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Shadow Chancellor John McDonnell has backed our Power Up the North campaign and revealed that a Labour government would seek to boost the North by supporting small and medium sized businesses.

He said Labour wants to import the economic model common in Germany, known as Mittelstand, into the UK.

Mittelstand are small and medium sized businesses, often family owned, and the heart of the German economy.

Mr McDonnell said: “We’ve had a big debate about our economy and where it’s going.

“And the model that we’ve been looking at is Germany and what they call the Mittelstand. The engine of their economy is the small and medium enterprises. That’s what we lack in this economy on any scale, because there’s a lack credit going in to them.

“This gives us the opportunity to develop that type of Mittelstand that’s become the engine of the German economy.”

A Labour government would set up a network of high street banks in post offices with a mission to provide credit to smaller businesses, Mr McDonnell said.

The funding would come from a National Investment Bank, with £250bn to distribute over ten years via regional development banks that would be set up across the country.

And 3,600 post offices across the country would become branches of a new “Post Bank” network - at a cost of £2.5bn - where entrepreneurs would be able to access funding.

The scheme would save post offices from closure and provide banking services to members of the public, but the main goal would be to step up support and small and medium sized businesses (SMEs), Mr McDonnell said

“The focus for us is SME funding in particular. Credit and support declines once you lose your local bank on the high street, so what this will give us is access to banking for those who most need it.”

The banks would be open in every part of the country, ensuring that businesses in the North received financial support, he said.

“We’ve been looking at the stuff that’s come out of the Powering up the North campaign.

“We’ve been supporting the campaign Powering up the North. A lot of the ideas contained in that were great.

“This is part of that really.”

He said the banking plan “is partly about addressing the imbalance there has been - the focus on London and the South East.

“This is about how we can focus on the development of the high street and the small towns in the North where there has been a lack of investment.”

Speaking to ChronicleLive at Westminster, Mr McDonnell was attacked Conservative leadership candidates who have portrayed themselves as supporters of the North and Midlands.

Boris Johnson, launching his leadership bid last week, said that if he became Prime Minister his government would “put in the infrastructure that will lift every region.”

And he gave as examples: “Northern powerhouse rail, and proper connectivity in the West Midlands.”

But Mr McDonnell insisted: “It doesn’t matter who is elected leader. There are fundamental problems the Tories have. They have been in office nine years, and as a result we have 4.5 million children in poverty.

“We’ve grotesque levels of regional inequality because of their lack of investment in the North in particular.

“I don’t think they can overcome that track record.”

And whoever won the Tory leadership contest, he said, “I don’t think they should have a right to take over as Prime Minister without a general election.”