UK regional productivity gaps as wide as 1901, no easy fix - report

BIRMINGHAM, England (Reuters) - Gaps in economic productivity between London and other regions of the United Kingdom are as wide as they were in 1901 and there is no quick fix to overcome them, a report for the British government said on Tuesday.

FILE PHOTO: Britain's Prime Minister and Conservative leader Boris Johnson stands next to CEO Alan Ferguson as he talks at a Q&A session during a general election campaign visit to Fergusons Transport in the town of Washington, west of Sunderland, Britain, December 9, 2019. Ben Stansall/Pool via REUTERS/File Photo

Prime Minister Boris Johnson has promised to “level up” parts of the United Kingdom where growth has lagged behind, in part through higher spending on transport infrastructure expected in next month’s annual budget.

Many of these areas voted for Britain to leave the European Union, and some also voted for Johnson’s Conservative Party for the first time in December’s parliamentary election.

However, better transport links alone are unlikely to redress the productivity gap, according to the report by the government’s Industrial Strategy Council, an advisory body of academics, business and community groups.

Andy Haldane, the Bank of England’s chief economist who chairs the group, said skills, innovation, housing and community and civic groups played an important role, with complex links in terms of boosting or retarding local economies.

“Regional difficulties typically have deep roots and are long-lasting,” Haldane wrote in a foreword to the report. “For well-performing places, this is a virtuous circle. For left-behind places, it is a vicious one.”

Solving this problem will be slow, and focusing on just one piece of the picture is unlikely to be effective, he said at the event, which was hosted at Aston University in Birmingham by the Whitehall and Industry Group.

But if the bottom third of regions could boost their productivity to the national average, that would boost annual economic output by 3%, or 65 billion pounds ($85 billion), a year.

A business ministry spokesman said the government welcomed the report, and had already committed 3.6 billion pounds to support economic development outside major cities.

Regional inequality has declined slightly since the financial crisis, the report showed, largely due to a fall in output per hour worked in London.

But looking at average wages, where there is longer-running data, regional differences remain as wide as they were in 1901.

The gap in output per hour between Britain’s most and least productive regions is also wider than in all major European Union countries such as Germany and France.

Editing by Gareth Jones