Testing the economic rationale for devolution to Yorkshire
Eighteen local authorities in Yorkshire, along with the Mayor of Sheffield City Region, are working together under the One Yorkshire banner to make the case for the devolution of significant powers and budgets to Yorkshire. Economic arguments play a significant part in any case for devolution, so the One Yorkshire authorities asked Steer Economic Development to:
- assess the extent to which their local economies, when taken together, form a coherent economic area; and
- identify opportunities for promoting economic growth at the level of Yorkshire.
The Yorkshire and Humber region has a population of 5.56 million people, a workforce of 2.5 million, and a complex, polycentric and diverse economy that is worth around £112 billion a year. The region’s governance arrangements for business and economic development reflect its economic complexity – at the time of writing, eight of the region’s 22 local authority districts were members of more than one Local Enterprise Partnership.
The complexity of interactions between sub-regional economies and local political and administrative boundaries in Yorkshire and Humber has stymied efforts to establish governance arrangements that are as economic, efficient, and effective as they could be. Thus, current governance arrangements for business and economic development fail to make the most of the region’s economic potential.
The scale of the issue
The need for effective action to drive the region’s economic growth is clear: if the region’s gross value added (GVA) per head matched the UK’s, it would be c. £31 billion higher (that is c. 25%). Furthermore, economic forecasts indicate that without action the GVA gap could grow to £42 billion a year by 2038.
In assessing the region’s economic coherence and strength of the case for devolution, we set some tests:
- What are the key sectors and industries in Yorkshire?
- To what extent are these sectors shared across Yorkshire?
- Is the Yorkshire economy sufficiently different from the UK for it to benefit from devolved powers and budgets?
We identified 16 industries that are significant and shared across Yorkshire. We also found Yorkshire’s economy is distinctive from the UK – based on its specialisation in manufacturing and in distribution, transport, accommodation and food.
To identify Yorkshire-level issues, we asked: what are the specific challenges and opportunities facing the region and what might be done at the level of Yorkshire to address them?
We broke down the issues into five policy areas: international trade & investment, skills, business & enterprise, innovation, and transport.
Using data available at the regional level, we assessed Yorkshire and Humber’s performance relative to its share of the UK population, and we found scope for action to address a:
- £10.4 billion annual shortfall in the value of the region’s exports;
- 7% shortfall in those qualified to NVQ 4 or above – a gap estimated to cost the economy c. £1.56 billion a year;
- gap of around 56,000 businesses – generating a £15 billion a year hole in region’s output;
- £1.35 billion annual shortfall in investment in Research & Development – with even greater long-term economic losses due to slow adoption of innovation; and
- shortfall in investment on transport that is worth around £130 million a year and worth a total of £1.7 billion based on the known investment pipeline – with even greater economic losses in terms of inefficient labour markets, congestion, and pollution.
These gaps should not be treated as cumulative because some of them, such as innovation, highlight funding gaps (inputs), while others, such as exports, point to shortfalls in GVA (outputs), and others, such as skills, cut across policies and therefore carry a risk of double-counting. But, we suggest it is reasonable to argue that Yorkshire and Humber’s annual economic growth rate could be raised above trend – thereby helping to close the GVA gap over the next 20 years – provided the region has significant devolved powers and budgets for the policy areas that matter most for business and economic development.