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The real issues still fester for the north of England

Osborne’s vision doesn’t extend this far. Tom White/PA

The north of England, along with the central belt of Scotland, created the world we live in today. But the fundamental problems the region now faces stem from the very industrial revolution that shaped it. Put simply, the north is still struggling to cope with the transition from an industrial to a post-industrial society. The distortion of the UK economy towards London and the south-east, as well as the economic shift towards financial capital rather than industrial capital, have hit the north very hard.

The symptoms of failure begin with the extent of poverty. They are also evident in the scale of the loss of productive industrial employment, although the north continues to have a real manufacturing sector and one part of it, the north-east, is the only UK region with a surplus in international trade based on manufacturing.

So what does the 2014 budget mean for this part of the country? “Not much” is the best answer. The main beneficiaries will be households, and especially retired households, in the top half of the income distribution. Raising the personal allowance for income tax does very little for low-wage workers, many of them part-time. A rise in the threshold level for national insurance would have been worth far more for them and far less for high-income households, particularly if the 10% rate for that tax had been pushed up the income structure. That would have been a genuinely redistributive measure.

Indirect taxes hit the poor hard and there was nothing of substance in the budget addressing that issue. This budget does very little if anything to redistribute wealth, particularly towards low-paid workers. The changes to what people can do with pension pots are good for middle-income, older households, and there are many in the north, but really these just deal to a very limited degree with the disappearance of final salary pensions in the private sector – great manufacturing companies such as ICI used to have excellent schemes – and do no more than allow people to take some risks with their own money.

In terms of support to productive industry there are some welcome elements in relation both to taxation of investment in research and development and support for high-level innovation in applied technology, but these are not radical. Under-investment in manufacturing is a great weakness of the UK industrial system, in marked contrast to that most successful of European industrial economies, Germany, where small and middle-sized firms have an excellent record in this respect. Actually the north of England benefited rather a lot from the German tradition in the 1930s, when Hitler’s regime drove a significant number of industrial and technical entrepreneurs to the UK, where they set up enterprises in the industrial estates developed under the Special Areas regimes. They created thousands of good jobs. That was a real injection of industrial energy.

This budget is piddling in comparison. The funding for graphene research, a material developed in the north of England at the University of Manchester, is minute compared with the investment being made in this revolutionary material in another successful industrial society, South Korea. Money for stem cell research is welcome, but small beer. There is no industrial strategy in this budget for the north, but we have not had anything that looked like one since the days of Harold Wilson, who was actually a very competent industrial economist and statistician.

All this is pretty galling since the financial crisis of the UK is nothing to do with the north and everything to do with the failure of investment banking based in London. Yes, regional bank Northern Rock did collapse, but that was about business model failure in relation to liquidity rather than in relation to devaluation of assets. Actually the “bad bank” that split off from Northern Rock, which took over mortgages, seems to be in profit since it did not manage, despite appalling management and oversight, to get embroiled in the US mortgage-based asset disaster.

All in all, George Osborne has presented the nation with a budget for an election, targeted at key voters. Sadly for a large part of the county, those key voters don’t seem to live in the north.

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