The Fiscal Argument for North East Investment

By Stephen Purvis, Chairman, Policy North

I am a businessman, not a politician.  This vocational pathway results in a decision making process that is predicated on taking the most effective action to have the largest and most sustainable fiscal benefit.  It is no surprise therefore, that I have some detailed views on the investment case for the North East of England from a fiscal perspective.

The Office for National Statistics (ONS) produces a range of verified data that is useful when making the case for both the broader Northern Powerhouse, but also more specifically for the North East of England.  Gross Value Added (GVA) is the economic measure most frequently reported.  Whilst an in-depth discussion of the merits of GVA vs Gross Domestic Product (GDP) as an economic measure may be enjoyable for the economic professionals in the region, I accept for the purposes of this piece that GVA is a directly correlated measure of GDP.

Applying some light rounding, the North East has a population of 3 million and according to the December 2015 regional GVA report by the ONS (tables 1 and 4 of their report) the North East contributes £48bn to UK GVA.  Simple mathematics gives us a GVA per head of North East population of £16,000.  In isolation this measure is not helpful.  However, when compared with the South East of England (excluding London) we are over £10,000 per head of population behind GVA contribution as a region.  Even when compared with our near-neighbours in the North West, we fall £5,500 per head behind.  I deliberately exclude London from this comparison.  Why?  I have believed for some time that London must be considered in the context of a separate economic country scaled entity, operating in the South East of the United Kingdom.  London breaks the standard socio-demographic rule that a capital city is usually twice the size of the second city.  London, both geographically and economically, dwarfs any regional city; powered by its dominant position in key world markets.  The North East is not fighting to be London, as bullish as we are; we’re pragmatists at heart.

If economic equilibrium between the South East and North East of the UK were to be achieved there would be a net GVA increase of £30Bn to the North East economy.  This is found from the per capita GVA increase from the current figure of £16,000 to the South East level of £26,500; on a North East population of 3m.  Thirty billion pounds per annum.

In business, when looking for revenue and profit inflection, turnaround performance, or a business case for new investment the fiscal argument is the foundation of any governance process.  The fiscal argument for investment into the North East of England is clear on the simple basis that it has the highest scope for GVA uplift in both the Northern Powerhouse and England.

Much has been made of the investment in reducing the rail commute from Birmingham to London by 32 minutes via the HS2 rail project.  Similarly, further investment into improvement of the M62 motorway seeks to improve the commuting time between Leeds and Manchester and Liverpool. 

I do not suggest for a moment that this investment is not predicated upon a fiscal return for those regions; the point is simply that there are higher returns per pound of public money through investment into the North East.  This is not personal opinion or conjecture, simply the conclusion of an analysis of the raw and audited GVA figures provided by the ONS.

Investment into the infrastructure of the North East offers the largest returns when viewed on a GVA uplift basis.  Further weight should be given by Government to infrastructure investment in the North East on a maximised returns basis.

If we accept the premise of the fiscal argument as laid out, there is a parallel strand of activity than could act as a catalyst to further North East economic success.  The measure I chose was GVA per capita, and the focus has been on increasing the GVA value.  However, to really move ahead as a region our population must also grow, whilst maintaining an upward trend on GVA per head of population.  Sir John Hall has been in vocal in his belief that the North East requires the infrastructure investment to support a population increase of 1,000,000.  There is clear work to do in ensuring that the supporting social, educational and care services scale proportionally; but the combined impact of these two approaches would move the North East forward at a rate never before witnessed. 

Infrastructure investment forms 1 of 4 strands of policy reform that Policy North champion for the North East alongside: skills investment, sustainable economic growth and a supporting framework of social justice.