With a population of over 15 million, more than a million businesses, and an economy worth around £289 billion, the North of England weighs in with plenty of economic power. Yet driving the Northern Powerhouse is the recognition that the potential of the area remains very much untapped. Through a combination of improved transport links, transformational investment, and devolved power and budgets, the aim of the Powerhouse is to better draw on the region’s vast resources – its people, its skills, and its industries – to tip the scales away from London and the South East in terms of growth, productivity and living standards.
Superficially, it can be tempting for the cities and regions in the North to think that success depends on following the economic model offered by London and South East. However, this would almost certainly be destined to end in disappointment a few years down the line, for the simple reason that the economies of the North are very different to those in London and the South East, with distinct differences in terms of industry strengths and workforce skills. A much better approach to building the Northern Powerhouse is to begin by carefully identifying the economic foundations of the North’s economies, grasping the strengths and comparative advantages the area has, and using this as the basis for future business growth and investment attraction.
A Broad Overview
We’ll come on to look at some of those foundations in a moment, but it’s worth firstly taking a look at the broad picture across the Northern Powerhouse. The graphic on the right shows the six major regions in the Northern Powerhouse – Greater Manchester, Humber, Leeds City Region, Liverpool City Region, North Eastern and Sheffield City Region – with the number of jobs, job change over the last ten years, and projected job numbers over the next five years:
As you can see, there has been job growth throughout each of these regions over the past ten years, with the total number of net new jobs across all six amounting to 296,000. Leeds City Region is not only the biggest with 1.44 million total jobs in 2016, but has also been the biggest growth area over the past decade with over 132,000 new jobs added since 2006 – just over 10%, even through the recession.
It is also worth noting that, on our forward projections, growth looks set to continue across all six regions over the next five years, adding a further 88,000 net new jobs from 2016-2021 (1.7% growth). Interestingly, it is the North East, rather than Leeds City Region, which looks set to lead growth, projected to add just over 18,000 net new jobs during this time (2.2% growth).
What are the Strong Foundations?
To look at what has been driving growth in each of these regions, we have taken a two-step approach. Firstly, we have grouped the region’s sectors into “industry clusters”, based on shared characteristics such as industries that have similar workforces and a supply chain connectivity. Secondly, we have sorted these clusters into two groups: non-tradable clusters, made up of industries which serve local needs and don’t tend to have much in the way of exports, even to neighbouring regions; and tradable clusters, which are industries that serve needs nationally and internationally.
Every economy will usually have a much higher number of non-tradable industries, simply because they are a necessary part of the day to day lives of the inhabitants of that area (for example, schools, hospitals, retail, building services and local transport). The Northern Powerhouse is no exception to this rule, with an average split of 65.4% non-tradable and 34.6% tradable across the area as a whole. The graph below shows this split broken down into the six regions:
Although non-tradable industries employ the most people, it is the tradable clusters that are the real drivers of economic growth; they are creating value to sell across the country and to the wider world, bringing resources into the area – while they employ fewer people, they typically have much higher pay and productivity, and evidence shows their growth brings sustained ‘multiplier’ effects. We can therefore get a good idea of what has been driving growth across the Northern Powerhouse by looking at the three top tradable industry clusters in each of the six regions, in terms of job growth over the last 10 years:
There are some commonalities across some of these regions. For example, both professional services and business services have achieved high growth in four out of the six regions. However, there are also sectors that are unique to each area, suggesting that these industries have been crucial to the overall growth experienced in the region over the last decade: digital in Greater Manchester; agricultural inputs and services, and furniture and wood products in Humber; creative in Leeds; vehicle and defence technology in Liverpool; civil engineering in the North East.
We can also probe the data to find out more specifically where each of the six regions has a comparative advantage compared to other areas throughout the country. We do this using Location Quotient (LQ), which is a statistical measure of industry concentration in a particular area when compared to the rest of the country. Every industry cluster has a national benchmark of 1, and so anything over 1 indicates that there is a specialisation of that industry in the area. The graphic below shows the three most concentrated tradable industry clusters across each of the six regions:
In summary
We’ve offered here just a brief snapshot of some of the key economic foundations across the six regions of the Northern Powerhouse, as well as some of the key industry clusters that economic developers and planners in each of the regions could perhaps look at focusing on in terms of future business growth and inward investment. Of course this is only the tip of the iceberg in terms of the data available, with every region and industry cluster having its own story to tell. However, if the Northern Powerhouse is to realise its full potential, a sound understanding of its strengths and comparative advantages, such as we have shown, should be the starting point for the development of a sound economic strategy.
If you would like more information on our industry clusters and how they can show you what is driving growth in your region, contact Andy Durman at: andyd@economicmodelling.co.uk
