New wealth gap opens as urban small firms outpace rural rivals

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The politically-charged debate over the economic North-South divide conceals a wider gulf between business fortunes in urban and rural areas, according to new research.

The politically-charged debate over the economic North-South divide conceals a wider gulf between business fortunes in urban and rural areas, according to new research.

The startling surge in activity among rural small and medium-sized enterprises (SME) that was central to the 1980s economy, has collapsed in the last decade.

Research by Cambridge University shows that differences in economic performance within the UK are more complex than a simple North-South split.

The conclusions will please the Government which has said there are areas of poverty and deprivation in the South and zones of economic success in the Midlands and the North.

David Keeble, of the university's Centre for Business Research, found there was no growth in employment by SMEs in rural areas between 1997 and 1999. Over the same period 1 million extra people found work in the wider economy.

In contrast the number employed in large towns between 1997 and 1999 rose 7.9 per cent, by 6.9 per cent in small towns and by 2.2 per cent in major cities. Growth rates were even stronger between 1994 and 1997. Dr Keeble said this was because the rural SME group contained a significantly higher proportion of declining or static enterprises compared with SMEs in large towns.

"The long-standing urban-rural shift of SME activity and employment in Britain appears to have ended in the second half of the 1990s," Dr Keeble said. "For whatever reason, rural SMEs seems to have lost the dynamism which characterised their counterparts in the 1980s. At a time when the rural economy and policy is attracting considerable political interest, this finding is clearly of considerable concern."

Dr Keeble also found further evidence that the North-South divide was widening. SMEs in the South pushed up their profit margins from 11.5 per cent to 12.5 per cent of turnover, while those in the Midlands and the North saw them drop to 9 from 11 per cent. "This suggests the re-emergence of a North-South divide in SME performance in the later 1990s, with a differential in business profitability," he said.

The report, which is included in a wider study of UK enterprise, will be published at a conference in Cambridge on 29 September.

His findings appears to support a report last week from Oxford Economic Forecasting, an independent firm of analysts, which said the gap between North and South in terms of economic growth rates had widened.

But not all analysts are convinced. Mark Hughes, a consultant with the corporate location division of Ernst & Young, said an analysis of the decisions of inward investors revealed a more varied pattern.

"Within each regions there is often a 'lead' city that acts as an investment magnet. The challenge is how to support its surrounding areas."

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