Download INDUSTRIAL STRATEGY GREEN PAPER: IPPR NORTH RESPONSE

INDUSTRIAL STRATEGY GREEN PAPER:
IPPR NORTH RESPONSE
SUMMARY
IPPR North welcomes the government’s industrial strategy green paper and believes that by
putting economies of place and region at its heart, supported by strong devolved
institutions, this industrial strategy could drive inclusive, resilient growth across the whole
country.
Our research – summarised in this response – supports the case for the North of England to
be a pioneer region for place-based industrial strategy: the North has the assets and
institutions already in place to work closely with central government to implement industrial
strategy successfully.
1. Industrial strategy should deliver inclusive and resilient economic growth across
the country.
- Its four primary objectives should be to:
1. Spur innovation – both technological and organisational – to boost
productivity, pay, and the quality of work
2. ‘Level up’ growth and productivity in the regions and nations of the UK
3. Grow the UK’s manufacturing capabilities to generate a more diverse and
balanced economy
4. Put the UK on track to meet its decarbonisation targets and more generally
reduce its environmental impacts.
2. ‘Place-based’ industrial strategy should coordinate national, regional and subregional interventions, and the North should be a pioneer region.
- The government should abide by three principles:
1. Harness and enhance our economic diversity, recognising and reinforcing the
economies of smaller towns and rural locations alongside cities, and the dynamic
that links urban, hinterland and rural economies within regions
2. Devolve economic and fiscal powers to statutory sub-regional and regional
institutions
3. Coordinate interventions between sub-regional, regional and national
institutions and harness the value of ‘social infrastructure’ such as health and
education.
3. ‘Place’ should sit at the heart of each ‘pillar’ identified in the Green Paper. The four
objectives (above) would be achieved more effectively by embedding these three principles
of place far more deeply than is currently envisaged. There is a strong and prominent role for
statutory sub-regional and regional institutions, for example: developing complementary
transport investment pipelines; exercising concurrent powers with DIT on trade; and tailoring
skills supply to meet local demands.
1. THE FOUR OBJECTIVES OF INDUSTRIAL STRATEGY
IPPR North welcomes the government’s acknowledgement of the need for a modern
industrial strategy, the nature of the challenge that the UK economy is facing and its overall
objective of “improving [both] living standards and economic growth by increasing
productivity and driving growth across the whole country”. Our emphasis here makes
explicit where we see this objective to be an acknowledgement that government policy since
2010 has not paid sufficient attention to the distribution of wealth and prosperity. This chimes
with the increasingly widespread calls for more ‘inclusive growth’ (OECD 2016).
However, IPPR research would suggest that the analysis needs to run deeper than is the
case in the current green paper and the objectives of any industrial strategy need to be more
detailed and explicit. IPPR has published three recent papers which provide this further
detail and can be summarised as follows.
1.1. SYMPTOMS OF UNDERPERFORMANCE
The UK economy is a long way from achieving its potential. There are a number of
symptoms which reveal our underperformance, and which industrial strategy should
address:
- Symptom 1: The investment problem. We invest substantially less than our peers
in other developed countries, and investment as a proportion of GDP has been
declining.
- Symptom 2: The trade problem. We import far more by value than we export, and
this problem, too, has been worsening over time.
- Symptom 3: The fiscal problem. The government’s revenue-raising capacity is
lower than its spending obligations, and is set to deteriorate further as the population
ages.
- Symptom 4: The income problem. Most of the gains from economic growth flow to
a small minority of the very richest in society, while those on lower incomes have
seen their incomes stagnate.
- Symptom 5: The regional problem. London and the South East perform
significantly better than the rest of the UK in terms of income and productivity,
leading to widening regional inequality.
- Symptom 6: The carbon problem. We are falling short of the emissions reductions
required to achieve our statutory carbon targets, and thereby to meet our global
commitments on tackling climate change.
(Jacobs et al 2016)
1.2. THE NEED FOR SPECIFIC ECONOMIC OBJECTIVES
Given the symptoms of underperformance, and the overarching need to re-gear our
economy toward inclusive and resilient growth, IPPR has set out four objectives for industrial
strategy:
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1. To spur innovation to boost productivity, pay, and the quality of work:
industrial strategy should facilitate the adoption of existing innovations,
particularly by firms in low-productivity manufacturing and the service sector, as
well as the development of new ones in frontier companies and sectors. The
definition of innovation should be broadened, to cover organisational as well as
technological innovation
2. To ‘level up’ growth and productivity in the regions and nations of the UK:
industrial strategy should have a strong spatial dimension, and be determined at
both the regional and national levels.
3. To grow the UK’s manufacturing capabilities: Government should support
research and development and the commercialisation of new technologies at the
frontier of innovation, help strengthen supply chains in key sectors, and support
businesses, particularly in declining industries, to find alternative and higher-value
markets.
4. To put the UK on track to meet its decarbonisation targets: helping the UK
get the most economic and employment benefit from achieving its climate change
targets and reducing its wider environmental impact should underpin the entire
strategy.
(adapted from Colebrook 2016)
1.3. THE IMPORTANCE OF ECONOMIC RESILIENCE
With significant economic uncertainty on the horizon, not least for places which have yet to
make a complete transition from their industrial pasts, there is a need for a more explicit
understanding of and focus upon the concept of economic resilience: the ability of an
economy to withstand shocks and respond to long-term structural changes in the global
economy. Drawing upon the work of Martin and Sunley (2014), IPPR North has identified
four economic subsystems that need greater consideration – particularly at the local and
regional level. (Cox et al 2016). These are set out in Figure 1 below.
Apart from the more long-term approach, the focus on resilience is a significant departure
from the approach set out in the green paper for two very important reasons:
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It recognises the interactivity between the different dimensions or sub-systems
within an economy – something which is not immediately apparent in the green paper
which uses the more monolithic conceptual framework of ‘pillars’
It highlights the vital role of governance arrangements, agency and decisionmaking as central to the functioning of a healthy economy – matters which are
barely addressed in the green paper other than in a fairly timid way in Pillar 10.
We address each of these in more detail in the subsequent section of our response.
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Figure 1: Resilience can be determined by the interaction of economic subsystems
Determinants of regional economic resilience
Source: Martin and Sunley 2014
Finally, another key dimension of developing a long term and resilient industrial strategy is to
properly recognise the importance of social infrastructure. IPPR North has written
extensively on key aspects of social infrastructure and their relationship with economic
growth, for example:
- Education – from early years through to lifelong learning – has significant economic
and social value (Cox and Raikes 2015; Clifton et al 2016)
- Health and social care are also significant economic sectors, and can underpin health
innovation across the country (Raikes 2016a)
- Employment support is an economic investment that can drive inclusive economic
growth and higher productivity (Raikes and Davies 2016)
- Occupational and public health can enhance productivity and workforce participation
by extending working lives (Round, forthcoming 2017).
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2. THE IMPORTANCE OF PLACES, REGIONS AND
INSTITUTIONS
The green paper is right to recognise the economic imbalances between different parts of
the country and how they hold back effective growth and limit opportunities. It is also right in
its analysis that this is caused by having ‘one of the most centralised economies in the world
… with institutions that are often too fragmented to provide effective leadership in shaping
successful places’. However – with places and intuitions relegated to pillars 9 and 10 of the
emerging strategy – it is difficult to see from the green paper how this situation will be
‘confronted’ and changed.
Our research shows that places and regions – supported by strong institutions at these tiers
– should sit at the heart of modern industrial strategy and should be woven like threads
throughout. In 2012 we published what could perhaps be described as a regional industrial
strategy for the North of England – Northern Prosperity is National Prosperity (IPPR North
and NEFC 2012). This section sets out what our research has shown about a place-based
approach to growth across the whole country and the importance of strong institutions in
doing so. Section 3 will then set out in more detail what this means for each of the pillars 1-8.
This section addresses the following consultation questions:
Question 3. Are the right central government and local institutions in place to deliver an
effective industrial strategy? If not, how should they be reformed? Are the types of measures
to strengthen local institutions set out here and below the right ones?
Question 34. Do you agree the principles set out above are the right ones? If not what is
missing?
Question 36. Recognising the need for local initiative and leadership, how should we best
work with local areas to create and strengthen key local institutions?
Question 37. What are the most important institutions which we need to upgrade or support
to back growth in particular areas?
Question 38. Are there institutions missing in certain areas which we could help create or
strengthen to support local growth?
2.1. UNDERSTANDING PLACE: AN AMENDED NARRATIVE
The narrative that lies behind the current thinking about place-based growth is increasingly
familiar: in order to have a flourishing national economy we need to drive up rates of
productivity to be more like those in London and the South East; to do this we should go with
the grain of success and support high-value sectors in other big cities; this requires
devolving more control over the key drivers of growth such as skills, transport and planning
to strong local leaders who will drive business investment. In some respects this narrative is
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helpful, not least insofar as it identifies the fact that our productivity problems are a function
of an over-centralised economy. But recent analysis shows that it is a partial account.
For example, there are significant methodological and empirical problems with the accounts
of city growth in the UK. Ron Martin and others have shown that there is no easy readacross from US urban growth and agglomeration modelling to the UK and European context
(see Martin et al 2014, Cox and Longlands 2016). And in the most thorough analysis on the
nation’s national-regional economic problems, Philip McCann shows that explanations for
poor productivity performance outside London have tended to be weak. There is little
evidence that these problems are associated with cities being undersized; educational
differences are too small to explain the size of the productivity gap; and if there is a braindrain then it is ‘tiny and also remarkably stable… Human capital and spatial sorting
explanations provide few clues as to the UK’s interregional experiences’ as is the case with
knowledge spillovers and financial and fiscal linkages, too. McCann argues that most of the
common diagnoses put forward concerning regional imbalances are actually the outcomes
rather than causes of the problem (McCann 2016).
Building on this most recent research, IPPR North has argued that industrial strategy must
grasp three key issues:
A more complex understanding of city-systems
- At present our conception of city-regions is too narrow. City-regional boundaries are
often constrained and governance fails to account for the ‘polycentricity’ of many
places where there is no clearly defined city centre; and the fact that some smaller
towns and cities are out-performing their core city neighbours.
- We need an approach which better recognises the inter-dependencies of smaller and
larger places over wider geographical footprints than is currently the case. This
needs to take account for the fact that different places perform different roles within
broad city systems – see for example the excellent work on City Relationships
carried out by the Northern Way (Jones et al 2009).
- This also needs to account for the fact that different city systems will have different
sectoral strengths based on a much wider range of clusters or smart specialisations
than simply financial and professional services.
The significance of scale and a role for regions
- Building on the above, McCann demonstrates that structure of the UK economy
outside London is such that it has a ‘regional’ more than an ‘urban’ problem, and
therefore while city-regional devolution may be appropriate for policy decisions about
public services they are too small for strategic planning relating to many aspects of
economic development (McCann 2016).
- Sectoral specialisations are very often played out most effectively at the regional
level with global competitiveness coming from synergies across sectors and subsectors. The Northern Powerhouse Independent Economic Review (NIER 2016), for
example, identifies 4 prime and 3 enabling capabilities – some of which are not and
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would not be deemed ‘priorities’ at a national scale and yet are fundamental to its
success.
There is a rich academic debate about the ‘optimal size’ for economic governance in
the context of the global economy. Comparisons with other developed nations though
suggest that in the UK our city-regions are much too small and yet England, as a
nation, is much too big. This problem is compounded by the fact that much needed
fiscal devolution becomes more challenging over small regional geographies (Cox
2017).
In the simplest terms though, England needs a regional tier for economic strategy
and planning over a relatively small number of key issues. This need not ‘create a
new layer of bureaucracy’ so much as decentralise much of the capacity currently
locked within the centralised system and would bring England into line with almost
every other OECD nation.
The fundamental importance of regional governance
- There is an increasingly compelling case that the fundamental problem facing the UK
economy is that, with high levels of regional differentiation and inequality caused by
the differential effects of global shocks, there is insufficient regional autonomy in
order to mobilise the effective players, institutions, knowledge and capital in order to
develop effective responses at the most appropriate scale (Cox 2017).
- This case is all the more powerful given that the two ‘economies’ of the UK that have
demonstrated the greatest relative success are London and Scotland, where higher
levels of subnational autonomy have enabled them to maximise their local economic
advantages in relation to financial and professional services in the City of London
and as regards oil and gas in Scotland. Further afield, in Germany and Italy for
example, regional industrial strategy is exercised to great effect (Chang 2009;
Bianchi and Labori 2011).
- Again, in short, previous iterations of industrial and regional policy have stumbled on
account of their failure to address issues of subnational governance and the relatively
poor awareness of the economic geography of the nation. There is little in the green
paper to date that suggests government is learning from overseas or from the past.
Based on the above analysis, IPPR North has set out three principles which on which the
government should proceed, in order to build a place-based industrial strategy:
1. Harness economic diversity: connect and invest in systems of towns, cities and
other clusters of innovation, and work with the important supply-chain dynamics that
cut across ranges of sectors and thread together urban, hinterland and rural
geographies
2. Devolve: roll out combined authorities, and statutory regional bodies – such as a
Council of the North – then devolve the economic power and fiscal tools they will
need to coordinate industrial strategy interventions with central government
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3. Coordinate: The government should coordinate interventions between sub-regional,
regional and national institutions through a ‘deals’ process – including ‘horizontal’
transport and skills investment, as well as direct ‘vertical’ sectoral interventions
(adapted from Cox et al 2016).
2.2. THE NORTH AS A PIONEER REGION FOR INDUSTRIAL STRATEGY
IPPR North proposes that as part of its new approach, the government should acknowledge
the important developments taking place in the North of England, and name it as a ‘pioneer
region’ for a modern industrial strategy for the following reasons:
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Economic scale and potential: 15 million people generate more than £300bn in
GVA; and it has 8 major ports, 29 universities, five major cities, four national parks
and the largest international airport outside of the South East (Cox and Raikes
2015b)
An in-depth understanding of its economy: the Northern Powerhouse
Independent Economic Review studies the North’s economy in depth, and has laid
the foundations for industrial strategy in the North (NIER 2016)
Institutional maturity and coverage: the institutions needed to underpin industrial
strategy are already under development and ready to harness these assets:
combined authorities cover more than two-thirds of the North’s population, and
Transport for the North is soon to gain statutory status.
Building on the growing institutional maturity, IPPR North has called for the creation of a
Council of the North (Cox 2017). The purpose of this body would be to co-ordinate and to
commission key elements of strategic planning that are best achieved at the regional level.
In the simplest terms, its primary focus would be on the development and implementation of
an industrial strategy for the North. Different themes may naturally evolve over time, but
there are a number of areas where there is already a clear case for pan-northern cooperation, including:
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a northern transport strategy
sector-led work based on the Northern Independent Economic Review, including on
digital skills, health innovation and advanced manufacturing
a northern energy strategy
an attractive trade and investment prospectus.
This approach could be followed by other regions in England too, but industrial strategy can’t
go at the pace of the slowest, and the North should not be held back by slower
developments elsewhere. Figure 2 below sets out the basis upon which this might work in
the North.
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Figure 2: Elements of an industrial strategy for the North
3. INDUSTRIAL STRATEGY IN PRACTICE
This final section takes a ‘place first’ approach to industrial strategy by exploring the first 8
pillars of the green paper from the perspective of ‘place’ and region’ and with the objective of
driving growth across the whole country. In some cases, particularly at LEP-level, this kind of
approach is well-developed and has been part and parcel of developing Local Growth
Strategies and Strategic Economic Plans. But this is not true for every LEP and it is certainly
not happening at the scale of the region where it is likely to have the greatest impact.
This section draws on a range of research IPPR North has conducted into the economy of
the North of England. We believe this work is an important resource for the development of
industrial strategy in the North, and across the country:
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The Northern Economic Futures Commission, led by key figures from across the
North, set out the need for a northern industrial strategy, and made the case for
investment in the North’s potential – i.e. ‘Northern prosperity is national prosperity’
(IPPR North and the NEFC 2012)
Decentralisation Decade proposed a series of measures to devolve economic and
fiscal powers to combined authorities and regions, and set out many of the principles
on which devolution has proceeded (Cox et al 2014)
Transport for the North has become the blueprint upon which the real-time Transport
for the North body is being constituted; and our 5 Northern Rail priorities the basis for
the Northern Transport Strategy (Cox and Raikes 2015c)
State of the North 2016 analysed the resilience profiles of each northern LEP area,
and outlined the three principles of a place-based industrial strategy above (Cox et al
2016)
City Systems described a more complex relationship between cities and economic
growth than is assumed by the agglomeration hypothesis, and showed how smaller
towns are a vital component of regional economic development (Cox and Longlands
2016)
Three recent reports have analysed the North’s prime and enabling capabilities in
greater depth – health innovation, energy and financial and professional services
(see Raikes 2016, Baxter and Cox 2017 and Raikes and Cox 2016).
We also have some major programmes of work underway which will support the
development of a northern and a national industrial strategy:
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The Great North Plan is a collaborative project in which IPPR North will work
alongside key northern businesses and institutions in the months and years ahead to
develop a holistic strategy for the North (see Box 2, IPPR North 2016)
The Northern Energy Taskforce is developing a vision for the North’s energy sector,
a plan for the North’s energy system to 2030, and a prospectus for energy devolution
(see Box 3, NETF and IPPR North 2016)
We are also undertaking work on the North’s digital sector, and will soon start work
on the North’s other prime and enabling capabilities.
Using the above evidence base, and a range of other reports, we now consider each of the
green paper’s pillars, along with the respective consultation questions, from the perspective
of place and region.
3.1. Pillar 1. Investing in science, research and innovation
Question 9. How can we best support research and innovation strengths in local areas?
The government does not fund innovation and R&D strategically, which leaves the North’s
assets under-utilised:
- The government invests more than two thirds (69.8 per cent) of UK R&D funding in
the South1 (ONS 2017)
- Health innovation funding is particularly skewed, with 60.7 per cent of public and
charity funding going to just three regions – the East, South East and London
(UKCRC 2015 via Raikes 2016a)
- But there are many innovative clusters in the North – there are 8 research intensive
universities (the N8) which work with research hospitals and businesses to innovate
in life sciences; and there is also pioneering work in materials – graphene, for
example, in Manchester.
Regional institutions can:
- Identify regional science and innovation assets, and coordinate science and
innovation audits
- Foster collaboration between cities and hinterlands, within and between sectors
- Maintain the critical mass required for fiscal devolution of some science, research
and innovation funding, while ensuring economic efficiency isn’t compromised – i.e.
all regions have significant specialisms, and money wouldn’t be wasted
- Invest directly in clusters of regional importance, or provide supporting infrastructure
for these (wet labs for example).
Sub-regional institutions can:
- Identify sub-regional science and innovation assets, and conduct science and
innovation audits – alone or in collaboration with neighbours
- Invest directly in clusters of sub-regional importance, or providing supporting
infrastructure for these.
1
The East of England, South East, South West and London
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The government should:
- Ask all LEPs and combined authorities to conduct science and innovation audits
- Consider ring-fencing science, research and innovation budgets at the regional tier
for devolved or joint investments
- Consider embedding a science, research and innovation funding strand into industrial
strategy deals with LEPs and combined authorities.
Box 1: The North’s Health Innovation capability
Health innovation is one of the North’s prime capabilities as set out in the Northern
Powerhouse Independent Economic Review (NIER 2016). Our research has investigated
its strength and potential in detail (see Raikes 2016). The North has a number of health
innovation strengths:
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private sector pharmaceutical and medical technology businesses are innovative
and growing rapidly in clusters across the North, with strong export performance –
particularly to non-EU countries
northern universities and hospitals work with the private sector to develop groundbreaking new treatments
this activity clusters across the North’s sub-regions: ‘from Liverpool’s world
leading infectious disease expertise, Manchester and Cheshire’s health
technology and pharmaceuticals corridors, through to Leeds’s and Yorkshire’s
thriving health technology and advanced manufacturing sector, to the North
East’s world-leading hub for ageing, innovation and bio-processing’ (ibid).
In order to capitalise on the potential of this sector we made three key proposals: a placebased approach to industrial strategy for the health science sector; catch-up capital for
research funding; and a series of more local interventions to keep health sciences at the
cutting edge of northern productivity (ibid).
3.2. Pillar 2. Developing skills
Question 10. What more can we do to improve basic skills? How can we make a success
of the new transition year? Should we change the way that those resitting basic
qualifications study, to focus more on basic skills excellence?
Question 13. What skills shortages do we have or expect to have, in particular sectors or
local areas, and how can we link the skills needs of industry to skills provision by
educational institutions in local areas?
Question 14. How can we enable and encourage people to retrain and upskill throughout
their working lives, particularly in places where industries are changing or declining? Are
there particular sectors where this could be appropriate?
Question 35. What are the most important new approaches to raising skill levels in areas
where they are lower? Where could investments in connectivity or innovation do most to
help encourage growth across the country?
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The North’s labour market has untapped potential:
- 384,000 people are unemployed, and actively looking for work (ONS 2017a)
- The North has 898,000 working-age people with no qualifications (ONS 2017b)
- But there are significant assets – 29 universities, educating 521,000 students (17.1
per cent from abroad), and contrary to popular belief graduate retention is quite high
(HESA 2015 and Ball 2015 via Cox and Raikes 2015a).
Regional institutions can:
- Ensure the skills needed for infrastructure and foreign direct investment are supplied
from within the region where possible
- Coordinate transport connectivity strategies with constituent sub-regions’ skills
supply.
Sub-regional institutions can:
- Identify skills gaps, and coordinate local skills supply with local employer demand
- Deliver careers advice to children through schools, and directly to adults
- Pilot UCAS-style course-finding systems (Raikes 2017)
- Pilot invest-to-save models with the work and health programme, so that more of the
workforce can contribute (Raikes and Davies 2016).
The government should:
- Align regional schools commissioners with combined authority boundaries (Raikes
2017)
- Allow UCAS-style course-finding systems to be trialled in sub-regions with combined
authorities (Raikes 2017)
- Consider distributing apprentice levy underspend to pump prime advice services
(Raikes 2017).
3.3. Pillar 3. Upgrading infrastructure
Question 15. Are there further actions we could take to support private investment in
infrastructure?
Question 16. How can local infrastructure needs be incorporated within national UK
infrastructure policy most effectively?
Question 17. What further actions can we take to improve the performance of
infrastructure towards international benchmarks? How can government work with
industry to ensure we have the skills and supply chain needed to deliver strategic
infrastructure in the UK?
Question 18. What are the most important causes of lower rates of fixed capital
investment in the UK compared to other countries, and how can they be addressed?
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The UK is fiscally centralised: compared to other countries, central government raises and
spends a far higher share of all public money, leaving local government without the
autonomy to invest – local government raises only 4.9 per cent of all tax (OECD 2015). This
has two related consequences:
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Underinvestment – taken as a whole, the UK has seen less investment than its
peers for some time, and this is partly due to the lack of fiscal devolution, which
would enable regional and sub-regional government to invest independently of
central government (Mor 2017)
Imbalanced investment – transport investment in London makes up 54.2 per cent of
the public- or public/private-funded transport infrastructure projects in the national
infrastructure pipeline from 2016/17 onwards; and there is more light rail in some
German cities than there is in the whole of the UK put together (Blakeley 2017,
Raikes 2016b).
Regional institutions can:
- Develop new pipelines of infrastructure to support prime capabilities and connectivity
between cities and towns (Raikes 2016a)
- Raise finance and invest in transport infrastructure directly or jointly with central and
sub-regional government (Cox and Raikes 2015c).
Sub-regional institutions can:
- Develop infrastructure pipelines, coordinated with regional and national tiers (ibid)
- Borrow and invest against future revenue income (ibid).
The government should:
- Recognise that it has a role to play in funding northern infrastructure projects where
there are clear social and economic benefits to doing so
- Raise local borrowing caps to allow local areas and subnational bodies, including
Transport for the North, to borrow more freely on international capital markets,
working closely with one another and with the private sector. This should be
combined with greater fiscal devolution.
- Have the northern powerhouse team within the Department for International Trade
should work closely with Transport for the North and other relevant bodies, in order to
develop a more coherent infrastructure investment prospectus that is attractive to
private sector investors both at home and overseas
(Blakeley 2017).
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Box 2: The Great North Plan
Within the North, an industrial strategy should align with a Great North Plan – a holistic
strategy which unites stakeholders around a number of objectives. More than 350 people
contributed to the development of these ideas. This plan includes four strands, and while
industrial strategy would clearly be a major feature of the economy strand, it would thread
through all of these in some way:
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Economy: Building on the Northern Powerhouse Independent Economic Review,
further work must elaborate on the primary and enabling capabilities it identifies,
including innovation hubs, supply chains, infrastructure sites and plans
Transport and connectivity: The current Northern Transport Strategy and the
work of Transport for the North offer a starting point and model for pan-northern
collaboration
Environment: The North’s natural environment affords it some vital ‘green’
infrastructure (energy, water, waste and so on), but we need a compelling
strategy for making the most of the associated opportunities. This strategy must
also consider areas of flood-risk and wider environmental concern
Population and place: A strategy in this area must set out some of the key
places within the North, including: current and future population growth hubs;
labour market geographies; and the distinctive attributes of particular cities, towns
and areas within the North. This might also cover quality-of-life issues such as
culture, recreation and tourism
(IPPR North 2016).
3.4. Pillar 4. Supporting businesses to start and grow
Question 22. What are the barriers faced by those businesses that have the potential to
scale-up and achieve greater growth, and how can we address these barriers? Where
are the outstanding examples of business networks for fast growing firms which we could
learn from or spread?
Business start-up and rates of growth are different across the UK. This reflects the different
business bases and markets they have, but it is also an indirect consequence public
investment in London and the South East – as the UK leaves the EU, business resilience will
be an important priority:
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The North’s business registration rate (per 10,000 adults) is 58, compared to 72
nationally (ONS 2016a)
Businesses don’t scale up as quickly, and there are fewer high-growth firms in the
North than nationally (Hatfield 2017)
The British Business Bank and other sources of funding are dramatically skewed
toward the South East (BEIS 2017).
Regional institutions can:
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Achieve the critical mass required for a fixed proportion (e.g. 20 per cent) of British
Business Bank equity investments to be ringfenced, while ensuring it’s not artificially
retained and underutilised.
Sub-regional institutions can:
- Deliver business support via growth hubs
- Develop an ‘off-the-shelf’ toolkit to respond to economic shocks and long-term
structural changes, including an ask from government
- Support start-ups and match-fund ‘corporate accelerator’ partnerships in prime
capability sectors, between big UK and multinational firms and universities (Raikes
2016a).
The government should:
- Continue to support Growth Hubs, which need time to develop and become selfsustaining (Hunter 2016)
- Further develop the Northern Powerhouse Investment Fund
- Consider allocating minimum quotas of finance to regional tiers
- Prepare to ring-fence a package of loans in the event of future economic shock, and
release this funding to sub-regional institutions when needed.
3.5. Pillar 5. Improving procurement
Question 23. Are there further steps that the Government can take to support innovation
through public procurement?
Question 24. What further steps can be taken to use public procurement to drive the
industrial strategy in areas where government is the main client, such as healthcare and
defence? Do we have the right institutions and policies in place in these sectors to exploit
government’s purchasing power to drive economic growth?
Question 25. What can the Government do to improve our support for firms wanting to
start exporting? What can the Government do to improve support for firms in increasing
their exports?
Procurement can be an important tool for regional development, but it is currently
underutilised:
- £31.3 billion is spent on medical services in the North of England (HMT 2016)
- This has a significant economic impact – with multipliers estimated at between 2 and
4, but evidence suggests this accrues nationally not regionally (Buck and Jabal 2014,
Bartik and Erickcek 2008)
- Northern hospitals have shown how their procurement could be used to stimulate
regional economies (Watson 2006 via Raikes 2016a).
Regional institutions can:
- Develop a portal for regional suppliers
IPPR North | Industrial strategy: IPPR North Response
16
-
Coordinate and broker suppliers of services across their regions
Build up the skills and capacity to procure major infrastructure projects in a way
which maximises regional economic growth (Blakeley 2017).
Sub-regional institutions can:
- Develop new approaches to health procurement to maximise regional clusters and
supply chains and drive up local economic multipliers (Raikes 2016a)
- Develop ethical procurement policies, which prioritise local businesses or local
employment (Raikes 2017).
The government should:
- Make any legislative changes necessary for regional and sub-regional governments
to use procurement to support regeneration
- Investigate how central government departments can commission in a way that
stimulates local economic growth.
3.6. Pillar 6. Encouraging trade and inward investment
Question 26. What can we learn from other countries to improve our support for inward
investment and how we measure its success? Should we put more emphasis on
measuring the impact of Foreign Direct Investment (FDI) on growth?
Trade and inward investment patterns reveal strong regional differences:
- The North exports £53.5 billion in goods per year, with almost half (£25.9 billion)
going to non-EU countries – the North East has the highest share of its exports going
to non-EU countries of any region (61.6 per cent) (HMRC 2017)
- The North also exports £27.4 billion in services (12.7 per cent of the country’s total),
and the North West’s exports in services grew by more than any other English region
between 2011 and 2014 (ONS 2016b)
- The North – lacking any significant regional focus from DIT – doesn’t attract a
proportionate amount of FDI projects, at 10.3 per cent of the UK total (DIT 2017).
Regional institutions can:
- Exercise concurrent powers with DIT on inward investment, learning from the
success of Scotland (see Cox et al 2013)
- Align inward investment strategies with regional prime capabilities
- Market their economies at the critical mass required for much inward investment
- Provide a strong and coherent voice for their regional geographies in the discussions
over exiting the EU and subsequent trade negotiations.
Sub-regional institutions can:
- Use high-profile leaders such as new metro mayors to attract investment and broker
trade relationships with countries and regions overseas – alongside other mayors
and in alignment with their regional institutions (Raikes 2017)
- Co-commission trade and investment support activity with the government.
IPPR North | Industrial strategy: IPPR North Response
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The government should:
- Consider exercising concurrent powers over trade and investment with regional
institutions
- Co-commission trade and investment support activity with sub-regional institutions, to
complement the regional approach
- Invest in DIT’s regional ‘prime capabilities’ personnel – such as the regional life
science and advanced manufacturing specialists already in post – on the ground in
the UK and abroad in post (adapted from Raikes 2016a).
3.7. Pillar 7. Delivering affordable energy and clean growth
Question 27. What are the most important steps the Government should take to limit
energy costs over the long-term?
Question 30. How can the Government support businesses in realising cost savings
through greater resource and energy efficiency?
National energy policy fails to exploit the natural assets and energy generation opportunities
across the country:
- More than a quarter of the UK’s installed electricity capacity is in the North, over half
of which is located in Yorkshire and the Humber (Baxter and Cox 2017)
- Energy capacity in the North is still dominated by conventional thermal power
stations, many of which are due to close in the near future (ibid)
- Commercial and industrial energy use is on average far higher in the North compared
to the rest of England (ibid).
Regional institutions can:
- Manage large-scale infrastructure projects
- Undertake spatial planning for energy infrastructure
- Develop pan-northern programmes; for example, to support innovation and develop
skills
- Welcome and support investment in the northern energy sector
- Provide technical assistance: providing an efficient, centralised resource to support
the technical and commercial development of infrastructure
(adapted from Baxter and Cox, forthcoming).
Sub-regional institutions can:
- Develop clean air strategies, and roll out clean air charters
- Implement electric vehicle infrastructure
- Establish city region energy companies, and invest in renewable energy generation
- Encourage commercial car share schemes and electric vehicle uptake
(adapted from Raikes 2017)
IPPR North | Industrial strategy: IPPR North Response
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-
Manage local schemes, such as the roll-out of energy efficiency or distributed
generation
Encourage and facilitate community energy schemes
Undertake resource planning
Maximise the economic opportunities associated with sites of generation locally
Assess and address local skills needs
(adapted from Baxter and Cox, forthcoming).
-
The government should:
- Implement a new Clean Air Act (Quilter-Pinner et al 2016)
- Consider rolling out a national diesel scrappage scheme (ibid)
- Consider which powers should be devolved to the Northern tier, given the powers
currently exercised by devolved administrations in Scotland, Wales and Northern
Ireland.
Box 3: The North’s energy sector and the Northern Energy Taskforce
IPPR North recently set up the Northern Energy Taskforce. The central objectives of this
taskforce are to:
1. Develop a plan for the northern energy system to 2030
2. Create a vision of the northern energy sector
3. Set out a plan for ‘energy devolution’
(NETF and IPPR North 2016).
This research will investigate whether the North of England could:
-
-
Act as a pathfinder for unlocking the energy trilemma for the UK: ensuring
security of supply, managing the cost of and access to energy, while
decarbonising the energy system in a ‘no regrets’ way, in the context of the policy
and investment uncertainty created by Brexit
Generate significant economic benefits for the North and the nation more widely,
and in doing so narrow the regional productivity gap
Successfully demonstrate a new whole systems approach to the UK energy
sector and pioneer its implementation at a regional level .
3.8. Pillar 8. Cultivating world-leading sectors
Question 31. How can the Government and industry help sectors come together to
identify the opportunities for a ‘sector deal’ to address – especially where industries are
fragmented or not well defined?
Question 32. How can the Government ensure that ‘sector deals’ promote competition
and incorporate the interests of new entrants?
Question 33. How can the Government and industry collaborate to enable growth in new
sectors of the future that emerge around new technologies and new business models?
IPPR North | Industrial strategy: IPPR North Response
19
The North has some significant economic sectors, and many world-leading businesses:
- Prime capabilities include: health innovation; advanced manufacturing; energy; and
digital (NIER 2016)
- Enabling capabilities include education, logistics and financial and professional
services (ibid)
- But if anything, it will be more important for the government to intervene in the larger
service sectors. It is these sectors that hold the key to higher productivity and tend to
be poor quality and low paid jobs (Dolphin and Hatfield 2015, Thompson et al 2016).
Regional institutions can:
- Identify regional prime capabilities – as has been undertaken in the North already
- Invest directly in supporting these sectors – coordinating with national and subregional interventions
- Embed sector-specific approaches to support regional prime capabilities in the other
pillars: skills, infrastructure, business support, procurement, trade and inward
investment.
Sub-regional institutions can:
- Identify sub-regional prime capabilities – as they have already in their strategic
economic plans
- Invest directly in supporting these sectors – coordinating with national and regional
interventions
- Embed sector-specific approaches to support sub-regional prime capabilities in the
other pillars: skills, infrastructure, business support, procurement, trade and inward
investment.
The government should:
- Cut deals between central, regional and sub-regional governments and the sectors
they need to support, covering all pillars and making use of social infrastructure
where appropriate
- Industrial strategy deals should be struck with regional structures, as well as
combined authorities where these exist – in the short-term, Transport for the North
should be invited to submit a proposal which complements those of its constituent
combined authorities and LEPs.
IPPR North | Industrial strategy: IPPR North Response
20
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