ENGLAND'S North East is the kind of place George Osborne had in mind when he spoke this week of helping the private sector grow in parts of the country where the state had taken a larger and larger share. Dependent on coal-mining, shipbuilding and steel, the region was effectively nationalised after 1945. As those industries waned, new jobs, mainly public-sector ones, were created. One person in four works directly for the state.

The North East, and Newcastle Gateshead in particular, have been transformed in the past two decades by regeneration programmes that built business parks, created museums and a concert hall, improved housing and schools, expanded universities and increased confidence all round. It was not enough to erase the legacy of low skills, low aspirations and low business start-ups, but it was a good start.

As spending cuts bite, though, public-sector jobs are vanishing. Unemployment in the North East is 10.8%, higher than the national average of 8.4%. Private firms are striving to fill the gap. Nissan, which makes cars in Sunderland, is to build a new model there. Hitachi is planning to make intercity trains in Newton Aycliffe. The plush Quorum Business Park in Newcastle has signed two big tenants in about as many months. But within a week of Nissan announcing new jobs, two big firms had said that they were leaving.

Against this sober backdrop, talk of Scottish independence or “devolution max” is unsettling the North East. No one knows what choices will be offered voters in the referendum in 2014. But chances are that Scotland will end up more detached from Britain, and this worries many.

Buying the business

The main concern is that an increasingly assertive Scotland, given the power to lower corporation tax and Air Passenger Duty (APD), will suck investment and jobs from below the border. Indeed, it is already doing so, armed only with the sort of well-financed development agency that Westminster has abolished in English regions. In September Amazon, an online store, was about to move its customer services to Newcastle, creating 900 jobs. Then Scottish Enterprise offered a £1.8m ($2.8m) training grant—and it was off to Edinburgh.

James Ramsbotham, chief executive of the North East Chamber of Commerce, thinks that if Scotland can tailor its tax and investment policies while England's remain centralised, the North East will suffer. And not only the North East: Ireland's example shows that low corporation tax and cut-price APD can attract businesses from far afield. What is worse, Scotland and the North East both see their future in offshore and renewable energy, and may end up competing head-on for business.

Others are less fussed. Alastair Balls, formerly head of Tyne and Wear Development Corporation, suspects that if fiscal transfers from London are stopped and Scotland is allocated its share of national liabilities as well as assets, the Scots may not be able to bribe businesses at the same time as they hand out free prescriptions and university tuition. Despite the odd Amazonian mishap, the North East can and does attract inward investment, enough to create 2,270 jobs in 2010-11, on official figures.

Yet there is a broader political concern in some quarters. The North East risks losing an ally as well as gaining a competitor. For years the Scots and English northerners—united by a heritage of heavy industry, mostly Labour politics and perhaps a fondness for Scottish & Newcastle's brown ale—have made common cause against the richer services-based economy to the south. Now Scotland is withdrawing.

The danger, says John Tomaney of Newcastle University, is that an increasingly powerful Edinburgh will be competing with the North East for investment at a time when Whitehall is busy pumping money into the golden triangle around the capital, where growth looks surest. For all the chancellor of the exchequer's welcome gestures of support in the budget for more distant cities, a clear demonstration of priorities is that some £2,730 per person is being invested in transport in London and the south-east, on figures from IPPR North, a think-tank, and only £5 in the North East.

For David Miliband, Labour MP for South Shields on Tyneside, Scotland is just one of two or three factors changing the debate in the North East. The region has no ministers in government now, as it did when Labour was in power, and people are worried about their economic future. Another factor is that the Conservative-Liberal Democrat coalition has very different ideas about devolving power and spurring growth from its predecessor's.

The Labour government believed in big regions and big handouts from on high. In 2004 it offered the North East its own assembly, which was roundly rejected. The coalition is after a finer-grained localism, one that pushes responsibility down to smaller units. Local authorities or groups of them may, for example, join with business to identify priorities, compete for funds and deliver results. This theme runs through a raft of new government policies, from the Local Enterprise Partnerships that have replaced Regional Development Agencies in England, through negotiated deals for “core cities” (Manchester's was highlighted in this week's budget), to elected mayors.

“The days when everyone climbed onto trains to London to ask for money are gone,” says Lord Shipley, a former leader of Newcastle City Council. “We have to do more to create our own wealth and expand our tax base.” With one wary eye on Edinburgh and another on London, the North East is coming to terms with this.