Five reasons Brexit reinforces the case for a Northern Powerhouse

Paul Hammond
18 July 2016

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Brexit has led to uncertainties unlikely to be answered very soon, but it reinforces the case for a Northern Powerhouse. Mott MacDonald director Paul Hammond has five reasons why.

Connectivity, in transport and economic and social terms, with the global economy is a central theme for the Northern Powerhouse and the June 2016 referendum has clearly demonstrated that communities do not feel connected. The decision in favour of Brexit has led to uncertainties around access to the single market, free movement of labour, and funding that are unlikely to be answered in the short term.  It is, however, clear that the changes reinforce the case for the Northern Powerhouse.  This note offers five reasons why.    

1. One nation

The referendum results, and the debate before and after, illuminate a deep division in the UK and across the North of England that requires urgent and long term action to address.  This is both a social and an economic challenge for the nation. A post-Brexit inclusive and prosperous nation that trades internationally with confidence will require world class infrastructure to support enterprise and skills.  The Northern Powerhouse investments are central to this moral and economic agenda.

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2. Limits on migration make re-engaging the ‘urban periphery’ a priority

The Northern Powerhouse aims to re-engage people in the urban periphery - areas close to but outside the core cities where the push for Brexit was felt most strongly - who face high unemployment and poverty, have poor skills and attain low productivity.  

As ‘free movement’ becomes more restricted, firms will face a growing need to recruit domestically, offering an opportunity to match business demand with social need, but placing particular importance on two aspects of Northern Powerhouse policy:  first, improvements to physical connectivity to allow people to take advantage of jobs across the region, rather than only in their immediate locality;  second, investment in people through a coordinated programme of skills improvement on an employer-driven training agenda. 

3. Changes in trade require better East-West communications

The improvement of communications, especially East-West, is central to the Northern Powerhouse and articulated through the strategy of Transport for the North.  The benefits of improved connectivity are often discussed with a domestic focus, for instance agglomeration can allow firms to draw workers from one city region to another,  and, in turn, pockets of deprivation and exclusion can be tackled within a functioning labour market.

Brexit will make global trade even more important for the development of an interconnected region.  The Northern Powerhouse has a unique economic architecture that is ripe for further development.  Central to this is the relationship between the east and west coast ports.  The Humber ports, and other ports on the east coast, are the traditional focus for trade with the continent and for bulk trades, and the ports in and near Liverpool for the rest of the world.  With sufficient infrastructure investment, they can be better linked to develop a fully functioning system based on global patterns of trade.  This requires much greater capacity and speed on east-west links including, for example, improved rail connections, a new Trans-Pennine road link, and numerous more everyday but equally important improvements to local infrastructure and services.  Brexit-induced changes to trade patterns will reinforce the existing case for investment.

4. A ‘Second London’ becomes even more important

The UK’s economy has increasingly been geographically centred on London and the South East and their service and finance industries, industries dependent on easy access to European markets. Uncertainty over the future relationship with the European Union presents a threat to this economic focus, and to the UK’s economic stability. The Northern Powerhouse has unique characteristics and strengths that can counterbalance economic challenges to the current status quo.

The former metropolitan counties, each centred on a core city, have a combined population equal to that of London. Through well planned investment in infrastructure, connectivity and skills development a second London-scale economic base can be created. There is already a culture of enterprise in the Northern Powerhouse regions that can be harnessed.  If the right plans and funding are put in place, the workforce can be given improved access to skills and training, and to jobs;  employers can gain access to revitalised domestic markets and production chains;  and productivity can be improved.  The consequence would be a true ‘Northern Powerhouse’ and a desirable rebalancing of the UK economy in the long term.

5. The UK needs to make more, and the North can deliver

The UK has a large deficit in manufactured goods trade with the rest of the EU.  Brexit has the potential, through tariffs, lack of common standards or otherwise, to reduce2 trade in both directions.  The impact would be twofold:  first, given the existing net balance of trade there would be increased domestic demand for UK manufactured goods;  and second, there would be a need to look to global trade partners to compensate for changes in flows.

The Northern Powerhouse is ideally positioned to address these challenges and to mature existing links with China.  There are already many high productivity sectors active and successful in the north, including offshore technologies and high value manufacturing.  These successes could be the pillars of a global trade and manufacturing strategy.  Increased emphasis on domestic supply chains and skilled labour could build a more coherent and functioning economy ready to increase its trade with the rest of the world.

Similarly, the manufacturing and enterprise culture of the Northern Powerhouse Regions could be harnessed to meet domestic demand.  Brexit will shift patterns of comparative advantage in trade with the EU in favour of the North, and although there will continue to be competition from non-EU sources with much cheaper labour, the potential for economic expansion is considerable.  Investment in linking people to training and jobs, and businesses to one another and to universities can drive growth in high added value sectors. 

Paul Hammond is a director of Mott MacDonald's Integrated Transport business