The Northern Powerhouse – the government initiative to ‘rebalance’ the economy by creating greater synergy between northern English cities – has sparked debate over transport and devolution. But are these longer-term issues distracting business owners from growth opportunities available right now to companies across the UK? Director meets the leaders determined to seize the day
This month will mark two years since chancellor George Osborne took to the lectern at the Museum of Science and Industry in Manchester and outlined government plans to revitalise the economy in the north of England.
Against a backdrop of the steam engines that powered the Industrial Revolution, he argued that a lack of economic and physical links between key urban areas was holding both the region and the wider UK economy back: “The cities of the north are individually strong, but collectively not strong enough,” he said.
“The whole is less than the sum of its parts. So the powerhouse of London dominates more and more. And that’s not healthy for our economy. It’s not good for our country. We need a northern powerhouse too.”
And so the term ‘Northern Powerhouse’ entered the business lexicon and the national consciousness. Defined geographically as focusing on the conurbations of Liverpool, Manchester, Leeds, Hull, Sheffield and the north-east (including Newcastle, Sunderland and Teesside), the Powerhouse has been backed in the ensuing 24 months via a raft of government investment announcements – from the HS2 and HS3 rail projects, to the devolution schedule for empowering local authorities, to the trade missions linking businesses with key investor territories such as China. In May of last year, Stockton South MP James Wharton was appointed the minister for the Northern Powerhouse, tasked with ensuring these projects maintain momentum.
The figures the initiative aims to tackle are sobering, with the Powerhouse area – home to 10.7 million people – contributing 13.3 per cent of gross value added (GVA) to the UK economy, compared to London’s 24.5 per cent.
Productivity remains a concern, with GVA per worker standing at £44,850, some 13 per cent behind the UK average and 29 per cent behind London.
There is disparity between the cities involved, too – of the 4.5 million jobs existing within the Northern Powerhouse (accounting for 16 per cent of all UK jobs) some 27 per cent of them are in Manchester, with the city accounting for 3.7 per cent of UK GVA compared to a 1.1 per cent contribution from Hull and 1.5 per cent from Sheffield.
The necessity of the renewed focus on England’s north and the incentive for businesses to take advantage would therefore appear stark, with the Treasury estimating that a “rebalance” of the UK economy in favour of the north of England would be worth “£44bn in real terms equal to £1,600 per individual in the north”.
Indeed, there have been some eye-catching early successes under the Northern Powerhouse banner, with Peel Ports developing a new £300m deep water container terminal in Liverpool and the Beijing Engineering Construction Group investing £800m in Manchester’s new Airport City, which is earmarked to include a hub for Chinese firms and was visited by President Xi Jinping on his state visit last year.
Yet the initiative has already received a rocky ride in the media – with negative articles concentrating on delays to infrastructure projects, such as electrification on the TransPennine rail route between Manchester and Leeds (“Northern Power-cut” quipped the headlines and hashtags) and comparisons made between the levels of investment earmarked for the north of England and the much larger sums being spent on London projects including Crossrail (“While London rides the Crossrail gravy train, the north is stuck in reverse” read the title of one Guardian opinion piece).
Devolution, too, has been met with cynicism from some quarters with the Manchester Evening News headlining: “Devolution: Less than 25 per cent think ‘Northern Powerhouse’ project will succeed” over findings from a study by Ipsos MORI and PwC.
Shift in focus
Mike Perls, founder and chief executive of Manchester-based communications consultancy MC2 and chair of IoD North West, believes that this infrastructure and devolution focus has proved distracting for many companies, but a shift in mindset can make the growth opportunities clear:
“From speaking to businesses within the Powerhouse and getting a qualitative view on it, people believe that all the talk in terms of priorities in the Powerhouse is about infrastructure,” he says.
“They see that as the responsibility of government or local government to deliver. But when you ask them what they would do to make it more successful, two really clear things come out – they want a clearer vision set for it and more private sector involvement. There’s a crying-out from businesses’ point of view for involvement.”
The solution? “There is a need to put strategy above tactics. The chief exec of any company will have a strategy for their business and the tactics to get there, but with the Northern Powerhouse the two tactics of transport and devolution have come to define it,” says Perls.
“So [we need to] turn the brand into a strategy with clear objectives, metrics to measure and a reporting body so that we can judge success or failure – the strategy being to build cohesive economic clusters. This is first and foremost a strategy about business, and then the transport and skills and so on are the tactics that are enabling the strategy to take place. Make business the hero and make it responsible, because business will rise to the challenge.”
This approach, he says, will highlight growth opportunities for companies both inside the Northern Powerhouse and across the UK: “To IoD members I’d say, if you work within growth sectors in the future economy – life sciences, advanced manufacturing, fintech, renewables and so on – hook up with relevant clusters. If you’re in the biotech cluster around Cambridge then hook up with the digital health cluster in the north-west, because it can only benefit both.
“This is an incremental game that we’re playing here. The more collaboration that goes on, the stronger we will become as a unit. It’s not about the Northern Powerhouse operating in isolation, because while political constructs might work in geography, businesses don’t work in geographies and actually work where they can create best shareholder value. They will do that through collaborating with people who can make their clusters and their ecosystems work stronger.”
High speed of capital
IoD member Michael Hayman, founder of campaigning consultancy Seven Hills and a non-executive director of Creative Sheffield, agrees that a fresh business focus for the Northern Powerhouse can stimulate growth across the UK:
“There is a political debate about devolution and a debate about what may or may not happen with train tracks, but I think the really interesting thing is what business is doing to make more of the opportunities,” he says.
“It needs to be the high speed of capital that we’re focused on, not the high speed of rail. I think the idea that the future only starts when the train tracks are laid just cannot be right.
“If you look at London right now, I attend event after event where I speak to really in-the-know angel investors and VCs, and they will say there is more money than good ideas at the moment. And then you look at the north of England where businesses will say there are more good ideas than there is capital.
“That has got to be the pipeline, that’s the true definition of what the high speed of the future is, it’s this connection between great ideas, talent and capital. So I would like to see, for example, the idea of trade missions to bring the best of the north to London, to the VCs.”
IoD 99 member Paul Lancaster, founder of Newcastle-based digital marketing business Plan Digital UK, has previously worked for Tech North and supports Hayman’s view on the broad investor appeal of innovative northern firms:
“A lot of them are self-funded because they haven’t had easy access to funding in the past, they’ve had to be very resilient and make money from day one – that’s quite a strength a lot of northern businesses have.
“I worked on a project with Tech North last year called Northern Stars and we ran a series of pitch events across the Northern Powerhouse, showcasing start-ups. A lot of the investors commented how impressed they were that the businesses had good traction, paying customers and had not sought external investment up to that point. Investors are increasingly coming to realise that there are plenty of these types of businesses in the north of England.”
Another statistic the Powerhouse will need to overcome is that of a troubling “brain drain” as twentysomethings leave the region – according to the Office for National Statistics, in 2014 more than 66,300 people in their twenties moved out of northern England while just under 42,500 moved in.
Lancaster believes that business leaders in the Northern Powerhouse have an advocacy job to do in order to show young entrepreneurs – from both inside and outside of the region – that they’re missing out, and even jeopardising their growth potential, by overlooking the area as a location for their ventures:
“If you’re a start-up and you don’t have a huge amount of money it seems crazy to base your whole operation in London, the most expensive city in the world,” he says. “To me it makes more sense to have your core team based in any of the major Northern Powerhouse cities, but then spend time in London meeting investors or business partners if that’s what you need to do.”
The peril to the UK economy as a whole, adds Lancaster, is when start-ups find themselves priced out of London and move out of the country altogether, unaware that their business could thrive in the north:
“I was in Berlin before Christmas and met loads of start-ups who had left London and moved to Berlin because it was just too expensive for them – they were burning through their investment too quickly by being in London. By being in Berlin they could make their money go further and also have the benefit of being in a big city and all that brings with it.
“They had never considered moving north. So I think it’s really important that we all beat the drum for the north and get people to consider it – there’s no benefit to the UK economy if they leave. Just from talking to entrepreneurs and telling them what’s going on, they were saying, ‘OK, we’re looking to open another office, so we’ll look at doing it in the north now.’”
Hayman believes that this task of increasing awareness could be significantly aided by the Northern Powerhouse seizing on a collective identity in the tech sector, just as London has successfully achieved in recent years:
“I chaired a dinner for the British Business Bank that Lee Strafford, founder of PlusNet, spoke at – he talks compellingly about how the north of England could become the home for corporate technology,” says Hayman.
“For example, London has created a consumer technology brand – go to Shoreditch and you’ll find apps and hugely successful consumer-facing tech brands. Look to the north of England and you’re starting to see this opportunity of a whole new sector. London proved with fintech that you can create a category and the north needs to make a land grab like that.”
Lancaster agrees: “There are definitely things that northern tech communities share in common – there’s a very strong tech-for-good element, people are trying to use technology to solve real problems, not necessarily just wanting to do flashy or gimmicky consumer-based apps and websites. A lot of them are B2B, they’re trying to improve business processes or tackle important issues – part of a supply chain that really helps established businesses.”
Mark of Northern Powerhouse success
Graham Robb, senior partner of Darlington-based marketing communications firm Recognition PR and chair of IoD North East, says that Northern Powerhouse projects should be more clearly badged in future to build greater awareness and celebrate success:
“I believe the government should allow existing private sector schemes to be kite-marked with ‘Northern Powerhouse’ so people realise that these are really fully fledged economic projects which make a great deal of difference to the country as a whole, although they’re happening in the north,” he tells Director.
“For example, in Durham the company Arlington Real Estate has been working with developers Carillion to relocate the headquarters of the Passport Office and National Savings and Investments from a dreadful 1960s carbuncle of a building to a new landmark riverside development with excellent environmental credentials – Durham is a Unesco world heritage site.
“That’s the kind of thing we should have badged ‘building the Northern Powerhouse’ so that people, from across the country, can see the economic activity that’s really starting to make a difference to the north.”
Lancaster agrees that Northern Powerhouse successes should be celebrated more visibly: “It’s knowing when to tap into that pan-northern brand, understanding there’s an opportunity to be part of it, and then not being afraid to talk about the reasons your city or local area is strong in a certain sector.
“For example, I recently had a good meeting with a representative from Durham council. I didn’t know until a few months ago that Durham has very strong credentials in space tech, in the development of satellite technology and so on. That’s something quite unique that they’re doing, so we’re talking about how we can elevate that and make sure that, if you want to work in that sector, you know that Durham is the place to be.”
“I think to some degree the advice has got to be ‘seize the day’,” says Hayman. “A city that I visit, which I absolutely love and which shows the potential of this, is Austin in Texas. If you were to look at Austin and argue that the only way it could have grown was through its transport hub, it would still be waiting for it now.
“What it did was it created itself an identity of purposeful capitalism. Instead you saw this real growth of firms such as Whole Foods and others which have – and this is in a highly isolated city in the state of Texas – created this global and national network allowing the city to really go forward.
“So therefore I think the debate needs to focus much more on this idea of a group of large northern cities that can hunt as a pack in a more organised way.
“The main thing now is that the business community has to have the confidence to realise that it’s got the lead role for the Northern Powerhouse. What’s going to make it most credible is that it’s business-led – that’s what’s going to be the power in the house. If you’re looking for the Intel chip inside that will make it successful, it will be the ability of business to grasp this opportunity.”
Many IoD members, says Robb, are already actively seizing the initiative: “In the north-east where I am, one of my members is going to stand to be mayor; I have accepted a position on the first mayoral development corporation outside of London, in Teesside; and a number of businesses are taking advantage of the Northern Powerhouse dialogue to push ministers for the things they want – particularly in respect to process industries in Teesside.
“And while it isn’t all about spending money – it’s also about redirecting from the centre to the regions – our members in the north-east have got quite involved in saying how they want money spent.”
“The IoD is more than happy to act as an access point for people,” adds Perls. “We’re here to point them in the right direction so that they can really start hooking up and working together.”
IoD Director General Simon Walker: ‘Business must lead the way’
“The Directors’ Room at our Pall Mall HQ always makes me optimistic. Morning to evening, it is buzzing with the sound of business; young entrepreneurs tapping away on MacBooks or deals being done and ventures launched by experienced directors. These scenes are repeated nationwide at our regional hubs.
“The theme at the heart of the Northern Powerhouse for IoD members, is the need to bring people together. That’s true physically, in terms of improved transport infrastructure, and of government plans to devolve power to metro mayors. But businesses want to lead the process, not just sit back and wait.
“If devolution and the Northern Powerhouse are going to work, business leaders, groups such as the IoD and local politicians must come together. Only then will these cities and companies be able to carve out their own niches, to become national, and hopefully international, leaders.
“I am confident this can happen. Our regional leaders are pushing forward to build on the north’s strong foundations. From Newcastle to Liverpool, I see new businesses thriving and old industries innovating. The north has leading Russell Group universities, advanced technical colleges, cultural institutions and international air and sea gateways that would be the envy of many a developed country. The potential prize within our grasp is huge – let us hope we can move forward together to achieve it.”
Watch more from Simon Walker at youtube.com/DirectorMagazine