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The Progressive Policy Think Tank

State of the North: North of England experiencing lowest investment of advanced economies, but levelling up is possible

Major report shows that if the North were a country, it would be second only to Greece for the lowest levels of investment in the OECD

But researchers at IPPR North find that levelling up is possible, identifying examples from around the world of local leaders who have turned their economies around
 
The leading think tank for the north of England has today published research detailing the extent of underinvestment in the north of England, and its impact on the UK economy.

IPPR North’s ‘State of the North’ report - which puts the north of England in an international context - shows that if the region were its own country, out of all OECD countries only Greece would see less (public and private) investment. Researchers found that:

  • Of the 38 OECD countries plus the North, the UK comes 35, the North comes 38, and Greece comes 39 for the lowest levels of investment.
  • Countries like Slovakia, Poland, Czechia and Hungary all experience greater investment than the UK and the North.
  • If the UK had seen the same investment as the OECD average, around £397 billion more would have been invested from 2017 to 2020, while around £195 billion more would have been invested in the North.
  • Researchers at IPPR North say that systematic underinvestment in the things that would enable growth, like R&D, social infrastructure and transport, alongside vast inequalities, are holding the North and the UK back.

Today’s report also highlights the extent of the UK’s vast inequalities, showing that:

  • Productivity is around £7 lower per hour worked in the North than the England average.
  • Hourly pay is £1.60 lower in the region than the rest of England.
  • Researchers say that this is having a negative impact on peoples’ ability to live a good life.

However, today’s research also looks internationally and compares the North with places around the world that have charted a different course, using investment, progressive taxes and regional and local power to successfully ‘level up’. For example:

Leipzig in Germany has levelled up through industry and investment, turning its fortunes around from shrinking city in former East Germany to the fastest growing city in Europe. Germany has a constitutional commitment to reducing regional disparities in living standards, and well-resourced local leaders have been empowered to build on Leipzig’s strengths and involve citizens and experts in decision making. Today, long term job creation is 16 percentage points higher in Leipzig than the north of England.

Bilbao in Spain’s Basque Country has levelled up through cultural regeneration, jumpstarted by the opening of the Guggenheim Museum in 1998 and leading to the city becoming a global hub for trade and business travel. Regional and local government in Spain is stronger and better protected than in England, and it played an important role in efforts to regenerate Bilbao. Today, disposable household income per person is $5,155 higher in Bilbao than the north of England.

Ibaraki in Japan has levelled up using local transport investment, with local government supported by central government to deliver an ambitious rail project, the Tsukuba Express, which unlocked economic benefits along the route. Today, productivity per worker is 61 per cent higher in Ibaraki than the north of England.

These international examples show that well-resourced leaders with good policies can boost regional growth. In turn, experts at IPPR North say that regional growth is needed to grow the national economy.

Report author and IPPR North research fellow, Marcus Johns commented:

“The UK stands out internationally for all the wrong reasons. Of all the advanced economies around the world, ours is the most regionally divided and getting worse – the North is at the sharp end of these divides and that’s a barrier to prosperity. But what’s even more unacceptable is that our country is divided by design. It is the result of decisions.

“The North’s strengths are national strengths. Northern prosperity can be national prosperity. It’s up to the government to unlock this potential, by acknowledging that it has to change, and by enabling empowered, well-resourced local government to coordinate and deliver long term local visions for change. There are plenty of examples out there for how we can do better”.

Director of IPPR North, Zoë Billingham said:

“The international evidence is clear: governments that let go of power and collaborate positively with local places can succeed in levelling up.

“We must turn the economic fortunes of our country around. Our leaders need to think big and look beyond our borders for inspiration.

“Political leaders need to ‘zoom out’ and learn lessons from our international neighbours to achieve regional growth and narrow our aching divides. We know that private investment follows public investment. We also know that the government has the choice to invest for the long-term in regions like the North to take the UK from a low investment economy, to one that, finally, thrives.”

Carina Sammeli, Mayor of Luleå in Sweden, one of the case study areas included in today’s research which is notable for local success in levelling up through the net zero transition, commented:

“Luleå is right now going to a green transition, driven by the heavy, dirty industries leaving fossil fuels and going to renewable industry. We as a municipality are too small to do the transition alone, this is only possible through cooperation between local, regional and national levels, and the industry. If we do this right, we will make it possible to start of a new industrial era in Europe that will create jobs here and slow down the climate changes”.

ENDS
 

Notes:

IPPR North is the leading think-tank for the north of England, developing bold ideas for a stronger economy and prosperous places and people. For more information, visit ippr.org/north.

IPPR North director Zoë Billingham will be speaking at the Convention of the North (Jan 25). For more information on the Convention, which will be addressed by Levelling Up Secretary Michael Gove MP, and Shadow Secretary of State for Levelling up Lisa Nandy MP, contact [email protected]

Methodological notes:

What we mean by investment: Investment is measured as a percentage of GDP. It is ‘Gross Fixed Capital Formation’. The percentage of investment is proportionate to an area’s own level of GDP.

How we calculated the amount of investment the UK and North would have received if it saw the same investment as the OECD average: We took the OECD average Gross Fixed Capital Formation for 2017-2021 (22 per cent). We applied this to real terms GDP (2019 CVM) which is only available up to 2020 for the regions. Figures are in 2019 prices.

How we developed our case studies: The three international examples highlighted in this press release are three of five case studies in the full report. From over 140 pieces of evidence reviewed, the case studies were chosen due to parallels to the North, such as responding to deindustrialisation or polycentricity as an economic feature.

Investment by OECD country and the north of England (GFCF stands for Gross Fixed Capital Formation, which is used to measure investment):

Investment by OECD country and the north of England (GFCF stands for Gross Fixed Capital Formation, which is used to measure investment):

Country

GFCF as a % of GDP, five-year average 2017-2021

Rank among OECD member countries

Ireland

36%

1

South Korea

31%

2

Turkey

28%

3

Estonia

28%

4

Czechia

26%

5

Switzerland

26%

6

Hungary

26%

7

Japan

25%

8

Norway

25%

9

Sweden

25%

10

Austria

25%

11

Belgium

24%

12

Finland

24%

13

Chile

23%

14

France

23%

15

Australia

23%

16

New Zealand

23%

17

Canada

23%

18

Latvia

23%

19

Israel

23%

20

OECD average

22%

Denmark

22%

21

Iceland

22%

22

EU-27 average

22%

Germany

21%

23

The Netherlands

21%

24

USA

21%

25

Lithuania

21%

26

Mexico

21%

27

Colombia

21%

28

Slovakia

20%

29

Spain

20%

30

Slovenia

19%

31

Portugal

18%

32

Italy

18%

33

Poland

18%

34

UK

18%

35

Costa Rica

17%

36

Luxembourg

17.1%

37

North of England

17.0%

38

Greece

12%

39

Source: Authors' analysis of OECD (2022) Investment (GFCF), dataset, and ONS (2022) Experimental Regional Gross Fixed Capital Formation (GCFC) Estimates by Asset Type, dataset.