North-South divide 'starting to close at last'

The North-South divide that has marred the UK's economic performance for a generation is beginning to close, according to a report published today.

The latest annual index of regional competitiveness shows that London, the South-east and eastern England all suffered a decline for this year - the first time since the index was launched in 2000.

By contrast, the other nine regions of the UK have all witnessed significant boosts to their competitiveness in 2005 and 2006, the Work Foundation think tank says.

In a marked turnaround, what are traditionally the least competitive regions - Northern Ireland, Yorkshire, Wales and the North-east - have made the biggest improvements.

The report comes a few days after the CBI said manufacturing companies in Scotland and in three northern regions of England had enjoyed faster growth over the summer, while output had slowed in southern regions.

Northern Ireland tops the list of regions that have increased competitiveness with a 4.4 per cent improvement on its index score a year ago followed by Yorkshire (4.2 per cent), and Wales and the North-east (both up 3.7 per cent). Scotland improved 3.4 per cent to become the sixth most-competitive region.

However, while the gap has narrowed, the report showed that there was still a stark divide either side of a line running from the Wash to the Isle of Wight.

It said the "big three" regions of London, the South-east and the East of England remained the only areas performing above the UK average level.

Robert Huggins, senior lecturer in enterprise at Sheffield University's Management School who devised and compiled the index, said: "For as long as most of us can remember, the story of the UK's economic performance has been a tale of two nations. This year's index represents the first signs that a new chapter is about to be written."

He said the Government's devolution and regional development policies might finally be bearing fruit. "With patience, strategic development through devolved institutions and regional development agencies is starting to make a difference," he said. "Targeted regional investment appears to reduce unemployment and lift regional competitiveness."

London, however, remains an economic powerhouse. Out of the top 25 most competitive localities, all were in London, on the edge of the capital or in the wider South-east.

The index claims to be more accurate than traditional models that rely on GDP per head. It looks at R&D spending, business start-up rates and the proportion of working age population with a degree, as well as productivity measures.