The Local Divide: Yorkshire - Service sector laughing all the way to Leeds

AN 8PM claxon ended the shift at the Sheffield Forgemasters steel plant on Friday. A small group of machine room men trooped past the kind of corrugated factory sheds immortalised in the film The Full Monty and headed quickly home through an inhospitable wind.

It could have been a scene from the old days. They're turning out as much steel at the plant as they were 15 years ago while the total output in Sheffield now exceeds even the post Second World War peak.

Only the workers are missing. The steel industry employs a seventh of the people it did in Sheffield in the 1970s. It says something for today's productivity, in what used to be known as the People's Republic of South Yorkshire, but makes for a lousy unemployment rate of about 7 per cent. A quarter of the city's workforce was laid off in the early 1980s, such was the reliance on manufacturing.

Sheffield and other parts of South Yorkshire, where per capita GDP has crashed to barely 70 per cent of the European average, have been granted Objective One status by the EU - a ranking it bestows on only its poorest regions.

In Leeds, 36 miles away, 50,000 clothing and textile jobs were shrinking to nearer 10,000 15 years ago but there were established law firms and banks to nurture - a fledgling financial services sector. The result is a sharp economic contrast with Sheffield; a Yorkshire microcosm of Britain's north-south divide.

"Offering a quality of life is essential to pull people out of London," said Jonathan Fox, marketing partner of the legal firm Dibb Lupton Alsop. "Housing is cheaper here and the city is a popular place to live." The high profile arrival of Harvey Nichols has been symbolic.

First Direct, Britain's first telephone bank, set up here 10 years ago. Halifax Direct, Direct Line and Provident Financial have also assisted Leeds' claims to be Britain financial second city, lifting the number of jobs to 70,000.

More than 36,000 jobs have been created since 1991, a further 30,000 are expected by 2006 and the unemployment rate is about 4.6 per cent. No wonder a Leeds semi on average is pounds 65,650 against pounds 52,850 in Sheffield.

Vince Taylor of Sheffield First, a public/private sector regeneration partnership, conceded his city had been "a bit late catching up" on inward investment. "There has been mobile investment but we didn't go out and get it," he said.

To be fair, Leeds' position as Yorkshire's regional capital makes direct comparisons a little unrealistic.

Sheffield boasts a steel industry that long ago gave up the ghost on mass production and moved into hi-tech niche markets. Three of the world's top four scalpel blade manufacturers are in Sheffield, where manufacturing still makes up 22 per cent of employment, significantly higher than most cities. It has made up ground on Leeds in the call centre business too, securing Abbey National's share trading centre and Norwich Union's Insurance claim centre among others. Another 2,000-job deal is expected soon.

With talk of the labour market overheating in Leeds, Shef-field Forgemasters has some solace. It has just won its first order from the US Navy. Steel castings for its ships will soon be produced in Sheffield in a deal worth $8m (pounds 5m).