Stephen Nicol:
Mind the gap

Regardless of the number of cranes on the skylines of the region's towns and cities, or the positive sentiment at street level, economic surveys always seem to paint a rather depressing picture of the North West's performance.

Even in the most buoyant times, measured by conventional means the North as a whole consistently lags behind the South East for wealth creation, confirming southern prejudices that we live in a region of pies and poverty. Arguments that we might also benefit from lower housing costs, less commuting and a better quality of life often fall on deaf ears.

It is for this reason that the Northern regional development agencies successfully lobbied the Government to start comparing the performance of the North's towns and cities with their counterparts in mainland Europe, rather than London. They point out that a direct comparison with the capital can be misleading.

The move raises the whole debate about the North-South divide and the way in which we measure progress. For decades economic output - measured by Gross Domestic Product or more recently Gross Value Added - has been regarded as the key indicator of performance.

Greater output equates to greater wellbeing and a better quality of life, or so the reasoning goes. As a result, improving overall economic output growth has become the key target for Governments and RDAs.

However, this approach fails to take into account the social and environmental costs associated with growth. For example, people who work longer hours have to spend more on childcare and domestic labour. With concerns about climate change, there is also the problem of increased greenhouse gas emissions.

The assumption that greater wealth leads to greater wellbeing also runs counter to the evidence. Studies show that the link between economic growth and 'happiness' in the UK broke as far back as the 1970s. Since then, the nation's increasing prosperity has made us little happier.

The Regeneris Sustainable Prosperity Index (SPI) was born out of an attempt to stimulate this debate and provide a real alternative to GDP or GVA, by measuring economic growth but also taking into account the social and environmental costs that come with it.

The SPI uses disposable household income as a starting point but makes adjustments for regional price differences. It also takes into account the time and costs involved in commuting and congestion, the emission of greenhouse gases and unpaid domestic labour, or the extra costs associated with working longer hours. It estimates these 'hidden costs' amount to around £3,000 for the average person in England.

Our first study of the UK carried out last year found that, once these costs are taken into account, the North-South divide is considerably reduced. The gap between the North West and the rest of England closed to 6%, compared to 10% using conventional methods. In other words, the difference between the actual prosperity of Londoners and the North West was almost half that suggested by income levels.

This accords with what those of us living in the North West already know, that quality of life can be considerably greater for a similar income.

The Regeneris SPI raises some important questions for policy makers. Given that higher economic output does not automatically relate to extra wellbeing, is GVA is the most appropriate tool for measuring the success of regional or sub-regional economic policy? Or should there be greater recognition of trade-offs between growth and the costs of that growth, in particular the additional travel and CO2 emissions?

While the SPI does not yet fully capture all the factors affecting quality of life and wellbeing and represents work-in-progress, it provides a valuable alternative perspective. We hope it will provide a starting point for a wider debate.

Stephen Nicol is managing director of Regeneris Consulting