Evidence emerges that the North-South gap is widening

No-one can accuse the North of not trying. Look at the smart redevelopment of the old docks at Hartlepool, the new call centres in Liverpool, the financial services regeneration in Leeds and the gigantic Trafford Centre shopping centre in Manchester.

No-one can accuse the North of not trying. Look at the smart redevelopment of the old docks at Hartlepool, the new call centres in Liverpool, the financial services regeneration in Leeds and the gigantic Trafford Centre shopping centre in Manchester.

"The trouble is," said one northern businessman, "we are all - in Mark Twain's memorable phrase - trying to make a living by the precarious business of taking in each other's washing. All we are doing is selling things to each other. No-one makes anything any more."

The smart financiers in the City will brand this as an economically unsophisticated argument. After all, the Thatcher revolution was based, among other things, on killing off manufacturing and putting all our eggs in the basket marked "sophisticated services to the rest of the world". But the shift is still taking its toll in the North of England where yet more evidence has emerged of the widening gap between its old-style industrial sectors and the new "knowledge economy" of the South.

Researchers from Oxford Economic Forecasting yesterday predicted that the South-east would this year experience 3.7 per cent economic growth, while the North-east would grow by only 2.7 per cent. Similarly, eastern England and Greater London are set to experience 3.6 per cent growth, compared with just 2.8 per cent in the west Midlands.

The North-South divide is back. A line running from the Wash to the Bristol Channel once again separates the fortunate from the unfortunate. "South and east of that line growth is stronger than north and west of it," said one of the Oxford forecasters, Alan Wilson.

The key determinant of success is the degree of dependence on manufacturing industries, which are suffering from a loss of competitiveness due to the strength of the pound. The study reinforces a recent one from PricewaterhouseCoopers which suggested the country's manufacturing base was being pushed close to recession by the strong pound.

But that is not all. According to the report, Scotland and Wales are set to do better than the North, with Scotland to enjoy 2.9 per cent growth, and economic growth in Wales reaching 3.2 per cent - suggesting that factors of regional development are also coming into play.

All of which - combined with the poor results for New Labour in the last local elections - has produced some uncomfortable shuffling of feet from the Government. Not long ago, Tony Blair was doing his best to portray the North-South divide as an outdated concept - "the disparities within a region are as great as, if not greater than, the disparities between regions," he said to justify his earlier opposition to aid for depressed regions.

But yesterday the Trade minister, Richard Caborn, admitted: "There is economic under-performance, we all accept that." But, he swiftly added, the report was "very good news indeed" because it showed "unemployment is falling faster in the North-east, the North-west and the west Midlands than it is in the South-east".

Few outside the prosperous areas are convinced. Officialdata claims that there is far less divergence in regional unemployment than at the beginning of the decade. But many in the North believe these to be statistical sleights of hand designed to minimise the North-South gap for political reasons. One of the problems is that the Government data ignores often substantial amounts of "hidden unemployment" - the large number of people who have withdrawn from the labour force because of ill-health or early retirement. This "hidden joblessness", according to a recent report by the Employment Policy Institute (EPI) can vary significantly between regions.

In parts of south Wales and the North-east, for example, as many as one in five men of working age are claiming sickness benefit. In Merseyside and the Welsh valleys, as few as 60 per cent of those of working age are in employment. This compares with a figure of 78 per cent in the South-east.

New Labour ministers have long suggested that the unemployment problem is one of a "skills mismatch" - that is, there are plenty of jobs available but the people on the dole lack the education to do them. But the EPI calculates that almost 500,000 people, most of them in the North, are unable to work because the jobs are just not there. It suggests that another 1.75 million jobs are needed to bring the proportion of work in Yorkshire, Liverpool, Manchester, Newcastle and Durham up to the levels enjoyed in the South.

And this is not the only North-South divide. There is a discrepancy in house prices which makes it hard for people to move to where the work is.

Public funding for science research is skewed dramatically towards a "golden triangle" between London, Oxford and Cambridge, despite important hi-tech clusters in north-west England and the west of Scotland.

The North has missed out on hundreds of millions of pounds of grants from the European Union because of inaccurate data from the Inland Revenue.

There is even evidence that the North is missing out on a female entrepreneurial boom which is driving the economy in the South. (In London, women have been responsible for 67 per cent of new business start-ups in the past 12 months; in the North-East it is more like two-to-one in favour of men.)

And a report yesterday by the business information provider ICC suggested that 50 per cent more companies are now becoming insolvent in the North than in the South.

A number of causes for this have been suggested. It may be to do with cultural conservatism in the North which still makes business life more difficult for women. It may be to do with entrepreneurial spirit having been quashed by a tradition of large industries and the constant setbacks of recent years. Or it may simply be that new business start-ups tend to service the traditional industries in the North which are failing.

Either way it is evident it all adds up to a political headache for Mr Blair, with the fear large numbers of traditional Labour voters will not be bothering to turn out to vote at the next general election.

"Unfortunately the Prime Minister has buried his head in the sand," said Ronnie Campbell, MP for Blyth Valley yesterday. The fact he is a member of Mr Blair's party, and indeed chairs the Northern Group of Labour MPs, is a measure of just how serious things have got in the area which was once the Labour heartlands.