions such as Wales and the North East. So logic would suggest that those areas should have suffered least. But this does not seem to be the case. The only explanation for this is that privately run companies in the marginal cities of the north are failing at much higher rates and laying off staff in much greater numbers than their counterparts in the south.

Over the next few years, the north will face another hammering – the inevitable squeeze in public spending – which will hit northern areas disproportionately more than the south. So the north faces a double whammy of private and public sector contraction.

In reality, the situation is far more complicated than a simple north south analysis. As the Centre for Cities allude, cities such as Manchester and Leeds have prospered in recent years and there is no reason why they will not continue to grow as the UK emerges from recession. Yet, it is difficult to see places like Grimsby or Merthyr Tydfil prospering.

Over the last sixty years, Governments of both parties have spent a huge amount of money on ‘regional policy’ – of encouraging and subsidising businesses to relocate to places like Grimsby and Merthyr. It has been a dismal and costly failure. One of the good things that could emerge from this recession is the realisation that such policies are in vain and provide no sustainable futures for such areas.

Instead, we could adopt a new approach where it is recognised that London, the corridors into London such as the M11 and the Thames Valley, and the core cities such as Manchester, Birmingham, Cardiff and Leeds are the UK’s economic powerhouses of the future. These need the capacity to grow with more homes, business space, bigger airports and improved transport infrastructure.

And what of those ‘marginal’ and fringe areas? They could become places where people go to get away from the hustle and bustle of modern life – to take a weekend break, buy a second home, drop out and live alternative lifestyles or retire. It doesn’t seem to have done Cornwall too much harm.