British industry post-Brexit: Industrial regions will suffer outside EU

No such restraint from the lobbyists in the City, the pleaders in the Square Mile, when they remind ministers that their pivotal financial sector deserves special treatment and even lower taxes. Why? Because it apparently props up UK plc and stands to lose most with thousands of job losses and the relocation of finance houses to Frankfurt, Paris or Dublin.

But what has become received wisdom – certainly from my northern fastness – has been firmly challenged by a study from a team of economists and geographers from the UK and the Netherlands. They assert that London will fare much better than elsewhere in the UK after Brexit because its economy is larger, more diverse and global than other regions and, equally significantly, more self-reliant than other parts of the UK – and hence able to withstand severe economic shocks, like Brexit.

Not so almost every part of the UK outside London. It has become even more integrated with the EU this century through a growing dependence on trade, investment, research, development, skills and labour mobility.

This, says the study, represents a worldwide phenomenon of deepening integration with neighbouring, rather than distant countries – and a critical feature ignored by pro-leave campaigners last year. Europeanisation, rather than globalisation, is thus the reality.

But as the new study points out, this flies in the face of arguments from Brexiteers that the major beneficiaries of EU membership are the ‘metropolitan elites’ of London, and the businesses employing them.

It marks one of the strongest challenges to the unbounded optimism of Brexiteers that an emphasis on new global trade deals will mystically supplant European markets. On the contrary, the study says that regional dependence on EU trade in key industrial areas outside London has grown to such an extent that it is now up to 100% higher than the capital. As a result, since the millennium, more than 90% of UK regions have experienced deeper integration with the EU. London, however, has moved in the opposite direction.

This is the north-south divide writ-large. Using what they call uniquely detailed data on inter-regional trade, production and investment for the UK-based Regional Studies Association – an international research forum – the study shows London’s EU trade now accounts for just 7% of its gross domestic product (GDP).

Politically, of course, we already know that regions voting strongly to leave the EU – which have the highest dependency on European markets – are, ironically, the major recipients of EU structural funds directed to areas with high unemployment and related social problems such as north east England, west-central Scotland, South Wales and Cornwall.

In the current 2014-2020 round, these funds, aimed at improving the economic wellbeing of regions performing below the EU average, are worth around £14 billion to the UK. That’s smaller than Common Agricultural Policy (CAP) payments of £19.4 billions to subsidise farmers, but significant nonetheless.

Farmers, dependent on CAP to provide, on average, half their incomes, appear an ungrateful lot; on some estimates, more than half of them voted to leave the EU last year even though the single market is deemed essential for their exports, particularly lamb and beef. Like grandees in the City, their leaders – notably the National Farmers’ Union in England and Wales – believe agriculture should be given preferential treatment in looming Brexit talks.

Sadly few high-profile organisations, still less a near-invisible parliamentary Opposition, are campaigning for the industrial heartlands of the English north and midlands, and South Wales – often dominated by large, single employers, such as car assembly or, to a lesser extent, steel-making – in spite of having the highest dependency on EU markets, which sustain regional economies.

The study reminds us that since the 1990s, London and south east England has become relatively more prosperous while the rest of the UK has experienced ‘entrenched and increasing difficulties’ – although Scotland has fared slightly better. This is largely because the London economy has failed to act as motor driving the whole UK. As a result, Britain has become more polarised.

‘Many observers since the 1980s have assumed that a prosperous and resurgent London would catalyse growth across the UK, yet this has simply not happened,’ the study notes. ‘Instead the wider London economy has more or less disconnected itself from the rest of the UK beyond its own immediate hinterland. Many of the key drivers … now operate largely independently of the rest of the UK economy.’

Set apart from the UK as an effective city-state the capital, in short, can survive and prosper post-Brexit. ‘London is genuinely a global city with higher levels of global connectivity on many different dimensions than almost any other city on earth, ‘ adds the study.

Not so what is left of industrial Britain. The looming threat of a Hard Brexit – and, hence, withdrawl from a single market so crucial to car assembly and other industries – would be bad enough. Nissan is edgy and needs reassurances about long-term investment in its Sunderland car plant. The same is true for other manufacturers, such as Toyota. In spite of a modest, newly-announced £240m investment in its plant, near Derby, the company said ‘continued tariff and barrier-free access’ was vital for success.

Now the country’s traditional industrial areas, where pockets of long-term unemployment lie cheek-by-jowl with modern exporting businesses, face the withdrawal of these EU structural funds after 2020 without any indication of what might replace them.

Post-referendum, the National Farmers’ Union was, briefly, reassured by a commitment from the Government to maintain subsidies until 2020 – a meaningless promise, since the UK will remain in the EU until 2019 anyway. Ministers have made similar noises about EU structural funds which have been used, for instance to support the inventors of a remarkable do-it-all material, the National Graphene Institute at the University of Manchester – undoubtedly, a far more worthy recipient of support than subsidising much of agriculture and, hence, some of our wealthiest landowners – and a national renewable energy centre at Blyth, Northumberland, recognised as a global leader in its field.

Yet so far, those voices warning of the dire economic and social impact flowing from a Hard Brexit in what remains of industrial Britain have gained little traction with a government big on slogans and woefully short on appreciating the looming crisis. A recent ‘personal’ letter from Theresa May to Tory supporters, announcing a ‘Plan for Britain’, merely underlined the paucity of the Government’s approach: big on vacuous slogans; alarmingly short on any detail aside from a pitiful slogan extolling a ‘global, outward looking Britain’.

Peter Hetherington is a former regional affairs editor of The Guardian and past chair of the Town and Country Planning Association