North East Devolution and Levelling Up
Penshaw Monument

Two decades of development policy have left the North East at the bottom of the income league

Twenty-two years of regional and local economic development policy have done absolutely nothing to level up incomes in the North East relative to the rest of the UK.

If readers think they have seen that statement on this website before, they are almost correct.

It was only ten days ago that a report appeared here making a similar assertion about productivity, based on figures from the Office for National Statistics (ONS).

Today it is the Resolution Foundation that has produced a report revealing that there was little change in income levels in local authorities around the country between 1997 and 2019.

Low-income local authorities have tended to remain low income, and high-income local authorities remain high, it says.

‘This lack of overall income change however hides growing gaps in investment and self-employment income, driven by richer households in London and the South East,’ says the report. ‘In contrast, gaps in earnings and employment have shrunk, with the average gap between highest and lowest employment areas of the country having fallen by almost a fifth since 2000.’

Average incomes from all sources in the North East are the lowest in England, and in Hartlepool are the lowest in the North East, according to the Resolution Foundation’s research.*

London has the highest average gross disposable household income (GDHI) per person in the UK at £23,070, which is 1.6 times the North East figure of £14,621.

Northumberland has the highest North East GDHI per person at £16,719, which is 1.2 times higher than Hartlepool with the lowest at £13,725.

While the comparatively narrow gap between Northumberland and Hartlepool of 1.2 makes the North East the most homogenous region in the UK, the 3.1 GDHI difference between Kensington & Chelsea (£52,451) and Barking & Dagenham (£16,808) makes London the most unequal.

Overall across the UK, income from employment accounts for 67.5% of GDHI, investments for 18.6%, self-employment for 12.6% and benefits and private pensions for 1.3%.

Income disparity across the UK has been driven in part by investment income, which has almost doubled since 1997, particularly benefiting people in some parts of the capital, while in some places elsewhere in the UK it has fallen.

Meanwhile self-employment in high-income sectors has risen, also mainly in the capital, helping some poorer London boroughs to catch up.

At the same time tax has had the opposite effect: its inequality-reducing effect has gone up by 32%.

‘Both these trends’ [increased investment income and increased self-employment among high earners] says the Resolution Foundation, ‘reflect the fact that there has been an overall increase in the share of high-income individuals, paying higher-rate taxes. These individuals are disproportionately concentrated in London and the South East and receive a lot more of their income from investments than the rest of the [population].’

The higher housing costs that households face in London and the South East also act as a living standards headwind, reducing disposable incomes to a greater extent than in other parts of the country, and the same occurs within individual local authorities generally.

A second report, Bridging the gap**, to be published on Thursday examines the productivity gaps behind these spatial inequalities.

Productivity of £76,000 per job in London is twice that in some other parts of the country, says the Resolution Foundation. ‘This has been driven by the transition from an industrial to a services-based economy, where highly productive economic activity is more geographically concentrated, and by the failure of major cities outside of London to successfully make that transition.’

The research concludes that policy makers should aim to raise national growth and close regional gaps by focusing on the major cities outside London, but that the scale of change required goes far beyond anything currently being contemplated.

*Income outcomes: Assessing income gaps between places across the UK. By Lindsay Judge and Charlie McCurdy is part of the Economy 2030 Inquiry, a collaboration between the Resolution Foundation and the Centre for Economic Performance at the London School of Economics, funded by the Nuffield Foundation.

**Bridging the Gap: What would it take to narrow the UK’s productivity disparities? by Paul Brandily, Mimosa Distefano, Hélène Donnat, Immanuel Feld, Henry Overman and Krishan Shah.