Lord Jim O’Neill is an economist, former chairman of Goldman Sachs Asset Management, a member of the House of Lords, and a former minister. Lord O’Neill chaired the RSA’s independent City Growth Commission and subsequently joined the Government. Following his departure from government, he acted as vice-chair of the Northern Powerhouse Partnership.
This interview was conducted on 16 December 2021.
Q: Can you tell us about your role in growth and regional policy?
I spent over 30 years in the City, with 18 years at Goldman Sachs – including a lot of the time as Chief Economist and finally chairing the Asset Management division. I decided to leave in 2013.
I was involved with Greater Manchester for many years whilst I was at Goldman. It came out of my interest in philanthropy, but I was asked to chair an economic advisory group for Greater Manchester in the late noughties. That gave me some link to the most active people in Manchester about their own policy priorities, but also a tiny linkage into a very small number of people in Whitehall that focussed on these issues. It was very small.
The first thing I decided to do after Goldman was to chair an independent review set up under the RSA in October 2013, called the Cities Growth Commission. Its remit was to look at what could be done about the predominance of British economic growth being driven by London and the South East. That lasted for just 12 months and was great fun.
Two things of relevance emerged: one was that we were trying to think of ways that did not penalise London when seeking stronger UK growth. Second, we decided that we wanted to avoid what you might call ‘demand subsidisation’ policies and think more what might, very loosely, be called supply side initiatives. Our goal was to come up with ideas that – if they were implemented – might actually boost the trend rate of growth of the UK.
Q: Did you set the scope of the Cities Growth Commission?
I didn’t design what the mandate of the Commission would be. I recall saying that I would not accept being chair if there were conditions set such that I wouldn’t find something I could live with. I specifically remember, because HS2 was already around, saying that it wasn’t entirely clear to me that HS2 was necessary for delivering growth in the north of England. There was a bit of debate about that because it was presumed by some of the Council figureheads – persuasive in encouraging the RSA to set this up – that they were all huge fans of it. But other than that, we were given a free remit as to the ideas we might come up with.
Q: What were you trying to achieve?
At the centre of it, remember I’m an economist, I would say there was a desire to boost productivity to a degree that it would narrow the productivity gap between London and the South East and elsewhere.
Q: How did you think about the balance of policy intervention and private sector activity?
Both would be necessary. Our recommendations included things on policy where we very strongly believed policy intervention was necessary, including devolution.
Q: What were the key recommendations that emerged?
We concluded that – because it was called the Cities Growth Commission and one of the backers was the grouping of the major urban area in the UK of Councils – if we were going to make a national difference and boost the trend rate of growth we should focus only on areas that had more than 500,000 thousand people living there. There are only 14 urban areas in the UK that were that big – including four outside England (Glasgow, Edinburgh, Belfast and Cardiff).
Second, we focused on what became the Northern Powerhouse. It’s quite simple really, but no one had ever seemingly thought about it. I homed in as chair, as a Mancunian, on the fact that the centre of Manchester to any of Liverpool, Sheffield or Leeds is shorter than [London’s] Central Line. I remember we would host hearings around all these major areas. I didn’t go to them all, but we probably went to eight different urban areas. At each of them we would try to have Council Leaders, private sector business and academics.
At the one in Manchester, I heard a couple of Liverpool accents and I ended up saying to the panelists ‘what do you think of the idea of Manpool?’ There were more and more people from Liverpool working in Manchester. When I was a kid that would have been unheard of. It came into my head: ‘what if Manchester and Liverpool became part of a single market for producers and consumers’. Within a matter of weeks that morphed into what I ineloquently called then – and still do, but it’s not got any take up – Mansheffleedspool. It was that. Osborne, in the Coalition, whilst the Cities Growth Commission was going on came up with the idea of the Northern Powerhouse.
I specifically remember – which I tease them about still – it was the 21 June 2014. I got a call from someone senior in the Treasury saying would I personally, in confidence, preview a policy statement that Osborne was going to put out the following day. This was the launch of the Northern Powerhouse. The date is ironic because, two years later, it became the anniversary of the Brexit Referendum.
The first day that the Northern Powerhouse was ever mentioned was then and the Cities Growth Commission was still going on at that time.
Q: Do you stand by that basic identification of the cities as the ‘Northern Powerhouse’ areas?
[The Northern Powerhouse] should attract attention of national policy makers in this country. The area, including all the towns and villages in that radius, is something like eight million people. If you could get it to be truly a full, transparent free market for both consumers and producers it would be a second only to London. As we showed in some of our projections, it would be a national game changer. If you’re a policymaker in Whitehall and you really want to make a national difference it is the only geography in Britain – perhaps alongside the West Midlands – that could literally transform the national performance of the country. If you’re a national policymaker, you should be attracted by that.
The second thing to say is that it remains quite challenging, socially. I’m sure you can observe any day of the week that virtually anybody in any part of the North believes the ‘Northern Powerhouse’ is them. I get how nowhere should be excluded, but the truth of the matter is it is only that geography [i.e. the cities of the region] which is unique. People that moan in Workington, or other parts of Cumbria or the East Riding: yes, they’ve got a lot of issues that we can talk about. In terms of the Northern Powerhouse they are very tangential to the centre of it. The case for supporting Cumbria, other than the fact that it is closer to Manchester than London is, is no different than the case for supporting Cornwall. I’m still heavily involved in all this. I have found over the subsequent seven years it’s very difficult to get people to understand that – very very difficult.
One other thing to say, linked to that and highly politically and possibly socially relevant now is that there appears to have been a shift to more focus on towns than cities. I get the social aspects of that, but from an economic policy perspective it certainly doesn’t make sense to do it at the exclusion of cities.
Q: How do you ensure that the problems facing those towns are not lost in the focus on the core cities?
It’s a crucial policy issue because they often are. In the Cities Growth Commission, some of those places would be part of the Combined Authority areas. In Greater Manchester towns are very much part of the focus. Where the question is really challenging is what about Blackpool or what about Burnley or what about Hull or Scunthorpe or so on. For the ones in metropolitan areas, it should not be something that’s ignored. However, if you look at the data about what has happened in recent years – and Great Manchester is fascinating in this regard, many people don’t even seem to be aware of this – Central Manchester’s GVA [gross value added] has actually improved as much as London’s since 2015. Greater Manchester as a whole has not had this, because some of those outer boroughs continue to struggle. It’s a huge question.
Q: Why have the outlying boroughs continued to struggle in Greater Manchester?
I don’t think you see it in London, but Greater Manchester does exhibit a significant rise of people living in the centre of Manchester – a younger generation.
Of the boroughs you see the problem most visibly in somewhere like Stockport. Because of the virtuous rise of central Manchester, including it’s shopping centres, and because Stockport is not on a tram, only until the past couple of years Stockport policy makers tried do something about it. Stockport declined remarkably. It’s indicative of what is happening more broadly.
So, it’s driven by transport, particularly transport between the centre and the boroughs. But also – especially in northern and midland areas, those boroughs historically closest with textile manufacturing capability – the lack of modern skills they have to offer to attract businesses there. Particularly if they don’t have great transport facilities.
Q: Have we got the policy balance right across skills, infrastructure and business support?
My honest answer is I don’t know. Over the past seven years I’ve thought about it. It’s a big part of my life. One of the really nice things about our Cities Growth Commission and Osborne’s adoption of our ideas is that it has kick-started a whole industry of people thinking about this stuff again. There’s no shortage of talk.
However, we are living through a very odd period of political decision making in the UK, even given the same party has been in charge for the whole era we’re talking about. There has been enormous shift of policy focus. Theresa May, for example – because of animosity between some of her advisers and Osborne’s advisers – refused to use the phrase Northern Powerhouse, even though initially she had a Northern Powerhouse minister.
One of the most shocking things about Britain in the last decade is how on earth can you have such erratic and volatile shifts on policy about such important matters based purely on subjective views of personal relationships. To some degree Boris Johnson’s levelling up became a broader version of the Northern Powerhouse.
On the substance, I’ve often said there are six key ingredients to really drive the long-term success of the Northern Powerhouse and for other regions. They are as follows.
Number one, devolution. We’ve only just begun at it. We are one of the most centralised countries in the world. Devolution over tax raising and spending. It may be completely coincidental – but it’s almost definitely not – that one of the reasons why we have the biggest geographic inequality in the OCED is because we’re the most centralised one of spending and tax raising.
Secondly, infrastructure – both transport and digital.
Thirdly, education – particularly primary and secondary.
Fourthly, skills.
Fifthly, more genuine local adaptable ambition. I say that because another part of the problem is cultural in that many of these proud historic areas essentially have this romantic vision of what their old life used to be. The truth of the matter is that most of these areas have economically declined for sound powerful global economic reasons. Unless you’re going to change yourself, you shouldn’t kid yourself that you can recreate some great magical productivity boom. I’d say that is a very important fifth separate factor.
Sixthly, going right back to what you asked at the start – you need more engagement of the private sector. You need all six of those things.
Q: On your fifth point: do you think younger workers are showing a greater flexibility to changing local industrial structures?
Again, my honest answer is I don’t know. But think it varies by area. One of the reasons – and I could be subject to bias here – why Great Manchester appears to have done better than many other parts of the country is this remarkable togetherness of leaders of the private sector, local government and other crucial players like the university. When one speaks to any of those three you hear the same view whoever it is you’re talking to. They are very joined up.
If you go to the North East it is staggeringly fragmented. QI went into the Treasury when Osborne asked me to deliver the Northern Powerhouse, so I spent 17 months of my life trying to. The North East Combined Authority came into existence just as I was going into that. One of my responsibilities was trying to organise and implement devolution deals. The North East was the second conceptual deal we made. But within three months of me leaving the Treasury it fell apart. The main reason why it fell apart was a split north and south of the Tyne. You could see how fragile it was by the amount of time I had to spend with them. You couldn’t get people from Sunderland to really want to work with people from Newcastle. It was like that all over the place. None of them really wanted to work with the other local authority.
Q: Is this just due to a lack of practice – unlike Greater Manchester which had longer experience working across boundaries – or some other factor?
I don’t know but it’s fascinating. Yorkshire is even worse than the North East. I think part of the answer is that Greater Manchester might have some unity. With the exception of one borough – Trafford – every other borough has been solidly Labour throughout the whole of this period. Whereas parts of the North East and parts of Yorkshire chop and change. Intervention of national tribalism versus localism is not an unimportant issue I think.
Secondly, the bombing of the Arndale centre in Manchester in the 1990s had a big influence on policy makers’ thinking there. They were like, ‘we need to shake ourselves up’. The North East and other places, from what I can see, never had anything like that.
I think there’s also deeper cultural reasons. The challenge of the Northern Powerhouse is that Manchester and Liverpool have enormous rivalry. Trying to get the Liverpool guys to simply focus on the fact that Manchester is coincidentally geographically between them and Leeds isn’t some deliberate act of evil. It’s just geography. The whole history of Sunderland and Newcastle is an enormous dilemma. When you go to isolated places, it’s quite sad in some cases, I’m thinking of parts of Northumberland in particular where you have long histories of families where their whole lives were in the mining community and you have some generations of families that haven’t worked since. The mental influence of those historic industries lives on more than it should do. Even though the most able and capable of young people, the first thing they want to do is get away from it. A lot of young people from those kinds of backgrounds can’t.
Q: What’s your assessment of local government capability, and how this has varied over time between different areas?
It has varied dramatically. The best way of answering is again during that brief period when I was formally responsible for all of this under the Chancellor. In late 2015 we sent out a request around all of England to any area to submit a bid for devolution or devolved policies. We got 47 that came in. If I recall correctly, only seven of them had any vague seriousness.
Greater Manchester was unique in how powerful it was and how persuasive. In fact, if it hadn’t been for the likes of Howard Bernstein and Richard Leese and the people they had behind them I’m not sure there would have ever been the story we see today. They played a big role in persuading the likes of John Kingman – who was running growth area of the Treasury at the time – to take the risk of a devolved policy initiative. Interestingly, I can observe areas that have made enormous improvements. Leeds and West Yorkshire have changed for the better considerably. The West Midlands has improved significantly because of Andy Street’s role, even before he became Mayor. And there has been some progress in Liverpool and the North East. There has been some progress in the Bristol area, which was also fraught with local differences of a different nature but almost similar to those in the North East.
Q: So you think there is a clash in political cultures between suburban, rural areas and the metropolitan regions that makes collaboration more difficult?
Yes, there’s living proof. Another one is Southampton and Portsmouth. It’s a very economically natural area to have a big devolved agreement of some sort, and both were extremely keen. I found these things so frustrating. We though we’d got a deal with them but the head of Hampshire County Council objected and persuaded all Hampshire Tory MPs to campaign to stop it, and he succeeded.
Q: In your experience did Whitehall speak with one voice? Which departments did you find were most supportive, least supportive and where did you feel that you had to concentrate efforts in terms of persuasion?
As an outsider now, the Department of Education (‘DfE’) dreadful! It’s shameful and there’s a huge irony and potential complication with Michael Gove being the guy in charge of levelling up. The philosophy of the higher levels of DfE, the complete obsession with academies, it shocks me still. They do not have any flexibility to acknowledge that there are significant social, local challenges.
In my opinion, unless you do something education-related or family-related in terms of interventions, you can have a thousand policies in every area and it won’t make the slightest bit of difference. Even under Cameron and Osborne when there was, in principle, a big focus on all this, they seemed to be either scared or intimidated by the DfE to tell them, ‘this is what we’re going to do’. The Department of Education just said no. It’s completely too centralised.
Separately, on skills, our Cities Growth Commission report we specifically said the adult skills parts of DfE and BEIS [Department for Business, Energy and Industrial Strategy] should be disbanded. Why on earth people in those two departments seriously believe they understand the skills challenges of different parts of the UK, it baffles me! But they still do. Even though we have supposedly got some devolution of adult skills in some places. This longing for hanging on from central Whitehall just continues.
The best department was the Treasury, because once the Treasury realised at the top that this was a policy priority, they decided to be really on the case. The problem was the volatility and variation of people leading the Tory government and the Treasury itself. But I would say they are the best on all of this. Local government, by definition, should be the best. But – again reflective of the peculiar nature of the Governments we’ve had – it has never had a lot of real power.
Here’s a huge test case. It’s now called the Department for Levelling Up and Housing. And as we observe there’s this widely anticipated and hoped for White Paper that seems to be getting delayed again. One of the possible reasons is that they can’t persuade the Treasury, under Rishi Sunak, to allocate more money for certain things. I don’t know for sure that’s the reason. I think there’s actually other reasons.
Q: Was there a set of policies or certain innovations which you think really worked in encouraging businesses to locate outside of London?
Again, I don’t know. A lot of things have not worked in these places in the past. It’s all based on informed guesses. In September I became non-exec chair of something called Northern Gritstone, which is a new investment entity that is hoping to invest in spin-outs and start-ups coming out of the Universities of Leeds, Sheffield and Manchester. One of the fascinating things that we picked up on as a Commission is that the UK has somewhere between 16 to 18 of the world’s top 100 universities in independent surveys every year: a staggering unique asset of our nation. We’re four percent of global GDP but we’re 16 to 18 percent of the best universities according to independent surveys. Eight of those are in the north of England. They are all in low productivity areas. Why not try to think of policy initiatives, particularly supporting business generation, that can create value added businesses in the vicinity of those universities? Supply side initiatives are something I am very passionate about. Does it work? The only place you can look as giving any belief that it can in the UK is Cambridge. That seems to have been a huge success.
Q: Do you think that macro policy has been supportive for regional growth?
No. You can do all these things that I’ve just said but unless there’s a broader supportive environment. It still wouldn’t be a game changer. In transport – we see it now in our early days of Northern Gritstone – to go east to west in the north … it’s just a nightmare. You can get in and out of London from any of these places pretty easily these days. But try going from Newcastle to Liverpool on a train, it’s a complete nightmare. Who is going to persuade Google or any new rising company to have its headquarters anywhere in one of these northern places on the basis of this single ManShefLeedsPool model if they can’t move around in the same way they can jump on the Central Line.
Q: What do you think are the most important lessons for us to take away from your experiences?
Persistence. Being respectful of everyone’s opinion on the basis that everyone has a good intention and thinking of our strange history and odd local cultures. You’ve got decades of built-up emotions and feelings and experiences that need to be changed. Persistence, I think is important. I say that because I’ve lived through this with the same party-political government that doesn’t have persistence.
Secondly, messaging. I used to say to Osborne and Cameron, and still do to many people in Johnson’s administration today, that the frequency of signalling about the importance of Northern Powerhouse was done by Cameron and Osborne. This itself would send a message to private sector business to think, ‘hang on a second this seems serious’.
Thirdly, being clear about how you are going to measure yourself. One of the things I’m really looking forward to developing following the White Paper is having a set of criteria to evidence progress. There might be quite a bit of ambition of the sort of degree of things they are trying to level up, including length of life.
Q: Should we be thinking beyond economic metrics?
I’ll give you one of the most shocking and emotive things about any of this I’ve even come across, before the days of Northern Powerhouse. I’m very involved in philanthropy to do with education. From 2009 I was involved in giving money to the best improving state school in Manchester, for three years.
One year there was a school in the borough of Blakely that won it. It’s 3.5 miles northeast of the centre of Manchester. I went to the school to give a talk and present the award at the morning assembly. I was given a walk round and chatted with the Head afterwards. Two things stuck in my mind, and I ended up saying this in a big interview at a Northern Powerhouse conference event years later. Firstly – and this was a largely white school – I asked for a show of hands how many of them were Manchester United fans and virtually every hand went up. Then I ask how many of them had every been to Old Trafford, hardly any. But the second thing was the really big one is that the male life expectancy in that borough was lower than it was in Russia! I couldn’t believe it. Addressing this would be the true long-term measure of success of the Northern Powerhouse.
ENDS