Credit crunch putting North's future at risk

May 27 2008 by Adrian Pearson, The Journal

A GOVERNMENT minister has ordered a study on how the North’s regeneration will be hit by the downturn in the economy.

Local Government Minister John Healey has told regeneration experts the whole region would feel its impact.

His comments followed an admission by an adviser in his own department that not enough had been done to revitalise northern economies.

Tim Williams, a consultant at the Department for Communities and Local Government, said at a London conference yesterday that cities such as Newcastle and Sunderland were particularly vulnerable to a recession, partly due to the Government having failed to help strengthen local economies sufficiently. He said: “We didn’t really break through in 15 years of economic growth in northern cities. I’m a bit worried that we have entered a period of non-economic growth in the northern cities.”

Though the region has an impressive growth record and is catching up on other parts of the UK, it is still far behind the national average on most wealth indicators.

Mr Healey is preparing to look at the threat to the North in detail this summer, a review which will work alongside a look at how city councils can share in the regeneration work normally dealt with by unelected quangos.

The minister said the combined effects of a worsening credit market and the oncoming housing slump were “going to have an impact on the challenges facing our most disadvantaged areas”. He added: “What I want to do is make sure that we understand these risks.”

Alex Watson, chair of the North East Assembly, said there were some “harsh realities when it comes to the credit crunch”. He said: “In many respects it would be true to say we have not seen all the benefits available to the rest of the country over the last 15 years, but we are making real economic progress. Clearly the productivity gap is reducing, but there is still a multi-billion-pound gap between us and the South.

“I think there are signs that the credit crunch is already hitting the region and it is worrying to be having to wait and see how big an impact it will have.

“It’s one thing for MPs to demand that Gordon Brown leads us through this situation, but realistically there is very little that can be done. It is an impossible task to ask of anyone.”

Civil servants at One NorthEast say there are many signs the region is well placed to survive an economic downturn. Among these indicators is the fact the growth in North East businesses registering for VAT has outstripped the national rate for five years.

One NorthEast chief executive Alan Clarke said: “All the evidence so far points to a minimal ‘credit crunch’ impact in the North East, which has lower household debt to income and average house price to earnings ratios than many other parts of the UK.

“But we are not complacent. … One NorthEast is taking steps to ensure that businesses are able to continue to gain access to funding at a time when traditional lenders are being more cautious.