Productivity gap challenge for Yorkshire, Humberside and the North East

Cities in Yorkshire and Humberside and the North East are lagging behind the rest of the UK when it comes to productivity, but have enormous potential for growth and prosperity, a new briefing from The Productivity Institute has found.

The Yorkshire and The Humber and North East Productivity Challenge provides key insights into productivity growth within the region and highlights a number of strategic initiatives for growth and development.

The brief, which is supported by the Yorkshire, Humber and North East Productivity Forum, based at The University of Sheffield, not only highlights areas where the region’s productivity is stagnating, but areas where focused investment could provide benefits in research and development, and skills and innovation – sectors such as clean energy, advanced manufacturing, digital technologies, and healthcare innovation have enormous potential for growth.

While overall productivity in the region is below the national average, Sunderland, with its strong manufacturing base, has exhibited higher productivity levels and growth rates than the UK as a whole. However, cities in Yorkshire and the Humber, including Bradford, Leeds, Sheffield, and York, have struggled to match the national average in productivity growth over the past decade.

The brief highlights several factors that contribute to the productivity challenges faced by the region. The prevalence of low-productivity firms, under-investment in research and development and skills, and inadequate regional connectivity have hindered substantial productivity improvements since 2008. Additionally, the North East and Yorkshire and the Humber were among the least resilient regions to the 2008 global financial crisis and have been significantly affected by Brexit, given their reliance on EU markets for trade.

The brief will assist the business community in the region by highlighting various initiatives that offer potential for future productivity improvement, and examines various factors and bottlenecks that shape regional growth. It will also inform the discussions and actions of the Regional Productivity Forum (RPF) for Yorkshire, Humber and the North East, based at the University of Sheffield. The forum is one of eight regional productivity forums established by The Productivity Institute.

Professor Jason Heyes, a Professor of Employment Relations at the University of Sheffield’s Management School and the academic lead for the Yorkshire, Humber and North East RPF, commissioned the new report, as part of ongoing work to understand and address productivity challenges in the region. Professor Heyes said:

 “This paper provides extremely important information about productivity in our region and the obstacles to improvements in economic performance that different parts of our region face. It will help our RPF to develop initiatives that we hope will make a strong contribution to improving productivity in Yorkshire, Humber and the North East including investing in and retaining skilled workers, the adoption of green and digital technologies and incentivising innovation.”

In the North East, the new governance structure resulting from the devolution deal will provide greater powers and opportunities for growth and innovation in areas such as advanced manufacturing, health and life sciences, energy, tech, and business services.

In Yorkshire and the Humber, the focus is on leveraging the region’s strengths in sectors such as healthcare and innovation, manufacturing, financial and professional services, and digital technologies. The region has established itself as a major centre for financial and professional services outside of London and earns billions from advanced manufacturing and R&D activities. However, there is a need for increased investment, both public and private, in research and development to unlock further growth potential.

One of the common challenges faced by both Yorkshire and Humber and the North East is the need for improved connectivity and transportation infrastructure. The cancellation of the planned HS2 rail eastern leg to Leeds has raised concerns, but the Transpennine route will receive upgrades to enhance connectivity. Infrastructure investment is crucial to facilitate economic growth and ensure efficient access to markets. Professor Bart van Ark, Managing Director of The Productivity Institute, said:

“By adopting a comprehensive ‘scorecard’ approach, we analyse key metrics across five core drivers: business performance, skills and training, policy and institutions, health and wellbeing, and investments and infrastructures. These regions have enormous potential for growth and prosperity, particularly in sectors such as clean energy, advanced manufacturing, digital technologies, and healthcare innovation, and by implementing strategic policies, fostering innovation, and increasing investment, there is the real opportunity for them to unlock their productivity potential and contribute to the national economic landscape.”

Sarah Tulip, Chair of the Yorkshire, Humber and the North East RPF, and Senior Director at IT services and consulting company Cognizant based in Leeds, added:

“This paper both sadly highlights the lack of productivity in these regions, with both sitting in the bottom quartile nationally and that major factors such as the significant lack of investment have driven this down during challenging times when it needed support most. What I believe shines through is that despite adversity, the cities across Yorkshire, Humber and the North East are finding ways to reinvent themselves – and in areas of innovation, becoming world leading across sectors. With the right support, powers, skills and investment in the region, this could be accelerated and have a massive impact both locally for its people, creating high skilled work and transforming some of the left behind communities, but also nationally in allowing the region to contribute more significantly. I look forward to us diving deeper into some of the core challenges faced.”

The University of Sheffield is one of 10 academic partners of The Productivity Institute, alongside the University of Cambridge, Cardiff University, Economic Statistics Centre of Excellent, University of Glasgow, King’s College London, National Institute of Social and Economic Research, Queen’s University Belfast, The University of Manchester and The University of Warwick.