The London of the North

Over the course of the general election, George Osborne promised to devolve power to regional cities. Was it all spin? Or is there substance? Simon Wilson reports.

What is the Northern Powerhouse?

As yet, it's an aspiration rather than a reality a pithy way to describe the aim of policymakers, led by George Osborne, to revitalise northern England's economy via a mix of greater devolution to cities, closer co-operation between Whitehall and northern cities on economic strategy, and improved transport links.

The cynical view, when Osborne started using the phrase last year, was that it was a pre-election gimmick to woo wavering voters in northern marginals. But in the wake of the election, Osborne has wrong-footed even some of the cynics.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

In what way?

It seems he's serious. Last week, in his first big speech since the election, Osborne travelled to Manchester to flesh out the idea, proclaiming that "building a Northern Powerhouse" (the phrase is official Treasury-speak, not just journalese) was "one of the main reasons I wanted to return to the Treasury". He announced a radical model of city government along the lines of that already being pursued by Greater Manchester in agreement with Whitehall: far greater devolution including city control over local transport, housing, skills training and healthcare for cities that agree to be led by a single accountable politician, ie, a mayor.

In something of a coup, he added that a newly ennobled Jim O'Neill (the ex-Goldman economist who coined the term "Brics", himself a Mancunian) was joining the government in the new role of "commercial secretary to the Treasury" to lead the push alongside local government minister James Wharton.

What's the thinking behind all this?

Osborne's view is that cities are becoming more important. The technology revolution has not as some predicted encouraged people of "talent and ambition" to spread out in search of a quieter life, but to cluster. "That's why cities that were once hollowed out are now filling up," says the chancellor. "Economic evidence shows there is a powerful correlation between city size and the productivity of its inhabitants. The top 600 cities in the world contain just 20% of the global population, but contribute 60% to global GDP."

This draws on the work of urban theorists such as Ed Glaeser and Richard Florida, who focus on the issue of density and the spaces between cities. What they say is that, in an age of mega-cities, smaller urban areas need to work together to compete.

What does that mean for the UK?

It means, says the chancellor, that Britain's economic success depends on boosting the cities of northern England, and tying them together more tightly, to rebalance the UK economy away from the southeast. Britain is unusual in Europe in that one city, London, is so dominant. One geographic rule-of-thumb, Zipf's Law, observes that, in broad terms, countries tend to have a second city about half the size of the first, a third city a third the size, and so on.

But in England, the second-biggest conurbation, Greater Manchester, is barely a quarter the size of Greater London, and the other big conurbations are even smaller. A 2012 study by Liverpool John Moores University supports the idea that Britain's second-tier cities are relative laggards. In a ranking of European cities by GDP per head, London is number two, while Edinburgh and Bristol are the only others to appear in the top 50. Germany had no fewer than eight cities in the top 50.

Where exactly is the Northern Powerhouse?

The chancellor's favoured definition appears to be based on an analogy with commuting distance into London. The average daily commuter into the capital travels 40 miles. The same-sized area, centred on Manchester, would include Liverpool, Lancashire, Cheshire and the densely populous bits of Yorkshire, including Leeds, Bradford and Sheffield. That's a belt of cities and towns that contains ten million people more than Tokyo, New York or London. "Connect Liverpool to Hull, the northwest to Yorkshire and the northeast and the whole will be greater than the parts," says Osborne.

Easier said than done?

There's a long road ahead. Newspapers on right and left broadly agree that greater devolution of power is a useful first step. But there have been warnings that smaller cities are at risk of being left behind (see below). The first test of whether the Northern Powerhouse will be more than a slogan comes later this month with the unveiling of the Cities Devolution Bill in the Queen's Speech, in which the government will spell out its plan.

The input of Jim O'Neill may also be crucial: he's a long-term sceptic on the HS2 high-speed rail project, who believes the core infrastructure challenge is improving transport links within the north, rather than cutting journey times to London.

What about Huddersfield?

Undoubtedly some will "benefit from this devolution ofpowers to individual cities unlocking hidden potential andnew wealth", says Leo Hollis in The Guardian. Foremost isManchester, being promoted as a "London of the North"."But it will also widen the gaps between those who canjump on the bandwagon, and those who can't."

That includessecondary cities and towns "most affected by the long declineof industry and the recession", such as Huddersfield and Hull.For smaller cities with skills shortages, health problems "anda lack of jobs", joining the Northern Powerhouse might "makethings tougher and even spell their extinction".