Evidence shows that the UK's rapid growth is linked to increasing export services in the South East

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Labor needs to focus on developing services exports to drive economic growth faster, according to analysis that warns the UK’s northern regions will continue to lag far behind the more prosperous south east.

The potential to boost productivity and wages by exporting high-value services such as IT and finance is heavily skewed towards the Southeast, an urban think tank said on Monday.

Andrew Carter, chief executive of the Cities Centre, said: “We know that if we build more in London and the Greater South East it will have a positive growth effect, although politics will make that difficult.

He added that making it easier to build in existing affluent areas is one of the fastest ways to grow.

Labor has pledged to invest in all regions in its next industrial strategy, alongside plans to expand UK devolution and empower local mayors.

The government’s Industrial Strategy Green Paper describes narrowing the gap between the South East and other regions as “key” to boosting overall growth, with the advanced manufacturing sector identified as a target.

However, Tony Travers, professor of government at the London School of Economics, says Labor will need to make tough choices if it wants to deliver rapid improvements to GDP.

“The government has sold itself on start-up growth, but this analysis shows how reliant they are on London and the South East to deliver. The reality is they have to decide to live with it, or try to change it and risk ending up with less growth,” he said.

The report highlighted the persistent north-south economic divide in eight of the 10 cities with the highest average wages in the Greater South East, despite successive governments’ pledges to reduce inequality.

Since 1997, despite attempts to narrow the UK’s regional economic disparities through initiatives such as the Northern Powerhouse and Step Up, there has been “no change based on wages”, the report said.

The average worker in London now earns £20,000 more than his or her equivalent in the lowest-paid city of Burnley.

Cities need to create the conditions to “attract prosperous companies” no matter what sector they work in, the report concluded.

Carter said the findings highlighted the need to increase planning reforms and focus on industrial strategy in areas with high growth potential in the economy.

The ranking of cities in the number of “new economy” businesses per head of population, operating in areas such as AI, advanced materials, fintech or life sciences, is heavily skewed towards London and the South East.

The top seven places were all in the South East, while seven of the cities in the bottom 10 were in the North of England.

The think tank, which said the role of manufacturing “should not be overemphasized” in efforts to boost wages outside the Southeast, said the sector is set to play a “minor” role in the economy as a whole.

“A place that is not driven by high-value service activity cannot see sustained improvement in the performance of its export base,” he added.

The report warned against over-reliance on one sector, pointing to Aberdeen’s reliance on oil and gas exports.

The Treasury said it was committed to regional growth, investment and regulatory reform.

“Growth is the number one mission of this Government’s ‘Plan for Change’ and ensuring growth in all regions of the UK is a key part of that,” the spokesman added.