What is the Northern Powerhouse?

 

The Northern Powerhouse is the government’s vision to rebalance the UK economy by empowering the northern cities to achieve growth. According to Centre for Cities’ Northern Powerhouse Factsheet, is currently the UK’s economic powerhouse, generating over 24.5% of Gross Value Added. If we compare this with the contribution by the ‘North’ – in this case, the city regions of Liverpool, Manchester, Leeds, Sheffield, Hull and the North East – they only contribute to 13.3% of GVA. Couple this with the fact that has enjoyed double the growth rates of the North, and you can understand why George Osborne has made it his mission to close this gap. He first mentioned it in June 2014, and since then has proceeded to pushing this agenda at home and overseas, drumming up investment for it in China, and giving an impassioned speech on it at the last Conservative Party Conference in Manchester.

 

What will it involve?

 

Devolution of powers to directly elected metro mayors

 

One of the key points of the Northern Powerhouse plan is to devolve fiscal powers to the local authorities. This includes powers over health, transport, skills, housing and job creation. From 2017 there will be an elected mayor of Greater Manchester, and cities like Sheffield, Liverpool, Leeds and Newcastle may be soon to follow. It is no secret that local decision makers are in a better position to understand local economic needs, and so this devolution could go some considerable way to boosting the potential of these regions.

 

High-speed transportation

 

There are major infrastructure developments as part of the plan, with £13bn of investment to go into improving the interconnectivity between cities in the North. Proposed transport improvements include the introduction of high-speed trains (HS2, HS3). There are also 40 major road projects and the introduction of an Oyster-style smart and integrated ticketing for transport between northern cities in the works.

 

Housing the Northern Powerhouse

 

Another part of the plan is to invest in housing and business accommodation. Middlewood Locks, a £730m residential project in Manchester, will provide 2,000 new homes. Furthermore Sheffield Digital Campus, is a new business site aimed at establishing Sheffield as a centre for technology. These are just two of the Scarborough Group-led schemes for which Osborne has secured a £1.2bn investment from China’s Hualing Industry and Trade Group.

 

 

What role do SMEs have in creating the Northern Powerhouse?

 

SMEs are crucial to the success of the Northern Powerhouse. 99.3% of UK private sector businesses are SMEs, accounting for 47% (£1.6 trillion) of private sector turnover, 50% of private sector employment and 85% of net new job creation. Out of the English regions, the North East enjoyed the largest growth (12%) in the number of businesses since the start of 2013. There is already a cluster of SMEs in the Northwest. eBay’s Digital Density study found that Greater Manchester, Lancashire and Yorkshire were the top three most active regions per capita for web-based SMEs, while lagged behind in 26^th place. This shows that although may have more SMEs overall, these Northern regions are becoming much more tech-focused. According to a recent report by AXA, 89% of SME Directors said that the creation of an SME hub outside of would be beneficial. Birmingham and Manchester were the more popular choices for this.

 

SMEs are a critical part of the supply chain for infrastructure projects. The Hitachi rail plant, a new £82m facility in the North East, will provide employment for 730 people. The new deep-water container terminal Liverpool2 will create 5,000 new jobs in the maritime and logistics industry. With access to finance, SMEs can scale up to provide services with the supply chain of these infrastructure projects.

 

These SMEs need help if they are to propel growth in the Northern region. During the Boosting Finance for Business Expansion Forum held by the ICAEW at KPMG Manchester which was attended by representatives from financial institutions, business owners and entrepreneurs, the main topic of discussion was that access to finance for SMEs in the North is key if the government are serious about transforming it into an economic powerhouse. Ron Emerson, the chairman of the British Business Bank, said it is imperative to work with northern cities to “ensure that SMEs get the investment and advice they need.” Help for SMEs is needed from both the public and private sectors, and the bank referral scheme that comes into effect early next year will kick-start this. However, raising awareness of the alternative markets through a government or industry led campaign is critical to filling the SME credit chasm that currently exists.

 

We all know that SME overdrafts are disappearing – in fact £8.4bn has been withdrawn by the banks from SME overdrafts since April 2011, going from £20.9bn to £12.5bn.  What’s more critical for the North is research by Funding Options shows that 55% of small businesses in the North have seen their overdrafts reduced or withdrawn entirely in the past two years alone, compared to just 25% of SMEs.

 

 

Conclusion

 

George Osborne has his hands full in making the Northern Powerhouse a reality. A report by the Centre of Economic and Business Research estimates that the economic gap between and the North is expected to rise to £110bn over the next 10 years.

 

One thing is clear: if Osborne is to make this a reality, he’ll need to make sure the SMEs in the North are supported.  Awareness of and access to alternative finance is critical.

 

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Dr Louise Beaumont is Head of Public Affairs and Marketing at , which is a leading investor in SME alternative finance.

Louise has over twenty years experience in growing companies - from initial spark, to operationalisation, results delivered, and value created. Having previously worked for organisations such as Siemens, Hewlett Packard, Microsoft, and Capgemini, Louise has focused on the UK’s fast growing alternative finance sector since 2010, including co-founding one of GLI’s investees. Louise has advised key UK government departments and units on FinTech and AltFin including; HM Treasury, British Business Bank, Government Office for Science, Cabinet Office, UK Trade & Industry, Department for Business, Innovation & Skills, and Number 10 Downing Street's Policy Unit.