SUMMARY – from IPPR:

“Last year’s State of the North report was full of confident projections of northern powerhouse potential. In substantive terms, little has changed: this year the northern economy has passed the £300 billion mark, jobs growth has motored on, and northern regions topped this year’s EY Attractiveness Survey for foreign investment.

However, dark clouds are gathering on the horizon following the events of the past six months that have engendered more than a wobble – uncertainty now pervades the northern mood. Regardless of current quarter on quarter national GDP growth, the decision to leave the EU will have a profound effect on the northern economy. Whether in terms of trade, access to skilled labour or EU funding programmes, the implications of Brexit on the North will be profound. There will be upsides of course but for the time being business is cautious and concerned.

The political fallout from the Brexit vote has also been severe. The champions for the northern powerhouse in the national government – former chancellor George Osborne and financial secretary Jim O’Neill – have both departed the main stage. Meanwhile, devolution deals appear to have stalled, and the focus on regional rebalancing has now been subsumed into a wider initiative to develop an industrial strategy.

All this, however, presents new opportunities. While Osborne’s approach was always too partial, piecemeal and parochial, Greg Clark’s ambition to create a ‘place-based industrial strategy’ led by the powerful new Department for Business, Energy and Industrial Strategy has the potential to ignite a new era of economic activism around some of the North’s major economic strengths.

Such developments are timely. Following on from IPPR North’s Blueprint for a Great North Plan in January 2016, which set out a framework for a modern industrial strategy, Transport for the North unveiled in June the results of the Northern Powerhouse Independent Economic Review. The review identified four ‘primary economic capabilities’ where the North has been shown to have world-class assets and a further three ‘enabling capabilities’ that will underpin this potential.

Add to this the excellent progress being made in building powerhouse capacity in relation to transport infrastructure, finance, trade and investment; the northern powerhouse strategy and northern powerhouse schools strategy published alongside the chancellor’s autumn statement; and there should be cause for cautious optimism. Instead though, wider events mean that business confidence is weak and once again, the prospects of inclusive growth in the North are looking as distant as ever.

Our State of the North 2016 report focuses on three key issues that will build business confidence in an era of increasing uncertainty.

1. SECURING A UNITED NORTHERN VOICE AT THE BREXIT NEGOTIATING TABLE

The North has distinct economic assets and interests that present both opportunities and threats as the UK prepares to leave the European Union. However, the fledgling and patchy development of combined authorities, metro mayors and devolution deals in the North means that the region is not well placed to formulate a coherent response to Brexit. It will therefore struggle to match the response of the devolved administrations for Northern Ireland, Scotland or Wales, or of the mayor of London or other well-established lobbying groups.

Recommendation 1: IPPR North calls for the formation of a Northern Brexit Negotiating Committee to determine the type of Brexit that would best suit the North, to speak with one voice in the negotiations, and to build direct relationships with regions and nations within and beyond the EU in order to develop and enhance its particular trade interests.

2. ESTABLISHING CLEAR PRINCIPLES FOR A PLACE-BASED INDUSTRIAL STRATEGY

The government’s industrial strategy represents an opportunity not only to address the implications of Brexit but also to take a more proactive approach to many of the structural challenges facing the UK economy, not least regional rebalancing. There are numerous ‘types’ of industrial strategy with varying degrees of intervention. IPPR has set out four clear ‘objectives’ that any new approach must address including the need to develop a strong spatial dimension to enable all parts of the country to contribute to its prosperity, but IPPR North believes that industrial strategy must adopt three ‘place-based principles’.

Regional differentiation: Develop a more sophisticated understanding of what drives growth in different types of region rather than the hitherto insufficient account of growth focused on urban agglomeration.

Co-ordinated investment: Drive up public investment in infrastructure, research and development and other economic assets to match private sector investment and act as a catalyst for business innovation and smart specialisation.

Devolution: Develop and enhance its approach to devolution both to regional and local tiers of government with a much greater emphasis on fiscal powers to enable subnational bodies to direct investment on local economic opportunities.

Recommendation 2: IPPR North calls upon government to adopt a place-based approach to industrial strategy with the three core principles of regional differentiation, coordinated investment and devolution as its foundation.

3. FOCUSING ON LOCAL ECONOMIC RESILIENCE ALONGSIDE GROWTH AND DEVOLUTION

The large majority of our State of the North 2016 report focuses on the importance of building local economic resilience. As with industrial strategy, there is a rich literature on how local economies resist and recover from economic shocks. Building on the work of Martin and Sunley (2014), IPPR North has developed a resilience framework consisting of four factors, each with a set of key indicators, and has used these to profile each of the 11 local enterprise partnership (LEP) areas across the North of England.

Our analysis finds that the North’s resilience is as varied as its geography, but we have been able to group the North’s LEP areas into the following categories.

Resilient or prosperous: areas that are relatively well prepared, with a diverse economy and strong labour market

Dynamic but vulnerable: areas where there is a diverse or diversifying economic base, but have some structural flaws, especially compared to similar city-regions in the EU

Dependent or vulnerable: areas that are reliant on a single industry or small group of industries, and have significant structural issues to overcome.

Recommendation 3: IPPR North recommends conducting LEP resilience audits. The North’s LEPs, working closely with relevant local and combined authorities, should each conduct a resilience audit that sets out in detail the threats to their economy in the wake of Brexit. This audit should then be used to inform a strategic response, and a set of asks from the government that are tailored to acting on this strategy as part of a new round of devolution deals with each LEP area.”

The UK government needs to design an industrial strategy that will meet the multifaceted challenges. This paper outlines the desirable principles and objectives of such a strategy.

Here is the report:

industrial-strategy-that-works-for-the-UK_Nov2016

Here is the summary from the IPPR:

“The UK economy has several deep structural issues. We are less productive than our peers in Europe, and progress at closing the gap has stalled since the 2007/8 financial crisis. The long-term erosion of our manufacturing base has contributed to a persistent trade deficit, and reduces the extent to which UK manufacturing firms benefit from a falling pound, or investment in major domestic infrastructure projects. Economic activity is increasingly concentrated in London and the South East, and many regions of the UK are yet to recover their pre-crisis levels of GDP per capita. And we are falling well short of our ambition to cut carbon emissions by 80 per cent relative to 1990 levels by 2050.

Against this backdrop, ‘industrial strategy’ has taken on the qualities of a panacea. With the inclusion of industrial strategy in the newly named business department, the government looks primed to launch a more interventionist, ambitious approach to economic policy.

Given the significance of the service sector for UK GVA, productivity and employment, industrial strategy should support innovation as it applies in a service sector context, in addition to technological breakthroughs, with an approach that encourages adoption as well as origination of innovations. The strategy should have a strong spatial dimension, and be determined at both the regional and national levels. Manufacturing should be supported in two ways: firms and research institutions developing new technologies should be supported, but so should less innovative firms with the potential to transition to more sophisticated products. Finally, the decarbonisation objective should underpin the entire strategy.

KEY FINDINGS

There are several ways in which private markets, left unchecked, deliver sub-par outcomes. They include:

Underinvestment in innovation: economies don’t innovate to the extent that they should, because some of the benefits to that learning are not captured by the individual or firm that does the innovating.
Lack of coordination: an uncompetitive endeavour for a single firm can be made economically viable by coordinating the activities of several firms in a ‘cluster’, but no one firm has the ability or incentive to create that cluster.
Short-term and risk-averse finance: banks and venture capital funds alike do not offer sufficient finance to the riskier, innovative activities that it is in society’s interest to pursue.
Failure to capitalise on public (or publicly driven) demand: the potential benefits to society of the demand generated by public policy decisions – such as the approval of a major infrastructure project – are not fully realised, as UK firms are not necessarily configured to supply to them.
Lack of motivation to solve societal problems: the private sector is not sufficiently motivated by market prices to solve the UK’s biggest problems – such as climate change, an ageing population or regional decline.
These private sector failings do not necessarily imply that public intervention is the solution. Critics of industrial strategy tend to argue that public intervention carries two key risks:

the ‘waste’ argument – that the public sector cannot know better than private markets which investments are worth making, resulting in a high risk of bad investments
the ‘rent-seeking’ argument – that involvement of this kind risks capture by private interests.
However, good policy design can help to overcome these risks.

The risk of capture can be reduced, for example, through a clear statement from the government of its objectives and success measures. Built-in sunset clauses on any support extended to an individual firm can similarly alleviate that risk, and an emphasis on evaluation – making use of new data-generation and data-gathering techniques – allows for a much richer, real-time understanding of a given intervention’s effectiveness than has been possible in the past, reducing the risk of both waste and rent-seeking.

RECOMMENDATIONS

Given the UK’s unique challenges, the best approach to industrial strategy would be a hybrid of the US-style ‘liberal capitalism plus’ and the Franco-German-style ‘coordinated capitalism’ industrial approaches, but with a broader definition of innovation and a sectoral coverage that goes beyond manufacturing to encompass services.

The core aims of industrial strategy should therefore be:

To spur innovation to boost productivity, pay, and the quality of work: industrial strategy should facilitate the adoption of existing innovations, particularly by the service sector, as well as the development of new ones. The definition of innovation should be broadened, to cover innovation as it applies in a service sector context, in addition to technological breakthroughs.
To ‘level up’ growth and productivity in the regions and nations of the UK: industrial strategy should have a strong spatial dimension, and be determined at both the regional and national levels.
To grow the UK’s manufacturing capabilities: government should do two things – it should support firms and research institutions developing new technologies; and it should support firms further from the technological frontier, who have the potential to transition into product lines where quality commands more of a premium, or to supply to innovative firms.
To put the UK on track to meet its decarbonisation targets: the decarbonisation objective should underpin the entire strategy.” “

“The private rented sector (PRS) in England is growing rapidly, in part in response to the increasing unaffordability of home ownership and the declining supply of social housing. There is mounting concern that across a range of indicators it is a poor substitute for both of these main alternatives. Tenants enjoy limited rights, their tenancies are short, and rents – while in the short-term more affordable than buying – are rising faster than incomes, preventing tenants from saving for mortgage deposits or even meeting the everyday costs of living.

The PRS does not need to be a poor relation to home ownership or social renting, however, and we can turn our attention to other countries in which the challenges presented by the PRS are managed with more success. This paper, the second of our series comparing the English and German housing markets, explores the lessons policymakers can learn from Germany – a country in which renting is the dominant tenure and which appears able to offer both stability and security to its 40-million-plus tenants.

England can learn from Germany in areas of tenancy security, controls on cost, and tenant representation. We recommend greater balance between the rights of a tenant and the rights of a landlord in England through longer tenancies, help with the costs associated with renting (such as deposits and letting fees), and stronger, more formalised representation.

KEY FINDINGS

This paper finds a number of similarities between the German and English rental markets, including the processes for finding a property to rent, checks on tenants’ finances, and expensive deposits. There are also similar ownership patterns – in both countries most landlords own only one or a few properties. There are, however, many areas of divergence in which the German PRS appears more generous and secure, making it a more attractive offer to prospective tenants.

German tenants enjoy strong security of tenure. Most tenancies are indefinite and only in very limited circumstances can landlords evict tenants. In England, the assured shorthold tenancy is 6–12 months as standard, and landlords can evict tenants at the end of the initial contract period without justification. Tenants in Germany therefore enjoy more stability and assurance in their living arrangements, and tend to move house less than their English counterparts. German tenancies last, on average, 11 years compared to only 2.5 years in England. However, for all these advantages, longer-term tenancies in Germany can make it difficult to access new rental properties.

In Germany the proportion of tenants overburdened by their housing costs – paying over 40 per cent of their income towards housing – is much lower than in the UK: 23 per cent of renting households compared to 33 per cent in the UK. The more plentiful supply of rental properties in Germany and the longer tenancies (which slow the process of rent increases) are not the only reasons for this difference. Germany’s rent controls place strong restrictions on in-tenancy rent increases, and the new ‘rent brake’ will make it more difficult for landlords to charge higher rents when re-letting a property. England’s rent control system has, in contrast, all but disappeared.

Tenants in the German PRS comprise a significant political powerbase. Forty per cent of households live in the PRS, compared to just 19 per cent of English households. Of these German tenants, three-quarters are thought to be active voters, versus only half of English tenants. Influential tenant bodies further underpin this political influence: three million German tenants belong to local tenant organisations that can lobby in addition to providing legal cover, advice and arbitration for disputes between tenants and landlords.

KEY RECOMMENDATIONS

Systems of tenure are deeply embedded but, on balance, the greater security of tenure that German tenants enjoy in comparison to their English neighbours brings with it many more benefits than problems. In the long term, England should therefore learn from the German example and move towards a system of longer-term rental contracts and more protection for tenants.

Wholesale legislative change on tenure security is unlikely to be forthcoming in the next parliament, so there are a series of steps which can be implemented to gradually increase the length of current tenancies, with the public sector leading by example.

• Government should let local authorities, through the planning process, require new build-to-rent schemes offer tenancies of a minimum of two years, with an appropriate break clause for tenants. Local authorities could achieve this through section 106 agreements if appropriate policy support were included in the National Planning Policy Framework.
• Any private rented scheme supported by public money or land should require a proportion of homes to offer tenancies of a minimum of two years.
• Not-for-profit builders should lead by example. With housing associations and local authorities moving into direct development of market-rent housing, they should offer households a range of longer-term tenancy options in their purpose built PRS schemes. It would be helpful to amend schedule one of the Housing Act 1988 to allow local authorities to offer assured shorthold tenancies (which they are currently barred from doing), as part of new-build schemes, but with longer tenancies and appropriate break clauses. Across each of these, tenancy agreements should fix any future rent rises upfront, in writing.

However, new homes are only a small part of the rented sector, and there is more than can be done to incentivise private landlords to increase the security of tenure.

• Not-for-profit lettings agencies and public online lettings services (such as RentSquare) should provide incentives and services discounts to private landlords offering longer-term rental contracts.

Longer-term tenancies act as a natural brake on rising housing costs by giving landlords and letting agents fewer opportunities to increase tenant rents. However, additional measures could support tenants in contesting their rents (formally and informally), and mitigate the high cost of deposits.

• The Valuation Office Agency should publish more granular detail on the local cost of renting, so that tenants know whether they are paying a reasonable local rate. This should include the full range of property types (detached, semi, room, maisonette) and property sizes alongside the average prices at the ward level. As well as allowing tenants to informally challenge their rent with their landlord, it would also support tenants to contest unreasonable rents through the tribunal process.

The government’s proposed ban of letting agent fees on tenants is a welcome and creditable move that follows previous German (and Scottish) legal changes. However, deposit costs are still a significant burden on tenants, and there is more that could be done to improve access to the rental market. For instance:

• local government should work with the insurance industry to establish an insurance product to replace the tenancy deposit.

Finally, greater protections for tenants will only come with greater political activism and collective voice. To build on the current capacity of organisations like Shelter and Generation Rent, mass membership organisations could support renters in building a stronger tenant lobby. To that end:

• trade unions should work together with housing charities and TMOs in taking a more active role in supporting private tenants, helping them with legal advice, helping to dispute excessive rents, and supporting them in challenging landlords on property conditions and management issues.
• a longer-term goal should be to start a tenants’ association nationally, with local branches, to mirror the German model
• alternatively, tenants’ insurance offers could be extended to cover legal fees which would provide similar opportunities for supporting tenants to challenge landlords.

It is important to note, however, that while England can learn a great deal from Germany, there remain areas in which the German rental offer can be improved. German law, for example, should be revised so that the costs of modernisation for energy efficiency improvements can no longer be transferred entirely to the tenant in the form of increased rents – a system that sees sitting tenants often having to end their tenancies as rents become unaffordable, and which indeed may be abused to encourage tenants to move out, and circumvent other tenancy protections.”

“The devolution revolution has stalled. Despite permissive legislation the large majority of devolution deals appear to have run into the sand and in May 2017 it is likely there will only be six elections for metro mayors.

The problems in the devolution process have been endemic from the start. With no clear purpose, process or timescale, a culture of centralised thinking in Whitehall, and with intransigence on the part of too many local political leaders, it is apparent that once again the devolution rhetoric is failing to match reality on the ground.

This is no small issue. If it is to achieve its vision of an economy that works for everyone, the government must put the devolution of powers and responsibilities to the lowest appropriate level of government at the core of its industrial strategy.

There is a common-sense approach though that could reboot the devolution process. Devolution must be based on a series of clear and explicit principles concerning the geography and scale of devolution areas; a ‘menu’ or framework of the powers that could be devolved; and a range of options for reforms to governance that are commensurate with the level of devolution an area is seeking.

Far from being prescriptive, a principle-based framework would provide local areas with the certainty to develop a proposal that works for their context.

In this paper we outline such a framework. Focusing especially on non-metropolitan areas, where deals have been most difficult to achieve, we provide three common-sense ‘tools’ with which to reboot the existing process. These include the following.

• An explanation as to why county geography might be the best scale from which build devolution areas and where in a handful of cases some areas might wish to join forces to enhance their scale.
• A framework of powers based upon discrete packages or ‘stages’ as a template upon which individual proposals can be based and as a means of building confidence in local politicians that devolution is a journey not a one-off bid for back-door reform.
• A set of further options to set alongside metro-mayors to ensure that devolved powers are accompanied with commensurate reform to provide visibility and accountability within the emerging local government architecture.

Finally we argue that to reboot the devolution revolution, the government should:

• Set out a statement of its vision and underlying principles, including any ‘red lines’ it sees on geography, powers or governance.
• Provide a framework for devolution negotiations based on discrete ‘packages’ or stages and with some minimum standards for governance reform in relation to each.
• Set out a timetable for future developments with clear windows for negotiation and deal-making.”

“The outcome of the EU referendum makes it likely that the UK could leave the EU free movement zone and substantially reconfigure its broader immigration system. This is an opportunity to think freshly and innovatively about how migration can best serve Britain’s communities. Devolution deals to date have not featured greater local control over migration policy, despite growing recognition that different areas have different experiences of migration’s benefits and disadvantages. This is largely because EU migrants have had the freedom to move and work across all regions of the UK. Yet the vote for Brexit means we should consider whether a more regionalised approach to immigration is possible and desirable.

This report takes the North East as a case study: a region of England that faces acute demographic challenges, skills gaps and productivity and investment challenges, as well as local concerns around migration. If harnessed properly, and managed in a controlled and effective way, a regionally-specific approach to migration could be part of the solution to the North East’s current and future challenges.

Two factors make a regionally tailored approach to migration possible. Firstly, the Brexit vote means the government is considering the most substantial changes to immigration policy in decades, as it evaluates losing free movement within the EU and wider migration reforms. Secondly, a system of tough controls and frontline enforcement offers administrative capacity that was hitherto infeasible.

A tailored approach could ensure that future migration complements the skills of existing workers and gives the North East greater capacity to manage social change sensitively. The region could achieve this through provision of special work visas, compiling a regional shortage occupation list, providing measures to attract high value investors, and targeted action on social integration.

SUMMARY

From the creation of the devolved administrations in 1999 through to the ongoing devolution deals, the 21st century has seen the apparatus of the British state becoming far more regionally diverse. Simultaneously, there has been growing recognition that the advantages and challenges brought by migration vary significantly across different parts of Britain – an idea brought home by the EU referendum. Yet migration policy remains entirely centrally administered, with Westminster making decisions that have blanket effects across the whole UK.

Concerns about immigration fuelled the Brexit debate and the subsequent approach taken by the new government. It seems unlikely that Britain will retain its current arrangements on free movement for EU citizens. The leave vote has made migration policy a matter of significant regional concern, with administrations in London, Belfast, Edinburgh and Cardiff arguing that aspects of migration policy be specially negotiated or devolved in order to satisfy the particular requirements of the regional economy in each location, and its business and political leadership.

It would be a mistake to think only of the devolved administrations in considering the regional dimension of migration. There are good economic reasons why other parts of the country might also require a regionally tailored approach to the skills it might want to attract – or deter – from overseas, including in parts of the country where a majority voted to leave.

Challenges in the North East

The North East of England is a region in which 58 per cent of the population voted to leave the EU. Immigration may have featured highly among the reasons for this outcome nationally, but the North East is a region where there has been relatively little EU and non-EU migration. The region faces some significant economic challenges in the years ahead, not least as a result of an ageing population and the skills shortages that this demographic challenge brings. While upskilling the local population must remain the key component of any approach to economic development, a tailored approach to migration could provide a crucial complement to create more and better jobs.

Rather than assuming that the North East’s vote to leave was a call to close the borders, this report shows that a more locally tailored migration policy could reassure people that immigration is being approached on their own regional terms to support economic growth and to deliver local benefits. The risk for the North East is that a new migration framework is developed that works better for other, more economically prosperous, parts of the UK. If the vote to leave the EU was a vote for greater control, that would be a poor response. An approach tailored to the North East’s unique circumstances is therefore needed.

Tailoring migration policy regionally

There are unprecedented conditions that now make a regionally-tailored approach to migration possible. The Home Office has reformed the administration of Britain’s immigration regime with, for example, the introduction of migrant identity cards, and the legal duty on employers, banks and landlords to verify immigration status. Previously, it would have been impossible to enforce a regionalised component of Britain’s immigration policy. This is no longer the case.

There are also successful precedents overseas. In Canada, for example, provinces sign special agreements with the federal government so that they can target and nominate migrants according to local economic needs. In Australia, regional visas are part of the points-based immigration system, with variations in thresholds making it slightly easier for migrants to enter certain states and territories which, like the North East, are keen to attract skilled migrants who might otherwise be drawn elsewhere.

RECOMMENDATIONS

This case study sets out how a tailored, regionalised approach to migration could address some of the economic and demographic challenges the North East faces. Under such a system, policymakers would have to address certain issues to ensure future migration complements the skills base of existing workers and that social change is sensitively managed.

We present a series of recommendations on how to develop a regionalised approach to migration:

• The creation of a North East post-study work visa, to allow international students with critical skills who have graduated from local universities to stay and work locally after their course.
• The introduction of a North East shortage occupation list, as a supplement to the national version. The North East should be able to attract key migrants directly to the region, whose presence will improve the quality of the job offer for local people.
• Devolution of the tier 1 (investor) visa conditions to the North East Combined Authority, to attract foreign investment and entrepreneurs, boosting output through migrant workers to generate a multiplier effect to create additional jobs.

We also recommend social and integration actions that local authorities should undertake to manage the impact of strategic migration, to reassure local communities and managing the social change migration brings:

• Ambitious measures to ensure the existing community is not disadvantaged by the arrival of migrants, through affirmative action for local candidates, extra integration work funded by a levy on employers recruiting high numbers of migrants
• Improve employment prospects and service provision for the entire community
• Setting up Migration Councils to understand and head off the impact of migration on local people.”

The council’s housing affordability framework has been published today and states “the cost of housing should not exceed 30% of an average household’s gross income.”

The framework also sets out an aim to replace social housing lost through Right to Buy and demolitions. There are currently more than 68,000 social rented homes in Manchester and the council aims to maintain this number.

In the past five years there was a net gain of 921 new affordable homes following the development of 2,721 homes but the loss of 1,800.The framework has set a target to increase affordable housing delivery to between 1,000 and 2,000 homes a year across the city. These will be an equal split between homes to rent and to buy.

The affordable housing definition for the city will include social rent, affordable rent, shared ownership, shared equity and rent to purchase.

There will be 39,403 homes built with the £1.28bn allocated to the successful bidders, which were announced this week. The majority of the £1.28bn will be spent on 23,340 shared ownership homes, with 11,063 rent-to-buy homes funded and 5,000 affordable rented homes in the supported housing sector.

The Housing White Paper, which is due “shortly”.

Here is a useful summary from Inside Housing:

The National Federation of Arm’s-Length Management Organisations (NFA) and the Association of Retained Council Housing (ARCH), which together represent more than one million council homes in England, carried out annual research into Universal Credit claimants and found the percentage of council home tenants in receipt of Universal Credit who are in rent arrears has increased by seven percentage points – from 76% to 86%.

This compares with 39% of tenants in arrears who do not receive Universal Credit.

The average arrears total has also increased, from £321 to £616. The research also revealed 59% of Universal Credit claimants living in council homes have arrears that equate to more than one month’s rent.