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Gatwick Diamond and the North/South divide or Interdependence?

27 July 2016 - Jeff Alexander

When I joined the Gatwick Diamond Initiative at the start of April, little did I know that, two months later, we would see a national vote to leave the EU and a new Prime Minister! Now we are watching with interest to see what direction the new cabinet will take with regard to investment in the economy and its attitude to what is sometimes called the North/South divide.

The starting point must include recognition of the fact that the South East makes the highest net contribution to the Treasury of all the regions - £6 billion more than London. With a GVA of £240 billion, the South East economic output is second highest in England after London (source: South East England Councils).

The Gatwick Diamond is one of the strongest economies in the South East and the UK. Home to 45,000 businesses and 500 international businesses, it creates £22.3 billion in GDP each year and offers a strategic location with excellent connectivity, a talented labour force, and a well-developed supply chain across a range of growth sectors.

This is not to gloat - I am all for industrial policy that supports the less well-performing parts of our country to reach their economic potential. However, too often the issue is presented as "either/or" with the relative success of the Gatwick Diamond and wider South East economy portrayed as a problem.

As an aside, we need to qualify "relative success" it is a domestic rather than international comparison. A comparison of South East productivity with that of leading economic regions world-wide suggests considerable untapped potential. This indicates that the South East economy is "under-performing" rather than "over-heating" as is sometimes suggested.

We need industrial policy that reflects the joined-up nature of our national economy. Take for example, the debate over airport capacity expansion. Few economic commentators question that airport expansion in the South East is needed to support the national economy - but where? The Airports Commission’s prediction of economic value of expansion shows that the benefit Gatwick and Heathrow options are similar. However, the Gatwick option offers economic benefit more evenly spread around the country. This is because the market dominant position of Heathrow would concentrate the connections, and therefore economic impact, in West London. So it is clear which option a balanced industrial strategy for the country as a whole would go for.

A strong South East able to compete with the best performing regional economies world-wide is essential to our country as a whole. Building on how things connect rather than divide our regional economies is even more important post Brexit supply chains, RD collaboration and investment flows for example.

Over time, a successful industrial strategy (coupled no doubt with domestic and global factors as yet not on our radar) could lead to a narrowing of the North/South economic gap. But our goal, whatever part of the country we live or work in, must be for that to happen through more equal sharing of the costs and benefits of baking a bigger cake. That will only be possible through growing the international success of our businesses supported by investment in world-class infrastructure across the country.

So that is the longer-term goal. For now, the performance of the Gatwick Diamond and the South East will continue to catalyse the national economy (I hate terms like "Powerhouse" and "Engine" as they suggest that a national economy is like a machine with pre-determined functional parts it is much more complex than that).

Back in the old RDA days, I remember a colleague from the North East musing that the quality of life enjoyed by many in the North East belied the wealth its economy created. That was only possible then, as it is now, because one of the main exports from the South East to the rest of the country is quality of life.

As a society we rightly demand that all parts of our country should enjoy the same standards in fundamental public services such as education and health, but this has to be paid for and the South East’s contribution comes at a cost. Take, for example, house prices, congestion and the general cost of living and its impact particularly on the less well off to be poor in the south east is to be poorer than in any other part of the country. The Government cannot afford to be complacent about our ability to continue to generate wealth for the country as a whole and to bear the cost that involves without commensurate investment.

The new Chancellor of the Exchequer, Philip Hammond, has declared that he is ready to ‘reset’ the Government’s economic policy to respond to any slowdown caused by the UK’s decision to leave the EU. The Gatwick Diamond Initiative will therefore be calling for the Government not to take the wealth our businesses and people create for granted. Post Brexit, the ability of businesses in the Gatwick Diamond and the wider South East to compete successfully internationally will be even more important to the national economy and quality of life in all regions.

To be successful, a business must invest in its best performing assets for the good of the business as whole. That applies equally to the management of a national economy and the Gatwick Diamond is a national asset.

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