NPP report: Changing the wiring of government spending to fix North – South divide

The Northern Powerhouse Partnership (NPP) is calling on the government to use the upcoming Spending Review to address critical issues that are driving the North-South divide: economic inactivity and the underachievement of disadvantaged children in education. Without action, these disparities will continue to hinder productivity growth across the country for decades.

Data shows that 24.2% of the working-age population in the North are economically inactive, compared to just 19.5% in London and the greater South East. In areas such as Middlesbrough (29.2%) and Blackpool (28.4%), this figure is even higher. These levels of inactivity are contributing to the long-term productivity gap between the North and the South.

While the new government has made significant investments in infrastructure, such as Northern Powerhouse Rail and Great British Energy, NPP’s new analysis stresses that it is just as important to address the root causes of this economic inactivity. These causes include ill health and poor educational outcomes, which are creating significant pressure on both local and national government finances.

The Office for Budget Responsibility (OBR) has projected that spending on healthcare and benefits will increase over the coming decades because of an ageing population and worsening health. Our analysis shows that by prioritising prevention, reducing chronic conditions and improving life expectancy, the government could ease future pressures on the public purse. A “better health scenario” could lower the primary deficit by 2.1% of GDP by 2073, while also reducing national debt by 44% in the same period.

Henri Murison, Chief Executive of the Northern Powerhouse Partnership, said:

“The previous government’s failure to tackle economic inactivity and the performance of our persistently disadvantaged children in education will have negative consequences for both productivity and the cost of local and national government spending for decades.”

“We are encouraged by the direction of this new government, particularly the approach of the Secretary of State for Health and Social Care, who are prioritising prevention to reduce the burden of ill-health on both the NHS and the economy. Now, this must be matched by long-term investment in transformative projects like Northern Powerhouse Rail, as well as addressing the disparities that exist in education and in those excluded from the labour market including through ill health.”

“The North has the potential to play a greater role in driving productivity growth — but that will only happen if we break from the short-termism of the past. By doing so, the Government can deliver real change through targeted investment and local empowerment, with Mayors’ new single settlements needing to be focused on these challenges.”

Notes:

• According to the latest data from the Office for National Statistics (ONS), 24.2% of the working-age population in the Northern Powerhouse is economically inactive, compared to 19.5% in London and the greater South East.
• In Middlesbrough, 29.2% of the population aged 16-64 was economically inactive in 2023, while in Blackpool, the figure was 28.4%.
• Source: Office for National Statistics (ONS), Labour Market Overview, UK: October 2024.

Read the full report here: