Bridging the divide The North-South gulf must be cut by change in culture Allister Heath

‘HS2 is a waste of time at best. The real solution is better incentives like tax cuts’

There is London and its economic hinterland; and then there is the rest of the country. London is at least 50pc richer per person than any other region of the UK, fresh research reveals, the greatest gap since 1861. More generally, the gulf between the UK’s different regions is back to levels last seen 150 years ago, and there has been no catch-up from poorer regions since the 1970s. These new statistics are shocking, and confirm the extent of the North-South divide.

London has been richer than the rest of the country for the past century and half at least, boasting the highest GDP per head; and in almost every census year, those living up to 100 miles from London have enjoyed the UK’s second highest GDP per head.

Yet the area that now approximates modern-day London peaked in 1931 when it accounted for 22.8pc of GDP, and then went through a long period of relative decline, according to 150 years of regional GDP: United Kingdom and Ireland, a working paper by Frank Geary and Tom Stark. By 1991, London’s share was down to just 15pc. By 2011, however, it had shot back up to 20.2pc, and 22.7pc on a workplace basis, effectively matching the 1931 record. The big difference was the rise of the commuter belt: the capital and its surrounding counties together had already reached a record share of UK output by 2001.

As recently as 1991, England’s southeastern regions – London, the South East (which includes Kent and Surrey, among other counties) and the East (which includes Essex and Hertfordshire) – accounted for 40.3pc of the UK’s GDP. By 2011, it accounted for 45.4pc, or 46pc when taking workplaces rather than residences into account, with all of the recent growth now driven by the capital itself, unlike in the 1980s.

The poorer parts of the UK were actually converging with London until the First World War rudely interrupted the process. The subsequent period was good for London but bad for the rest of the UK: as Geary and Stark note, excess capacity in the old Victorian staple export industries disproportionately affected the old industrial areas of Outer Britain and Northern Ireland.

At some point between 1931 and 1951, however, all of this changed again: the Great Depression, the Second World War and the Labour government were bad for the South. The gap in productivity between London/the South East and the rest shrank substantially before stabilising until the 1970s. London and its economic zone then started to enjoy a productivity bounce again, with the real transformation beginning in the 1990s.

It is fascinating to observe how quickly the sources of London’s advantages have changed. In 1971, the economic historian Clive Lee made the cogent point that London’s metropolitan nature made it “an ideal location for the increasingly complex technical industries of the 20th century. Hence, the development of skilled engineering and the lighter branches of chemical manufacture, both of which rely heavily on agglomeration economies and proximity to their market.”

The economics hasn’t changed, but the areas in which London has a comparative advantage are now very different. Manufacturing has withered, with 91pc of London’s GDP accounted for by the services sector in 2011.

So what should the rest of the UK learn from all of this? In my view, there is no evidence that the South’s renaissance was caused primarily – or even at all – by infrastructure spending, or by devolution. HS2 is thus a waste of time, at best. Of course, better transport would be great, but the right projects need to be adopted and the financing and drive must come from the private sector. The real solution is that incentives must be improved through tax cuts and deregulation; and above all the economic culture must change.

If George Osborne’s northern powerhouse is ever to see the light of day, all of Britain must embrace a highskilled, flexible, ultra-entrepreneurial and hyper-globalised world economy. It’s easier said than done, but it’s the only way forward.