A northern powerhouse university could help equalise the UK economy

The UK has some of the worst regional disparities in the developed world. Despite the near-consensus that this is a problem, however, efforts to address it have been episodic, faddish and underfunded.

As a result, the country is locked into a negative equilibrium. For firms and the government, it often makes most sense to invest in the affluent south east, while workers who want a good job often have to move there – taking their skills with them.

Universities are important for regional growth and there are many fine ones across the country. They could help redress the balance – if only they weren’t trapped in the same vicious cycles. The so-called golden triangle of London, Oxford and Cambridge draws students, staff and research funding from the rest of the country because those cities have been successful in the past – thereby ensuring that they are successful in the future.

There is also gross inequality in the size of university endowments. The University of Oxford is sitting on more than £6 billion; the University of Cambridge has another billion on top of that. By contrast, Newcastle University – similar in size – has an endowment of about £85 million.

So here is an idea: the government should level the playing field by providing a massive endowment to one of the north’s best universities.

Done right, the result would be catalytic and long-lasting. The funding would boost the prestige of the chosen university and the operating profits of the endowment could be used to improve facilities and hire better staff; the best students would follow. The endowment would also allow for subsidising running costs and cushion against economic downturns, becoming a source of long-term stability.

In the US, where university endowments tend to be larger, the median endowment over $100 million has grown above an annual 8 per cent in recent years. If only half of the gains of such growth were reinvested, the endowment would double its nominal value in less than 20 years. Thus, beyond the short-term boost, this policy would guarantee a progressive rebalancing of the UK’s university system landscape and, eventually, help to rebalance the economy.

There would need to be rules on spending to make this proposal fair and effective. Although some outlay on prestige goods would be fine (Oxbridge provides formal hall and subsidised punting, so why shouldn’t other universities develop their own rituals?), there would have to be some caps on spending on arguably less relevant items, such as senior salaries.

It might also make sense to require the chosen university to devote a percentage of its operating profits to research on regional development priorities and projects involving local businesses and communities. That would underline that regional development is the goal, rather than addressing problems in deprived towns (although other policies are certainly needed to do that).

Endowment-building isn’t a new idea. The colleges of Oxford and Cambridge have benefited from substantial bequests over the years. And the American land grant universities – which include world-class centres such as the University of California, Berkeley and the Massachusetts Institute of Technology, which still influence patterns of high-tech growth today – were endowed in the second half of the 19th century by the sale of federal land.

The sale of a state asset could also be used to endow England’s northern powerhouse. The 5G spectrum auctions could fit that bill: they offer great revenue potential and have a cool, futuristic sound (for now). But remember, this isn’t an expense – it is an investment.

How much should the endowment be? England’s regional development agencies, abolished in 2010, had an annual budget of about £3 billion; a similar figure might be appropriate here. Optimistically assuming an ongoing 8 per cent net return a year, the annual operating profits would reach £240 million: more than a third of Newcastle’s current total income and a substantial boost over the long-term.

Perhaps the more contentious issue would be which university to endow (since it would be easier to work with an existing institution than to create a new one). It might be logical to avoid universities such as Manchester or Leeds because their sheer size would dilute the impact of the endowment. But local politics may well interfere with such rationalisations.

Because of this, our preferred selection option would be a lottery of all the universities that met some criteria around research potential, inclusion and regional need – with, potentially, a focus on science and technology.

Our proposal is a long-term solution to a long-term problem with limited risk involved. The worst that could happen is that the anointed university would spend its endowment slowly in its local area, giving a Keynesian boost to demand in the regional economy.

If the UK wants to address its regional disparities, it needs to move beyond short-termist policies and focus on building key institutions. Levelling the playing field for universities should be an important part of that.

Neil Lee is a professor of economic geography and Javier Terrero Dávila is a research assistant in the International Inequalities Institute at the London School of Economics.