Over the summer Rachel Reeves has been on a road trip around Britain. From Cornwall and Kent, to Aberdeen, south Wales and Belfast, in search of the solutions for a national economy that is stuck in a rut.
Inspired by this tour, the chancellor used a Guardian article last week to set her autumn budget priority: boosting productivity. Tax and spending may dominate news headlines, but this is the real problem facing the country, and no politician of the past two decades has managed to fix it.
Productivity is a dull word of vital importance. Growing the measure of output for each hour of work is an economic secret sauce, enabling growth in wages and living standards over the long run without stoking inflation.
On the hunt for solutions, Reeves could have extended her trip. Leaving Westminster on a (most probably delayed) Avanti train from Euston, or an overcrowded TransPennine Express from her Leeds constituency; for the wetter side of northern England, where Manchester is having a moment in the sun.
Unlike the rest of Britain, there are signs of life in Greater Manchester’s productivity. Between 2004 and 2023, the city region recorded the highest rise in gross value added for each hour worked of any combined authority in the country.
London – once the driver of UK growth – has effectively stalled. The capital is still streets ahead in terms of productivity and the UK is still one of the most regionally unequal countries in Europe, with no regions outside London and the south-east of England above the national average. But Manchester is beginning to close the gap – with growth of 31% since 2004.
To anyone familiar with the north-west, this will probably come as no surprise. Manchester has changed beyond all recognition in recent years, never mind the past two decades. The Haçienda has been a posh block of flats for longer than it was at the epicentre of the “Madchester” music scene. The class of ‘92 swapped Old Trafford for building luxury hotels long ago, petrodollar cash has flooded the east of the city, and Oasis have just added, by some counts, £1bn to the British economy at large.
“Manchester has got this buzz about it,” says Jim O’Neill,a former Goldman Sachs chief economist, and a proud Mancunian, who is life president of the Northern Powerhouse Partnership.
“It’s always been there for years in the [city] centre. But most importantly it’s now spreading. Some would say it’s that Manchester swagger. It all relates to an attitude that ‘we can do this; we want to see it happen’. I don’t know another part of the country where it has that vibe.”
For years Britain’s productivity growth has been a dismal disappointment. Before the 2008 financial crisis growth averaged 2% a year, but has trickled to well below 1% since. Figures last week showed growth contracted in the year to June.
With the autumn budget not far off, this is fuelling a sense of alarm in the Treasury. Whitehall is abuzz with speculation that the Office for Budget Responsibility is poised to hand Reeves downgraded productivity forecasts – with the potential to blow a £20bn hole in her tax and spending plans.
To turn things around, Reeves could take the ingredients behind Manchester’s renaissance and apply them elsewhere. She could also double down on the “Northern Powerhouse” strategy for good measure.
Sources close to Labour say that is exactly the plan: Keir Starmer and Reeves are expected to launch an intensified regional growth strategy next month, with the revival of the Northern Powerhouse Rail project as its centrepiece.
Those who know Manchester best say there are a few golden threads to the renaissance of Cottonopolis: devolution; political stability and coordination between its policymakers, businesses and institutions; the involvement of its top universities; and sustained investment.
Andy Burnham, the mayor of Greater Manchester, says London hasn’t entirely cottoned on. The city symbolised by the worker bee has done well, but could have done even more with extra money and power from the Treasury.
“The learning for Whitehall is, if you want productivity growth, and growth more broadly, you have to let go and trust places. And you have to invest. Because you can’t get it without investment.
“[But] there is a bias against cities outside London and the south, and as long as this remains, the country will not achieve its full potential.”
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“I compare Manchester [today] with the city I came back to after uni, and the one I had to leave to get on in life. It’s been a major shift. The momentum is there now, and it’s what you do with that next.”
In truth the Manchester revival has deep roots. The timeline before Burnham’s arrival as mayor in 2017 is well known: the 1996 IRA bomb as catalyst for city centre regeneration; the 2002 Commonwealth Games, the opening of Salford Media City, the Lowry, Bridgewater Hall and the expansion of the Metrolink.
Led by the city council’s former chief executive Howard Bernstein, and ex-leader Richard Leese, their “Manchester family” approach to coordinating investment proves Reeves’s theory that public money can “crowd in” the private sector: Manchester has ranked top outside London for foreign direct investment projects for three of the past five years.
However, the transformation isn’t all plain sailing. House prices and rents are rocketing, crowding out families from Manchester’s poorer suburbs. For those who, like me, grew up around these parts, the skyscraper-sprouting skyline is a source of both pride, but also nagging worry. Could the pace of change sweep away something special, in a city used to doing things differently? And are the proceeds of growth lining Mancunian pockets, or flowing out of the Irwell to an offshore bank account?
Burnham is alive to the danger. “I use the phrase that, the kids can see the skyscrapers from their bedroom window but they currently don’t see a path to the modern Greater Manchester economy. The next phase is about making that path.”
Still, the addition of glass-fronted flats and office blocks among the converted Victorian mills has helped Manchester to create more jobs at a faster pace than the UK average. They reflect Labour’s hopes for Britain more broadly: that a fairer distribution of growth, in theory, will become easier if there is some growth in the first place.
Reeves could do with a few more Mancunian economic miracles. The national economy will not come unstuck without Britain’s biggest regional cities reaching their full productive potential.
In her first conference speech as chancellor last year, along the M62 in Liverpool, Reeves promised a Labour government would mean “shovels in the ground. Cranes in the sky. The sounds and the sights of the future arriving.”
To the next critic who asks when exactly that will come about, a Manchester reference may help.
