The East-West Divide

The ONS has just released its finalised sub-national productivity data for 2013.  The following table shows the main measures for smoothed GVA per hour across local LEP areas, shown as indices based on the UK average being 100.

GVA per hour (smoothed indices, UK =100)
2007 2009 2011 2013
Cornwall & Isles of Scilly 74.4 72.5 71.5 72.0
Heart of the South West 86.3 85.3 83.9 83.8
West of England 101.3 102.4 102.3 101.4
Gloucestershire 98.9 94.6 94.0 94.1
Swindon & Wiltshire 104.8 107.3 105.9 105.0
Dorset 91.8 91.3 91.6 92.7
Solent 104.0 105.6 104.3 103.0
Enterprise M3 115.1 115.2 114.6 116.2

The first message from this data is the wide variety of the numbers, which indicates an east-west divide in southern England and reflects urban-rural divergences, including commuting and demographic distributions.  There is a huge gap (almost 45 percentage points) of relative productivity from Cornwall to Enterprise M3.

The second message is that the productivity gaps tended to widen during the six years of downturn.  The SW peninsula has lost comparative ground against the south central area.  Often, these differentials are expected to narrow when the overall economy is growing more slowly, largely reflecting the reining back of innovative investment and broader growth in the places with highest added value at times of comparatively weak demand.  This time the opposite has happened.  The downturn was one of widening differences reflecting underlying market, competitive engagement and performance.

Why does this matter?  Productivity drives growth and standards of living in the long run.  Relative incomes will reflect differentials in GVA per hour over time.  In theory, these things are like a pendulum and relative costs will encourage a swing back at some point.  In practice, however, such differentials become structural, tend to get cemented in place, and are very difficult to change.  The distributional, inter-regional consequences of this can be significant.

Sadly, the (political) loss of regional development investment at a time of macroeconomic downturn has probably served to broaden the East-West divide.  The LEPs have yet to fill the gap or influence the underlying comparative competitive and differential trends.