Restart the Northern Powerhouses.

Photo by Hulton Archive/Getty Images

Let Britain's North Rise Again

Mark Gilbert is a Bloomberg View columnist and writes editorials on economics, finance and politics. He was London bureau chief for Bloomberg News and is the author of “Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable.”
Read More.
a | A

Two minutes into his election victory speech on May 8, Prime Minister David Cameron referred to the need to rebalance the British economy by "building that Northern powerhouse." Yesterday, Chancellor George Osborne added some fiscal flesh to the proposals when he unveiled the budget. There's no question that, over the next five years, Cameron's government will make it a priority to give regions and cities such as Scotland and Manchester more control over spending and income. This proposed "devolution," with elected mayors running those regions that opt to take more control of their own affairs, makes sense both politically and economically.

The need to rebalance the economy away from London is clear: The capital accounts for about 19 percent of the U.K.'s jobs, 21 percent of its company headquarters and 25 percent of gross domestic product, according to a report by Parliament’s Communities and Local Government Committee. Londoners have an average gross disposable income -- money they're free to spend or save as they choose -- of 22,516 pounds ($35,000), 56 percent above the national average of just 14,347 pounds, according to the Office for National Statistics. In Westminster, that figure soars to more than 43,500 pounds; in Leicester, it drops below 12,000 pounds.

QuickTake Britain's Shifting Political Landscape

London holds the country's purse strings far too tightly. Local and municipal governments make just 53 percent of public investments in the U.K., compared with a global average of 72 percent, according to the Organization for Economic Cooperation and Development. The local taxes that British regional governments control amount to just 2.5 percent of the country's total take. In Sweden and Canada, that share is more than 15 percent and in Germany, almost 11 percent.

And because the country's income is channelled into Westminster before any of it flows back out into the regions, the redistribution system is fiendishly complex. More than 50 separate central institutions funnel public money into the Greater Manchester region, according to ResPublica, a lobbying group that's championing devolution. Cash is transmitted via more than 1,000 different funding lines, "each distributed according to centrally set and different outcome measurements," the group says. That's a bureaucratic system crying out for simplification.

It also hinders regional economic growth. The government spends about 22.5 billion pounds per year in Manchester, for example, which in turn generates a bit less than 18 billion pounds in tax revenues. ResPublica argues that giving Manchester greater autonomy -- health care tailored to the local community, training programs for the unemployed that suit the needs of local employers -- would allow it to close that deficit.

Boosting growth nationwide should be the key motivation for devolution. Osborne has appointed Jim O'Neill, the ex-chief economist at Goldman Sachs (and a former Bloomberg View columnist), as commercial secretary for city devolution and infrastructure at the Treasury. O'Neill was raised near Manchester and last year headed the City Growth Commission that investigated how to galvanize Britain's cities to contribute more to the economy. As O'Neill wrote in October:

Liverpool, Leeds and Sheffield all lie within 40 miles of the center of Manchester. What if "ManSheffLeedsPool" could be encouraged to develop as a single contiguous area -- one with a population of more than 8 million, about the same as London? This needn't mean treating them as a single administrative or political unit for all purposes. But steps to build state-of-the-art connectivity among them could unleash the potential of consumers and producers in large numbers, and spur greater economic dynamism than they've shown up to now.

The government should proceed with plans for two new high-speed rail networks, one to improve transport links between the capital and the regions and another to connect Liverpool, Manchester, Leeds and Hull. It should also make a serious effort to relocate more government departments away from the capital, without that being an excuse to add bureaucracy.

In his budget, Osborne announced that the government will grant 30 million pounds to a Northern transport agency. Manchester gets control over its fire services and employment programs, and a land commission on real-estate use; similar deals are in the pipeline for Sheffield, Liverpool and Yorkshire, among others.

The U.K. devolution debate still risks becoming entangled in the ongoing argument about Scottish independence; after failing to win last year's referendum, Scottish politicians still see greater local control as a means to full independence, rather than an end in itself. But that's a separate issue, and it shouldn't stop the government making good on its promises to decentralize decision-making and fiscal control wherever it can across the nation. The architecture that enriches cities such as Sheffield and Leeds is testament to the wealth that Britain's regions generated during the Industrial Revolution. A century later, let the North rise again. 

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Mark Gilbert at magilbert@bloomberg.net

To contact the editor on this story:
Mary Duenwald at mduenwald@bloomberg.net