This week, the latest forecasts of both Ernst and Young's Item Club and the Centre for Economics and Business Research (CEBR) have predicted that the UK economy would show negative growth in both the last quarter of 2011 and the first quarter of 2012, which has sparked new fears of a slide back into recession. The TUC has also piled on the pressure, warning that continued cuts in public spending will make the chance of finding a job much more difficult and will hit the devolved nations and the North East region hardest.

Added to that, IPPR North analysis of ONS figures has found that in some areas of the UK there are a staggering 20 jobseekers chasing every job vacancy. West Dunbartonshire in Scotland is the worst-affected area, closely followed by Clackmannanshire and Hartlepool. Our analysis found that northern urban areas are particularly badly affected, as is the West of Scotland, South Wales and some seaside towns.

The most badly affected urban areas in the north include Hartlepool, where there are 16 jobseekers to every vacancy, Middlesbrough where there are 12, South Tyneside (11), North Tyneside and Redcar and Cleveland (both nine). The national average is four. On the other side, areas with one or fewer jobseekers for each vacancy include Crawley, Cambridge, South Bucks, North Warwickshire, Harborough, Daventry and the City of London.

The government are clearly under immense pressure to turn the tide and prove that their strategy is the right one. But they appear to be missing a fundamental piece of the puzzle: strong and sustainable economic performance in the North of England is essential to the success of the UK as a whole. If we are to return to strong economic growth, addressing unemployment in the north of England is an essential place to start.

The 15 million people, 340,000 businesses, diverse network of universities and natural and industrial assets in the north of England represent about a quarter of the national UK economy. Such an asset must be better exploited and IPPR North has long been arguing for a greater focus on the geographical aspects of the government’s strategy to rebalance the economy. So far, attention has been given to rebalancing sectors, mainly the over-reliance on the preeminent finance sector and rebalancing of the public and private sector.

According to the OECD, the so-called ‘lagging regions’ outside London and the South East contributed 57 per cent of the UK’s net aggregate growth in the decade to 2008, and there is potential to enhance this contribution further – to boost the North, provide resilience to the national economy and relieve pressures on London and the South East. In short, the headroom for growth in the North is greater than elsewhere and exploiting this potential will boost the UK economy as a whole. Actually taking this opportunity, however, requires a number of key challenges to be addressed.  

The first is the redressing of the balance of investment across the UK. For example, recent IPPR North research found that transport spending is skewed heavily towards London and the South East, with £2,700 spent per person in London compared with £5 per head in the North East of England. Even given the Olympics taking place in London and the apparent importance of Crossrail investment, this kind of imbalance reinforces current patterns of economic development: the north will continue to lag behind while London grows ever bigger, with apparently no limit to the cost of maintaining even a basic quality of life for people living there.

In addition, labour market performance needs further attention across the north of England. Levels of unemployment remain high, even outside hotspots, and many towns have yet to overcome the legacy of previous transitions. For those fortunate enough to find work, too many jobs are low-quality and poorly paid, reinforcing low productivity and in-work poverty. And the numbers of long-term unemployed are rising at a dramatic rate.

The government’s ‘youth contract’ is a step in the right direction to help tackle youth unemployment problem, but more needs to be done to help the areas of the UK where people are struggling to find work. In the short term, the government should guarantee a job for everyone who has been unemployed for more than a year, paid at the minimum wage.

The guarantee should be matched by an obligation to take up the offer or to find an alternative that does not involve claiming JSA. But, if the scheme is unaffordable on a national basis, this guarantee could be applied on a targeted basis, via a targeted job guarantee for all people living in areas where the rate of long-term unemployment increases to, or the job density ratio falls below, an agreed threshold. Many of these areas would be in the north.

At the other end of the skills spectrum, while the north is at any one time educating some 580,000 students through its network of universities and higher education institutions, there are still skills mismatches in key sectors. Moreover, the northern urban economies are not able to absorb and retain all the skills they generate, with many recent graduates leaving to find employment. More attention needs to be given to promoting growth and innovation clusters to ensure they receive the private investment and support that seems commonplace in the ‘golden triangle’, but which somehow seems too distant for London-based venture capitalists and BIS officials to reach. Some form of 'Northern Investment Bank' might also prove beneficial in this regard.

Alongside these, there are other long-term challenges to be addressed: early years and schooling, greater fiscal devolution and the thorny issue of sub-national leadership and governance must all be part of a new style of regional policy that breathes new life into the north. The IPPR North Northern Economic Futures Commission will play a key role in setting out these solutions when it publishes its final report in the autumn. Until then, one thing is clear: unless there is a greater focus on northern potential, the UK economy is in for more bad news.

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Ed Cox, Director, IPPR North