A plan for reviving regional cities in the UK

Good afternoon from Manchester.

I was already a bit stressed on the day the general election was called, even before it became apparent what was about to happen. Two rush-hour trains in a row had been cancelled out of Manchester Victoria, so I was late when I shuffled into a morning press conference in Leeds. 

The event was, inevitably, about trains — and specifically the notoriously poor east-west connections I had just endured. Greater Manchester mayor Andy Burnham and his counterpart in Liverpool, Steve Rotheram, were announcing their plans for the Liverpool to Manchester Railway: a new high speed connection between the two cities.  

On the face of it, this sounds like progress. But it was also a partial reannouncement of a scaled-back government reannouncement of an announcement first made by George Osborne in Manchester’s Museum of Science and Industry, 10 years ago this week.

Osborne billed the original plan as HS3, “a third high speed railway for Britain”. It was later renamed Northern Powerhouse Rail. The route would run west to east — connecting Liverpool, Manchester, Leeds, potentially Bradford and ultimately Hull — and was the sister proposal to HS2.

Ten years on, this Elizabeth Line of the north is still barely a line on a map. (The actual 73-mile long Elizabeth line, opened in 2022 to connect London from east to west, is now the most-used single railway line in the country.)

Yet the original proposal was also part of a wider underlying philosophy, in particular that of the Greater Manchester-born economist Jim O’Neill, the Cities Growth Commission and then-Manchester council chief executive Howard Bernstein.

Its premise was to join up the region’s badly connected and generally underperforming cities by pooling their labour markets; capitalising on their higher education expertise and R&D potential; devolving a degree of power over economic development to city leaders; and providing a brand with which to go out to foreign investors. 

So what became of it? The simple answer is Brexit, which booted Osborne out of the Treasury and then changed the electoral landscape. Theresa May’s advisers ensured the slogan vanished from public discourse, before five years later Boris Johnson would stand in the same Manchester museum as Osborne to speak instead of “levelling up”.

In his first major speech as prime minister, Johnson was pitching not to cities, but to the struggling towns now in his crosshairs ahead of the 2019 general election. 

And so the underperformance of regional cities fell largely out of political fashion. Indeed at the Conservative party’s latest manifesto launch, Rishi Sunak made a virtue of his decision to relocate part of the Treasury to Darlington, and specifically not to Manchester, Leeds or Newcastle. 

Osborne, the creature of an entirely different Conservative era, is unsurprisingly scathing about Johnson’s shift in policy.

“Levelling up did not have any economic theory behind it,” he told me at an event here a few weeks ago. “It was basically ‘my God, we’ve gone and won a load of towns in the north east of England, what should we do, I know we’ll give them some money to tart up the shopping centre and put some flowers on the local roundabouts’.”

By contrast the Northern Powerhouse, he insisted, “had a real economic theory behind it” and, even now, “is still the only answer I’ve seen to what you can do to try and close the gap between the London-south east economy and the rest of the country”.

While certainly not enduring as a brand, it would be too simplistic to say that the Northern Powerhouse had no legacy at all. 

For a start, it ushered in a new era of metro mayors, which have proliferated since Osborne — who insisted upon them as the price of devolution — left office. 

Anyone who has visited Manchester in the past few years can’t fail to notice the boom in skyscrapers; love them or loathe them, they are the product of a recyclable housing fund provided to Greater Manchester under its first devolution deal.

Meanwhile the city region’s economic performance relative to London is now “eye-catching”, says O’Neill. 

Greater Manchester’s productivity is growing faster than London’s, according to analysis by Metrodynamics of ONS subregional data this time last year. In reality, the foundations for that had been laid locally well before the Northern Powerhouse. But the mayoral platform, profile and foreign investment it attracted will not have done any harm either.

The latest ONS subregional data, released this week, shows a 26.4 per cent increase in Greater Manchester’s productivity between 2004 and 2022. Only two areas, both of them in London’s commuter orbit, have seen faster productivity growth in that time. 

Yet the mountain remains steep. As research from Centre for Cities noted last week, “there are 112 cities in the G7 the size of Nottingham or larger, but of the bottom twenty for productivity, seven are British”. These are, it concluded, “effectively the sick men of the G7”.

Meanwhile a lack of progress on the skills and transport elements of the Northern Powerhouse agenda, and in particular east-west rail, has been “a massive disappointment”, admits O’Neill, who was briefly a Treasury minister under Osborne.

NPR would eventually be scaled back substantially by Johnson in 2021, before Sunak’s cancellation of HS2’s link to Manchester — in Manchester! — then cast what remained of it into further doubt.

Burnham and Rotheram’s announcement was, in fact, the product of them going away to work out what the western stretch of the east-west railway line could and should look like in a world where there is no high speed network to connect it to. 

Still: they have the Northern Powerhouse to thank for their jobs.

And O’Neill believes that from a bird’s-eye view, the policy’s biggest success is that “both main political parties have to have some kind of regional policy, which they hadn’t before”.

“How serious and how stable these policies are is more debatable and indeed questionable,” he concedes.

Nevertheless in the past year or so, as levelling up has stopped being flavour of the month in Westminster, increasing numbers of policy papers are starting to sound familiar. Take last summer’s Harvard paper on regional growth by Anna Stansbury, Dan Turner and Ed Balls, for example, which suggested prioritising transport, innovation and decentralisation in regional cities. 

The Resolution Foundation last year chose to focus its attention on the future economies within Greater Manchester and the West Midlands as city regions, publishing a paper on each. Given the think-tank’s influence within the Labour party, that felt notable.

Labour’s approach to this agenda (whatever you want to call it) nonetheless remains unclear. 

It is worth noting that under the current set-up, northern cities would theoretically have a big voice in the next cabinet, via Rachel Reeves (Leeds), Angela Rayner, Jonathan Reynolds and Lisa Nandy (Greater Manchester) and Lou Haigh (Sheffield). Mind you, that was the case under the last Labour government too and it did not stop city leaders having endless battles with ministers, particularly over transport investment. 

But if attention does turn back to how we revive regional cities, the Northern Powerhouse may, in some guise or other, live on. Were Labour to dust it down, that might be the ultimate irony for the austerity chancellor.

The question then would be what to call it? Perhaps Keir Starmer will appear at the Museum of Science and Industry soon to let us know. 

Britain in numbers

Back to Brexit this week for our chart, which comes courtesy of the UK in a Changing Europe’s report on the state of EU-UK relations that was published this week and warned that Labour’s plans to reboot trade with the EU would have “minimal” economic impact, writes Peter Foster.

It provided a salutary counterpoint to the interview that shadow chancellor Rachel Reeves gave to my colleagues which rather over-egged the potential upsides of Labour’s plans to improve Boris Johnson’s skinny trade deal.

Those include potentially aligning with EU rules on industrial goods like chemicals; a veterinary agreement to reduce border checks on plant and food products; and a deal on ‘mutual recognition of qualifications’ — although Reeves also repeated Labour’s refusal to countenance a Youth Mobility Agreement with the EU, despite it being top of Brussels’ wishlist.

That seems like a brave negotiating strategy, to put it mildly.

If you wanted to take the positives, you’d say that the Labour leadership is at least raising the Brexit issue now; but on the negative side Reeves’s rather naive and cakeist-sounding comments set eyes rolling in some quarters in Brussels. If the last eight years has told us anything, it’s that simply willing more “free trade” doesn’t make it so. 

We’ll see what happens after the election, but as the chart shows, Brexit remains a politically divisive issue — it’s the one area in the survey where opinion really splits along 2016 lines — and Labour has already limited its ambitions on trade by ruling out rejoining the EU single market and a customs union.

In any case, the initial action on the EU-UK relationship is going to be on defence and security which, Labour hopes, may yet provide a platform for a much deeper, broader-based and “scalable” relationship at a time when the EU is menaced on multiple fronts.

That’s the idea espoused in a new piece this week from Daniela Schwarzer and Jake Benford at Bertelsmann Stiftung, a German think-tank, and it speaks directly to the desire in some major EU capitals, including Berlin, to move the relationship forward under Labour.

Schwarzer is a highly influential voice in Germany (she summarises the argument here in a piece for the FT) but the entire article is worth your time because it elucidates some of the deeper thinking that has been going on behind the scenes. 

The piece is primarily aimed at the EU machine, asking it to think bigger with regards to the UK and create some architecture to facilitate a new relationship including on EU-wide defence-industrial supply chains, but it also contains a reminder to the UK that with new rights, come new obligations.

Deepening the relationship will mean trade-offs: not just between London and Brussels, but within industrial sectors and between London and Washington and Beijing too. These will not always be easy, or even clear-cut, but the lazy cakeisms of the last eight years is no place to start.

The State of Britain is edited by Gordon Smith. Premium subscribers can sign up here to have it delivered straight to their inbox every Thursday afternoon. Or you can take out a Premium subscription here. Read earlier editions of the newsletter here.