In the latest instalment of Insider’s Q&A series on the Northern Powerhouse, Mark Tighe, chief executive of specialist tax consultancy Catax, outlines what the initiative means to him, what can be done to fulfil some of the first promises made when it was launched, and the existing measures in place to encourage innovation.
Name: Mark Tighe
Position: Chief executive
What does the Northern Powerhouse mean to you?
There is a disparity between what the Northern Powerhouse should mean, based on its original ambitions, and what it does mean based on what has so far been achieved.
The Northern Powerhouse, first announced just over five years ago by then Chancellor George Osborne, was originally touted as a plan to boost the economic fortunes of the north and develop it into a major international centre of business that could rival London. This was to be achieved through investment in skills, innovation, transport and culture across the major northern cities and the creation of directly elected mayors with greater devolved powers and budgets to drive regional success. The idea was to pool the economic strength of the ‘core cities’ such as Manchester, Liverpool, Leeds, Sheffield, Hull and Newcastle to compete on a global stage.
In reality, despite many soundbites alluding to the project, little has changed and the ‘Northern Powerhouse’ has looked increasingly like another empty pledge.
Metro mayors have been elected for Manchester, Liverpool, Sheffield, the Tees valley, Newcastle and Northumberland bringing those areas a greater level of self-determination but the devolution deals were determined far more by Westminster than the regions themselves.
The, originally, ambitious plans have been steadily pared back so that now, the project seems to be focused solely on improving transport links between the northern cities with little other tangible action. However, there are positive signs that the Northern Powerhouse is being redefined once more in an effort to breathe new life into this project. While Brexit is creating an ongoing distraction and stifling business investment as uncertainty prevails, there are growing calls for a fresh approach and clear government strategy regarding the Northern Powerhouse.
A report by the Institute for Public Policy Research (IPPR) North, published in June, claimed that government austerity in the last decade has disproportionately hit the north with £3.6bn cuts in public spending in the region since 2009/10 compared to a £4.7bn rise in the south east and south west, in real terms. The IPPR North went on to call for ministers to go further with devolution and investment across the region, taking a holistic rather than a piecemeal approach – something that has since been echoed by politicians and key business leaders and local authority figures.
Five years have passed since the phrase ‘Northern Powerhouse’ was first coined. Has enough happened since then?
The short answer is no. The project was blunted from the start by the very government that created it, as it proceeded to impose sweeping cuts as part of an austerity programme, which stifled effective investment.
The original Northern Powerhouse plan promised investment across four key areas: transport; devolution; science & innovation; and culture. But against a backdrop of major public spending cuts, only piecemeal investment focused on a few select industries and transport improvements has materialised, while funding for much vital social infrastructure has dried up. As a result, the only tangible progress is the creation of Transport for the North (TfN) with a £70bn investment blueprint to create much greater connectivity between the northern cities. While this is a positive step, figures from IPPR North also show transport spending has risen by more than twice as much per person in London as in the north and train delays across the north have doubled since the Northern Powerhouse was announced.
Transport is something that badly needs improvement as many of the intercity train services are archaic, slow and unreliable meaning there is nowhere near as much movement of talent and business between the northern cities as there should be. However, for the north’s economy to truly fulfil its potential, strategic intervention is needed across the whole economy, not just a select few industries, with heavy investment in skills and innovation.
During the lifetime of the Northern Powerhouse, the number of jobs in the north paying less than the living wage rose by 150,000 and 200,000 more children in the region are growing up in poverty, the IPPR North found. This is clear evidence that the social infrastructure of the north needs rejuvenating after years of cuts.
How is the appointment of metro mayors starting to help the initiative?
Metro mayors and the devolution of power and budgets to them is a move in the right direction for those cities that have them, but there needs to be more joined up thinking between all the cities of the north if the Northern Powerhouse dream is to come to fruition. This is where a proactive and vocal Minister for the Northern Powerhouse – currently Jake Berry – is vital as we need representation for the north as a whole. Mr Berry must impress upon Westminster the need for much more widespread investment if we are to see a genuine structural change in our country’s economy.
While the mayors will promote the interests of their areas — which is great and the role they have been tasked with — more prominent voices across politics and business are needed to argue for the interests of the whole northern region.
What must the government do to re-energise the Northern Powerhouse?
While London may dominate in financial services, the North has a wealth of talent across key industries including advanced manufacturing and materials, energy, digital and health innovation. These are all industries which rest upon constant innovation and strong technical expertise, and the government should place a renewed focus in incentivising skills training and innovation in these areas.
There are various measures already in place to encourage innovation such as research and development (R&D) tax credits. These enable businesses to claim back tax based on the costs of their R&D work, which is defined as any work that seeks to resolve a ‘scientific or technological uncertainty’ in the form of a new process, product, service or an improvement to an existing one. There is also the Patent Box tax relief which offers a reduced rate of corporation tax of just 10 per cent on income made from patents — nearly halving the rate of corporation tax payable on intellectual property (IP) related income.
These reliefs can make a big difference to companies’ bottom lines but take-up of these tax credits remains far too low with many businesses still unaware of them. More than half of companies that are potentially eligible for R&D tax credits, for example, fail to claim. This is where the government needs to intervene to ensure much greater awareness of policies to encourage innovation and growth so more businesses actually access the support available. But there could also be much more done on a regional level – with devolved powers of greater scope, cities of the north could introduce their own localised incentives, rewards and platforms for training and innovation, whether through pots of funding, business grants, and subsidised rents or workspace.
Of course, all this requires money but since it is now clear that despite the talk of the Northern Powerhouse, government funding has remained disproportionately focused on the south of England, it does not seem unreasonable to demand this imbalance is rectified.
The ‘Golden Triangle’ of London, Oxford and Cambridge attracts more than half of all UK research funding – more than £17bn. By comparison, £0.6bn goes to the North East. While there are many good reasons why the Golden Triangle attracts huge investment and it would be naïve to suggest otherwise, there is no reason the north, with its industrial heritage, emerging new industries, world-class universities and a large workforce ready to train and upskill, should not also become a hot bed of innovation with the right support.