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A powerful argument

London is a global city that supports an entire economic region, but is Manchester? While it has a global brand the combined authority for Greater Manchester may not have the resources, private sector backing or scale to compete on the world stage. This might equally be said of Birmingham, even after the creation of the West Midlands Combined Authority.

Combined authorities undoubtedly have a role to play in improving public services but a bigger and bolder approach is needed to drive the economic revival of the Midlands and the North. It seems the business secretary and chancellor may also be coming to this conclusion and we could see the emergence of a radical vision for the future of England.

The recently published prospectus for the Midlands Engine for Growth took a very broad view centred on five cross-regional themes. Equally, there is a growing awareness that there is more to the Northern Powerhouse than Greater Manchester and that, by working together and building on their existing strengths, the cities and counties of the North can create a globally significant economic region.

Cynics dismiss both of these initiatives as empty rhetoric but we can prove them wrong by learning the lessons from Europe, particularly the examples of Ireland and Bavaria in Germany.
Over the course of two decades Ireland went from a failing rural economy to the 'Celtic Tiger'. Between 1988 and 2007 Irish GDP grew by over 6% per year. Despite the well-publicised crash and years of austerity the country is now bouncing back: GDP growth rates are faster than anywhere else in the EU. Dublin is of comparable size to the English cities of the North and is once again the economic centre of a dynamic revival across the Irish Republic.

Another example of an economy that has transformed itself is Bavaria. Prior to the 1960s, the region was Germany's economic backwater dependent on transfers from wealthier states. Since then it has been transformed into Germany's economic powerhouse, described as 'Europe's high-tech Mecca' by Bill Gates. This success was achieved on the back of automobile and machine production and is now being driven forward by ICT and biotech.

There are three lessons that the English regions can learn from the Irish and Bavarian experience. The first is that Ireland and Bavaria have developed coherent internationally recognised brands. These are effectively promoted and present a clear identity to investors. Both the Northern Powerhouse and the Midlands Engine have elements of this but bold leadership is needed to turn their cultural and industrial heritage into a clear, consistent narrative that is promoted on the world stage.

The second lesson is the value of a clear focus on a limited number of sectors. Ireland has primarily focused on just three industries: ICT, life sciences and financial services. The Bavarians are similarly focused and have moved from concentrating on automotive to encouraging the growing biotech and ICT sectors. Underpinning these success stories is a strong educational system supplying suitably qualified graduates. The Midlands Engine already has the strong industrial base and world class universities that could serve as a launch pad for this approach.

The final lesson can be drawn from the value of Ireland's ability to fine tune taxation and economic policy to attract inward investment to drive economic growth. It has used its strengths, cultural legacy and corporate taxation policy to attract the multi-nationals, which then attract highly skilled individuals. Equally, the German federal model gives states limited but valuable autonomy to develop their economic policy. The Bavarian authorities have used this to reinvest significant privatisation windfalls into a high-tech offensive and offer a wide range of subsidies to attract foreign investment and connect research activity and industry.

These lessons underline that the regions need to carve out their own approach. In London, Paris or New York companies are prepared to pay a premium – both in terms of taxation and property – to be adjacent to a highly skilled workforce. As a result, these cities benefit from reduced rates of personal taxation that attract an internationally mobile highly skilled workforce. In contrast, the taxation and economic development policies required to attract inward investment to the Midlands and North should, like in Ireland and Bavaria, be focused on attracting international companies.

So the Northern Powerhouse and Midlands Engine need to have the power to set their own Corporation Tax, Business Rates, Income Tax and investment incentives to meet the particular economic needs of their regions. Ultimately, this means the democratic settlement for England will need to be overhauled in a far more radical way than simply creating combined authorities. We need a federal model where the Northern Powerhouse and Midlands Engine have more autonomy over economic policy than that currently enjoyed by Scotland.

If we rise to the challenge, the Northern Powerhouse and Midlands Engine will be the greatest economic legacy of the early 21st century. If we don't seize the opportunity, the UK outside the M25 is destined for another 100 years of relative economic decline.

Ed Parker is a local government expert at PA Consulting Group

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