Mind the London gap

• Boris Johnson wants London's 'chutzpah' to spread around the UK, boosting productivity, growth and tax revenue.

• The reasons for the lagging performance of other parts of the UK include the type, size and ownership of firms, and the mix of sectors in each part of the country.

• Brexit threatens to diminish productivity by making the UK a less attractive destination for inward investors. Those are the companies that are among the biggest drivers of productivity improvement.

• While workforce skills can improve productivity, the skillset that tends to be forgotten is quality management.

With money being splurged across public services by the new Conservative prime minister, true, blue, fiscal conservatives have been asking how it's to be funded.

It appears to undermine the near obsessive concern of the George Osborne era for getting the deficit down to zero and the debt in decline.

And it makes it more difficult to take the usual Tory attack lines against Labour for threatening to turn on the spending taps with ruinous recklessness.

Well, in his party conference speech, Boris Johnson provided them with an answer, of sorts, when boasting of his boost to health spending.

'Talent and genius'

"If you ask me how we are going to do it," he said, "how we are going to grow the UK economy, I will tell you that it is by raising the productivity of the whole of the UK."

He then sang the praises of London, being a former mayor: "It is one of the many astonishing things about our nation's capital that it is the most productive region in the whole of Europe. And yet there are many other regions of the country that are far less productive, and that represents not just an injustice, but a massive opportunity.

Mr Johnson continued: "I believe that talent and genius and initiative and chutzpah are evenly distributed across the whole UK, but it is also clear that opportunity is not evenly distributed.

"And it is the job of this one nation Conservative government to unlock talent in every corner of the UK, because that is the right thing to do in itself and because that is the way to release the economic potential of the whole country."

In the absence of much other policy in Mr Johnson's speech, that raises some interesting and important questions about why London has much higher productivity than the UK average, and what can be done to close the gap.

The first question, though: how big a gap is it? According to the most recent estimates from the Office for National Statistics, London was 41% ahead of the national average, for output per hour worked, and Cornwall was the region that was furthest behind that average, by 32%.

Yet break it down by cities, and those in south-west of England were ahead of the average, along with London, Aberdeen and Edinburgh.

Those who have studied diversity in productivity across the English regions, Scotland, Wales and Northern Ireland have come up with several factors that explain most of the gap:

Skills

London has the highest qualified average resident. Scotland is a clear second. That's partly due to an education system that has long performed better than the English one. But it may also be because Scottish graduates find more job options - across professions, universities and offshore engineering, for instance - that retain them in Scotland. London has a strong magnetic pull on graduates from much of the rest of the country.

So those most able to be productive and grow productivity are leaving under-performing regions in favour of the high-performing one. The more young people who leave, the more the remaining population is made up of older people, obviously. And in retirement, though they may bring lots of other benefits to society, seniors don't count as being at all economically productive.

There is plenty evidence that the most productive firms are multi-nationals. They have high levels of efficiency, international markets, they are open to competition within their own networks, and therefore require UK workers to perform to competitive standards.

They also bring in ideas and work practices that spin out, through workers' skills and management expertise, into the local supply chain, infecting other companies.

London is much better than any other part of the country at attracting inward investment from such multi-nationals. Scotland has been in a distant second position over recent years.

But Brexit presents a threat to that. Many multinational companies have chosen to locate in the UK, because it has been a base to operate across the European Union. It is on that platform that the car-making industry has been healthily rejuvenated by Japanese, Korean, German and Indian investors.

That business model, of seamless access to supplies and to customers across a market of 500 million people, will come to an end with Brexit. New business models will have to be developed. The prime minister waxed lyrical, in his speech, about the invention and innovation in Britain, apparently hoping that will replace the lure of the EU market.

Productivity is also highest among larger companies. Yet in Scotland and many other regions of the UK, small companies dominate.

And productivity is best in those companies that are not family-owned. Yet family-owned small businesses are, proudly, the backbone of much of the UK that feels left behind.

One factor that ties these high productive firms together - international, export-oriented, not family owned and larger - is the quality of management. The skills gap is not just be about those with the right vocational skills for the shop floor and call centre desk: we overlook management skills at our low productivity peril.

Mix of industries

In London, the finance sector counts for a lot. It's a big plus for Edinburgh as well. No surprise that Aberdeen's oil and gas sector is highly productive, both in the North Sea and in exports.

Sectors with lower productivity include tourism and hospitality, and there you have lowest productivity Cornwall dependent on jobs that are often at, or close to, minimum wage, and often seasonal.

Another, economists' way of looking at that is what they call capital intensity. The really productive workplaces are more likely to feature robots and impressive engineering, and it will become much more the case the artificial intelligence revolution gathers pace in the workplace.

There are other explanations. Cities provide clusters of people, who tend to be more productive than those in towns.

Proximity to big, productive cities - obviously, including London - may also be a factor. However, it may not be immediately obvious why you would be more productive in London than in Inverness, if you have access to the same telecoms and capital equipment.

And it doesn't seem that productive to require people to commute long distances. At the time high-speed rail was first being modelled for Britain, it seemed that reducing journey time would be a key factor in justifying the expense. That may not have taken into account the fact that wi-fi on trains has since greatly enhanced productive journey time.

'Off-siting'

Economist Paul Krugman, a Nobel laureate, has this very day been turning his mind to the question of growing diversity within the USA. Following him on Twitter gives a real time insight into a great economist's mind at work.

He has been positing a theory: that the problem is not offshoring of jobs to foreign countries with cheaper labour, but "off-siting". As telecom technology has allowed lower skilled jobs to be done at some distance from high-cost cities, those jobs have been dispersed to the provinces and boondocks. That goes for financial back office roles in Britain, for instance.

The theory continues: employers used to pay both lower and higher skilled workers premium pay to be in the big cities. But if they don't have to pay lower-skilled workers to be in, let's say, New York, they are better able to recruit high-skilled workers into the cities. Professor Krugman says he has yet to do some "proper algebra" on this theory.

I'll humbly offer a small challenge to this theory: that it is not obvious why high value workers want to flock into cities. Technology and faster transport allow them to choose to live and work in more far-flung places, or simply in regional centres, because they offer a better quality of life.

Paul Krugman is one of the world's most respected economists

Some do so, notably in the university sector. It has long been a rare example of ways in which productivity can be encouraged to spread around Britain, along with top flight football clubs.

But the overheating of London, in property and other prices, seems very slow to disperse those clusters of high-skilled workers. Proximity to those in power, to networks and to potential alternative employers, still counts for a lot.

A further, contrary explanation is that the ONS numbers have got it all wrong. One study, at Sheffield Hallam University (perhaps because Sheffield is counted as among the least productive cities), published earlier this year and reported in the Guardian, sought to challenge the London advantage.

That academic study stripped out the impact of higher numbers of non-productive older people in a region's population, then the effect of head offices - which is where the high paying, high value-added jobs tend to be located - and the evidence that Londoners work longer hours.

Having done so, it slashed the gap in productivity between London and the UK average from 41 percentage points to only 11.

You can see similar effects in breaking down productivity by council areas. The Scottish Borders have low productivity figures, but many of its high-earning residents commute into Edinburgh. So by building the Borders railway, that may improve the productivity of Scotland, or of the Greater Edinburgh region, while worsening that of the Borders.

So what can be done about this? How does the Boris Johnson administration spread this "talent, genius, initiative and chutzpah" out of London.

Clearly, the answer is not to discourage small, family-owned businesses, but to encourage them to become larger, better at deploying capital, more export-oriented and better managed.

Just as clearly, discouragement of inward investment isn't going to help much either, and Brexit looks like a significant turn-off.

Earlier this year, KPMG published its take on the diverse levels of productivity in the UK. It confirmed that London and the south of England are more export-oriented. No surprise, perhaps, where EU markets are geographically closer.

It highlighted the research and development strengths of the south east and east of England, the latter's figures being hugely helped by the Cambridge effect, with big pharma clustered in the region.

Poor transport links

It found London struggling with the speed of mobile signals and with road congestion, while the north of England had relatively poor transport links.

So the business consulting giant concluded that different approaches are required in different nations and regions; in infrastructure, encouraging innovation and improved management, and boosting skills, from the earliest possible age.

The south-east of England needs more housing and improved transport, said KPMG. In the east, roads around Cambridge have become too congested.

South-west England needs better suburban rail. Wales needs to focus on its educational attainment levels, with employers being relatively unhappy about the quality of recruit there. For the north-west and Yorkshire, the emphasis is on improved regional rail links.

Northern Ireland needs to raise the skills of its existing workforce, said KPMG, while completing the road between Derry and Belfast.

Scots bosses

And in Scotland, a strong start with education needs to be pushed harder, it was argued, including attention to the slipping position on basic skills in the international league table of school pupils.

Digital infrastructure, including fibre and mobile, is lagging, and Scotland needs more skills to deploy them, which also means "enhanced managerial and leadership training".

What you find is that plenty people have been saying, for a long time, what the Prime Minister now sees as the means to boost the UK's slow growth and productivity rates, and that in turn as the way of paying for his public spending commitments.

The answers have been there for some time too. So the question Boris Johnson might wish to ask next: what's been holding back progress?