Powering up for the Northern Powerhouse

The vision of a Northern Powerhouse is starting to become reality as investors and developers get behind it. Elaine Knutt reports.

When Chancellor George Osborne first sketched out the ideas behind the Northern Powerhouse in a speech in June 2014, it immediately captured the public imagination. As Osborne said at the time, “the cities of the north are individually strong, but collectively not strong enough”.  So take six city regions – Manchester, Liverpool, Sheffield, Newcastle, Hull and Leeds – and shrink the journey times between them.  Connect businesses, people and skills and make industries more efficient. 

Specifically, that means building HS2 to connect Manchester, Leeds and Sheffield, then a new HS3 high-speed rail connection east to west. A new “Oyster” ticketing system to link it all together, upgraded  A-roads and new “smart” motorways. Most ambitious of all, Highways England is examining a trans-Pennine tunnel under the Peak District National Park, to remove the barrier between Sheffield and Manchester.

By investing in transport infrastructure, the idea is to tilt the economy so that skills, investment and GDP are no longer sucked towards the vortex of the south east, and to raise the employment rates and productivity levels that are both currently lagging behind those of the south.

The next stage is drawing private sector investment to the new transport interchanges and new routes, then harnessing the natural competitiveness and identities of the six regions to create, in Osborne’s words, something bigger than the sum of the parts.

Mark Robinson, chief executive of framework provider Scape, has a role that puts him in contact with local authority chief executives and senior procurement managers across the Midlands and the north, and says that the idea has caught the imagination of every local authority he speaks to.

“Devolution and the Northern Powerhouse come up naturally in every conversation,” says Robinson. “The north-south divide has been a problem for decades — we should be balancing out the economy across the country, and redressing the balance. Manchester is an example of a great success story over the past 20-30 years, so why can’t we build on that in Leeds and Sheffield?”

In the private sector, Lee Savage, development director at property company Scarborough Group, also says that he’s “a firm believer in the Northern Powerhouse. It’s not about moving investment away from London, it’s about making the UK a polycentric economy like Germany. The Northern Powerhouse growing its economy is going to contribute to UK plc through greater connectivity and play to the strengths of the regions.”

But if 2015 was the year that the Northern Powerhouse as a buzzword entered the public consciousness, then 2016 is the year when it needs to take the shape and form that will drive decision-making and investment plans.

Robinson and Savage agree that, with the hearts and minds campaign won, every public body involved – central and local government, HS2, Highways England, Transport for the North, the newly-formed National Infrastructure Commission – needs to move from publishing strategy reports to firm, costed plans.

Phil Cusack, business development director at Capita Property and Infrastructure, who sits on the strategic board of Manchester Airport City Enterprise Zone, says: “I suspect 2016 will see a consolidation of the Northern Powerhouse, we will know how it will work politically in terms of local authorities and bodies. We need a coherent, concrete, integrated transportation plan: what are the schemes, the effects, the timescales, and where is the funding coming from?”

Volume of planning approvals by regions (annual growth %)

Includes underlying projects with a construction value of £250,000 to £100m Source: Glenigan

The bold thinking is to interrupt the current economic trajectory of the north and set it on a new route. The government report The Northern Powerhouse: One Agenda, One Economy, One North cited two examples from elsewhere in Europe. Germany’s Rhine-Ruhr area, a triangle taking in five large cities (Köln, Düsseldorf, Duisburg, Essen and Dortmund) and 10 smaller cities, works as one economic area, while The Netherlands has the Randstad region, bounded by Amsterdam, Rotterdam, the Hague and Utrecht.

Both regions are linked internally by road and high-speed rail journeys of around 30-50 minutes, but also by the fact that GDP per capita is higher than the national average: in the Rhine-Ruhr it’s between £22,900 and £25,300; in the Randstad region it’s between £18,500 and £30,000.

In comparison, the same report says that the UK’s GVA per capita ranges from £17,400 in the north east to £19,900 in the north west. In 2012, London had the largest GVA per head at £37,232, while Wales had the lowest at £15,401.

Economic brake

Scape’s Mark Robinson has had first-hand experience of the kind of long-distance commuting that puts a brake on economic growth. “I live in Sheffield, and used to work for Stockport Council. Stockport’s only 40 miles away, but that was three hours of commuting each day… after a while, that wears anyone down. Now I work in Nottingham, it’s about the same distance, but there’s a much faster route.”

And the north/south divide ultimately is a factor in the construction industry’s skills shortages: the fact that property prices and living costs are so much higher in the south east makes it harder to transfer skills and resources from one part of the country to another. “People are less keen to relocate, when I was growing up, you moved wherever the work was. But now it adds to the challenge the industry faces,” says Andy Rowley, commercial director for Tarmac’s contracting business.  

But a survey carried out by Tarmac suggests that the wider industry still finds the Northern Powerhouse concept fairly nebulous. “We talked to the business leaders who are behind regional investment, but the level of knowledge was at a similar level [as the general public],” says Rowley. In fact, 86% of business leaders know nothing or little about the idea, including 24% who had heard of it but knew nothing, and 38% who had never heard of it at all. “So the real challenge is about communicating and getting more information in terms of the programmes,” adds Rowley.  

Meanwhile, a BBC survey of the public in the north of England found that 44% of 1,003 respondents had never heard of the policy, and 20% had heard of it but knew nothing about it. But faith that the policy would ultimately redress the north/south divide was higher among the younger generation: 65% of 18-24-year-olds compared to 47% of over-55s.

One reason for the confusion is that the Northern Powerhouse entered the national conversation at the same time as the related but separate policy drive towards city devolution and “Devo Manc”.

At Capita, Phil Cusack comments: “A lot of people are conflating the Northern Powerhouse with devolution. Although the two are related, they’re not the same, and can happen independently. One can succeed without the other.”

Devolved powers – already in place for Manchester, the North East, Tees Valley, Sheffield City Region, Merseyside, and the West Midlands, while Leeds City Region is also negotiating a deal – will create the power to set and control business rates, and devolve both powers and funding for transport and housing to regional levels. The plans, and funding deals attached, are all subject to the passing of forthcoming legislation, and not expected to kick in fully until 2017.

But Tarmac’s survey suggests there is strong industry support for the idea of local government being able to decide about infrastructure projects in its own region: 72% across the UK agree with this, and 61% are confident that devolution of local government will help in the delivery of local infrastructure projects.

Above all, Cusack hopes that devolved powers will lead to more timely decision making. “The concept of having all the region’s financial and investment decisions made in London under Whitehall is an idea people are re-examining. If devolution allows that to happen, I think the local development sector will be better prepared to attract international investment and make it happen. Devolution could also allow faster decision making, and developers need certainty.”

At contracts information provider Glenigan, economist Tom Crane believes that the ability to set and raise business rates will create the incentive for devolved authorities to fund new infrastructure that will, in turn, grow their economies, and their tax base. However, he also warns it could “strengthen city economies that are doing well currently – while the more modest tax takes of others could consign them to a future in the slow lane”. 

Powerhouse effect

But the key question for the industry is: will workload and orders march north in 2016? In fact, Glenigan calculates that we’ve already seen a preview of the Northern Powerhouse effect in contract awards for the first 10 months of 2015 in the northern regions (see table). But Crane believes this is mainly “catch up growth” from private sector investment that had been held back during the downturn, rather than growth led by new infrastructure development.

Looking ahead, Glenigan does not expect a dramatic workload shift. “If you’re working nationally, you’ll probably not see a major difference, although the rate of growth between the south east and the north will be more balanced,” says Crane.

But while London and the south east will remain strong, he suggests that firms working nationally might want to shift staff and resources away from the relatively flat south-west market towards the Northern Powerhouse.

Tarmac has already noticed a pick-up in contract awards: “The number of schemes in the north is definitely showing a ramp up,” says Rowley, mentioning the Mersey Gateway, the M6 and M60 smart motorways, the A6 and the A556. “We’re expecting real demand for capacity in the north west, we’ve invested in a new asphalt plant in the region.”

But the region that has already been through the catch-up phase and moved into new growth, particularly in the commercial and residential sectors, is Manchester. It’s been helped by the phenomenon of “north-shoring” – or media, legal and technology organisations setting up in northern cities, to tap into the talent pool – and employment in the region is growing. The BBC in Salford is the best known example, but legal firms Freshfields and Nabarro have also moved.

Here, London’s escalating property prices and growing affordability crisis are working in Manchester’s favour. “If you look at what’s happening in housing affordability in London, it’s increasingly unappealing as a graduate destination. So a lot of businesses are saying, yes, we need a flagship head office in London, but let’s have our main office where staff can afford to live,” says Glenigan’s Crane.  

A Savills report last month forecast that an additional 3m sq ft of offices and 55,000 homes are needed in Manchester over the next decade to avoid a deficit. One developer responding is Select Property Group, which has introduced “City Suites” for business travellers who “spend part of their week in Manchester area but call somewhere else home”, and also “Affinity Living” for 24-25-year-old professionals comfortable with renting.

“If London is at the end of the property cycle, Manchester is at the beginning. Twenty years ago in London international investors pushed up values, and then it’s plateaued in the last six months. But the northern cities are at an earlier stage in the growth curve, so people are expecting – and seeing – rates of return outperform London,” says Giles Beswick, director at Select, adding that the same is happening in Germany (with Munich) and the Netherlands (Rotterdam).

Another reason often cited for Manchester’s success – both before the downturn and in the pre-Powerhouse boom – is that its city council has opened up both to the private sector and to its neighbouring authorities in the region. The key to success in the Northern Powerhouse, it’s argued, is public bodies and individual leaders with the leadership vision and collaborative approach.

Scape’s Mark Robinson comments: “People like [city council chief executive] Sir Howard Bernstein will be key to lead the local authority agenda: we need to get high-calibre individuals in.”

The Northern Powerhouse has the feel of the right policy at the right time, with the south-east’s affordability crisis worsening and devolution adding to a growing sense of agency in the north. But there’s a long way from visionary speeches to infrastructure projects and investment confidence. In 2016, the Powerhouse needs to power up.