By Nathan Lee, Finance and Politics Correspondent
Regional economic deficiencies must be solved by business attracting business.
Boris Island proposals may have been rejected in the latest Airports Commission report, but London Island remains firmly on the agenda.
Above the need for extra airport capacity in the South East, the recent report highlights the extent to which the UK is becoming a two tier economy. Birmingham and Stansted expansions were rejected along with the Mayor’s pie in the sky vision of an Estuary airport, despite aviation bosses in the Midlands finding more than 70 million passengers could pass through Birmingham Airport every year if it is given the chance to grow.
Capacity issues and regional economic problems are fundamentally two different things. Demand for the former is concerned with London’s status as a hub airport and the necessity of quick transfers and onward connections. For this, Heathrow is undeniably the best option. But the fact that regional airports don’t even feature in the discussion is a telling sign.
London’s island economy
Analysis from The Guardian recently revealed the extent to which London’s economy is outstripping the rest of the UK. Since 2007, the report found London and the south-east was responsible for 48 per cent of the UK’s growth in output, while every other nation and region – with the exception of Scotland – has suffered relative decline over the same period.
Thanks to several new business districts in the capital, firms from across the world are choosing London to start new enterprises and headquarter established corporations. Barclays’ research found tens of thousands more firms were created than closed in the first six months of 2013, with the total number of active firms up by more than 90,000 from the end of 2012 to June 2013. London was at the helm of this surge, thanks to business clusters driving business growth.
But as the capital booms, the regions diminish. The Economist recently published a report on the demise of once industrial powerhouses such as Hull, Middlesbrough and Burnley, where high unemployment levels and low growth has created an economy fuelled by pawn shops and bookies. The feature said efforts to revive such towns were futile, but the prospect of reinventing the north is a far more attractive proposition.
Among all the doom and gloom of the north, there are some parts performing remarkably well. The ‘Super Regions’ such as Manchester, Liverpool, Newcastle and Leeds have sucked the economic vitality from the so-called ‘failing’ towns by building new industries which are more relevant to contemporary business. Interestingly, specialisation has played a key role in their success.
Manchester (cultural industries and media), Leeds (finance and possibly health) and Newcastle (digital technology and retail) are in a position to attract business by creating business. New clusters, such as Media City in Salford and the Thorpe Park development in South Leeds offer the same interconnectivity as the capital, which organically lead to an increased demand for air travel.
China operates a similar model. Shanghai is an automotive powerhouse, Beijing is China’s Silicon Valley, Guangzhou specialises in fashion and Chengdu Suzh in design. Airports in these regions are expanding rapidly and organically, with eight runways now in operation in Hong Kong, Guangzhou, Shenzhen, Macau and Zhuhai – the so-called Pearl River Delta region.
In order to create a ripple effect from London and the south-east into the northern regions, we must get business to make business. As air traffic flows into an extended Heathrow or Gatwick, Manchester, Leeds and Newcastle airports must start generating organic traffic by making the regions an appealing place to do business.
Trains are not the solution. HS2 may knock 20 minutes off a commute to London and take with it acres of Green Belt land in the process, but business growth can’t be mapped out on the back of a train ticket. The multi-billions spent on such a project are better invested in tax incentives and the development of specialised clusters.
Birmingham Airport and other regional alternatives have been overlooked by the Airports Commission, but as business creates business in the regions, we might start caring less about whether Heathrow has the capacity for more traffic and more about how to accommodate specialist businesses elsewhere.