A tortuous journey north from London exposes a hard economic truth

Is HS2 really the answer to the north’s productivity problem? Lucy Meakin and David Goodman speak to those who think that locally tailored policies are being overlooked

The northwest has untapped potential for growth (Bloomberg)

Tom Mathew travels most weeks from his home in London to the industrial park on the edge of the Bury from where the family business distributes food and drinks to schools and hospitals.

It takes just over two hours by train to go the first 160 miles to the nearby city of Manchester. Usually, there’s even wifi so he can get some work done. The trip will be quicker once the controversial HS2 high-speed rail link is completed, albeit in two decades.

Then Mathew, 33, begins a completely different journey, one that exposes the underlying malaise in the economy: the weakest productivity performance since the Industrial Revolution.

In an all-too-familiar account of Britain outside the big cities, Mathew’s next dozen or so miles require either a taxi or a combination of tram and bus that can add another hour again. The poor infrastructure hampers the company’s ability to attract staff because too many simply can’t get to work on time. One employee commutes from a town 30 miles away and it can take more than two hours by car or train. Road congestion regularly delays deliveries.

“They seem to be obsessed with huge projects, headline grabbers, when actually the question is, could they be doing more around how much businesses our size make up of the economy,” says Mathew. “If you can improve the productivity of those companies, you’re going to improve the productivity of the whole country.”

The fact that the British spend more time than just about any developed nation for the same economic benefit presents the biggest challenge to a government aiming to make the country a powerhouse outside the EU – with or without a trade deal with the bloc.

Poor productivity is the slow puncture that has curtailed economic growth potential to just over a third of the government’s 2.8 per cent target and left companies at the bottom of the league table for efficiency of output. The government’s task is also made tougher by the huge disparity between London and anywhere more than an hour north.

A recent report by the Office for National Statistics showed an hour of work in London produced 44 per cent more gross value to the economy than the northwest or a whopping 76 per cent more than the part of the Manchester metropolitan area that includes Bury. Productivity there is lower than it was in 1994.

Workmen on the site of the new Wharfside tram stop in Trafford Park (Bloomberg)

“Levelling up” the country has become the mantra of Boris Johnson after so many voters in northern regions abandoned their traditional politics and defected to the Conservatives in December’s election as he promised to “Get Brexit Done”.

Next week’s Budget is expected to deliver billions of pounds of infrastructure spending based on a review of the government’s “Green Book,” the guidelines for projects. Chancellor Rishi Sunak will also address the potential impact of the latest global headwind, Coronavirus.

“We are on the verge of a Japan-like decade of stagnation if we can’t transform productivity,” says Tony Danker, chief executive of Be the Business, a group that aims to boost UK competitiveness. “This is the secret sauce missing in the economy that will fuel growth.”

Bury, population 80,000, is one of the red-brick northern towns that encapsulates Britain’s Victorian heyday and the challenges the country now faces. Geographically, it’s in a prime spot in the shadow of Manchester, the city that defined the Industrial Revolution.

We are on the verge of a Japan-like decade of stagnation if we can’t transform productivity

While the town is one of the lucky ones – it maintains its connection to central Manchester via the city’s tram network – it suffered from cuts after the Second World War as local industry went into decline. The only trains moving through Bury now are the historic steam and diesel engines that operate on the rescued heritage line.

“This is the country that brought railways to the rest of the world,” shrugs volunteer John Hulme as he stands in the entrance to an old disused station, which now houses displays of bygone engines and signage from long-abandoned train stops.

The government’s spending plans include £100bn on HS2 even though it probably won’t reach Manchester until 2040. By comparison, new local bus and cycle networks to ease congestion on roads are slated to get just £5bn. A proposed east to west northern train line that could more than double average train speeds has yet to be approved.

But it’s those kind of smaller, more locally targeted initiatives that Mathew and his sister and business partner, Hannah Barlow, say would make a bigger difference to productivity – or, as they see it, efficiency and profitability.

Their business, Dunsters Farm Foodservice, was built up over 60 years from their grandfather’s milk deliveries. It needs to get vans out from the 20,000sq ft warehouse to schools before parents drop off their kids, something again Barlow blames on a lack of alternatives. Shifts run from 4am to 11pm, in part to take traffic into account.

“With the northern archaic system, everyone just jumps in a car and that does have an impact on our deliveries, our stock,” says Mathew.

There’s probably a lot more productivity stuff that could be done without HS2, but it gets all the fanfare

To get more done for the cost, they have focused on technology, streamlining the process by which orders are picked from the warehouse and replacing paper lists with management software. That reduced the time employees spend walking around the vast floor space by as much as 40 per cent and has given them a 99 per cent plus accuracy rate, meaning dramatically fewer extra deliveries to rectify problems.

“We weren’t thinking about being productive,” says Barlow. “We were thinking this is wasting time, it’s wasting money.”

Research by the Industrial Strategy Council, which oversees the government’s efforts to boost productivity and wage growth, found that locally tailored policies would be more effective than top-down, big-ticket projects.

There’s also the issue of Brexit. Tougher immigration rules are designed to staunch the supply of cheaper labour from eastern Europe, and one of the goals is to force companies to invest in technology and machinery that can reduce the need for manual workers.

Vans sit parked at the Dunsters warehouse in Bury (Bloomberg)

But in the meantime the economy faces significant hurdles. Uncertainty over whether Brexit would happen has given way to the prospect of turmoil over trade talks. The Bank of England said in January that the limit the economy can grow without generating inflation is now just 1 per cent.

Now there’s the impact of coronavirus, which the Organisation for Economic Cooperation and Development said could shrink the global economy this quarter.

“It’s easier for firms to improve productivity when demand for their product is rising, but the slowdown in the economy means that for many firms demand has been flat or even falling,” says John Young, one of the Bank of England’s network of representatives based in the northwest.

There’s also not the same money being spent everywhere. A report by the Resolution Foundation think tank published a week before the government’s budget highlighted the stark differences in regional public investment. London’s spending per head of £1,456 in 2018-19 was 53 per cent more than in the northwest and more than double that of the east Midlands.

At the Dunsters warehouse on the outskirts of Bury, Mathew and Barlow urged the government to focus less on HS2 and do more for what’s known as “soft infrastructure” like better broadband.

“There’s probably a lot more productivity stuff that could be done without HS2, but it gets all the fanfare,” she says. “Give people the support on the ground.”

© Bloomberg