The Northern Powerhouse can foster inclusive growth

Not everyone is benefitting from economic growth. The Northern Powerhouse has the potential to rebalance the economy, but it must go further to foster genuinely inclusive growth, says Dave Innes.

How can we foster a new kind of economy where prosperity is shared throughout society? This was the main theme of a lecture by Professor Joseph Stiglitz at an event hosted jointly by the All Party Parliamentary Group on Inclusive Growth and the Resolution Foundation earlier this week.

Technological change and globalisation have impacted upon the wages of low-skilled workers. But this is only part of the story, according to Professor Stiglitz: the policy environment also plays a role.

Research by the Institute for Fiscal Studies and JRF has shown that benefit and tax credit cuts mean lower-income households will see no growth in their take-home pay over the next five years. The National Living Wage will help some low-earners to move closer to a decent standard of living, but our research has shown that many families with children, including those in work, will find themselves worse off after welfare reform comes into force.

Inclusive growth must have a geographic dimension. Earlier this week, we launched a report that compared economic prosperity in the UK, looking at employment rates, skills levels and population changes. The report showed that 10 of the 12 cities that have fallen furthest behind the national average are in the North of England.

The devolution agenda offers an important opportunity to foster a rebalanced economy that benefits all areas of the UK. Through local growth deals, cities are being offered new powers to encourage local growth. Additionally, the full devolution of business rates in 2019 will allow cities successful at growing their economies to reap the rewards.

We need to make inclusive growth an important part of the devolution agenda, to ensure that the benefits go beyond the largest cities to reach all parts of the country. There are four important lessons:

  • Economic growth alone will not necessarily reduce poverty in cities.
  • We need comprehensive and integrated packages of long-term policies around economic development, employment and skills and infrastructure.
  • City leaders have an important role to play. They need to make the most of their new economic powers and resources to create opportunities for the people and places that have previously been left behind.
  • Cities facing the biggest challenges to grow their local economy may need extra support. Our previous research highlighted that the most deprived areas have been hit hardest by local authority cuts in the last five years. The same cities are likely to find it hardest to grow their local economies and take advantage of full business rate devolution. There is a real danger, therefore, that these areas may miss out on the promise of devolution.

The government’s attempt to rebalance the economy through the Northern Powerhouse is an important step towards sharing prosperity among the North of England. However, our research shows the benefits need to go beyond the largest cities to bring opportunities to all people and places. Both the government and city leaders have an important role to play to make inclusive growth a reality.