THERE are still too many people who live south of Watford who think the North-East is a giant slag heap," says George Cowcher, chief executive of the North-East Chamber of Commerce.

It's almost unbelievable, 20 years on from the mining strikes, the decline of the steelworks and the increasing demise of shipbuilding, that the rest of the country cannot see past the enduring image of ballet-dancing Billy Elliot the miner's son.

Pit villages and slag heaps aside, the North-East has made giant strides in the past ten years.

But so has the South-East; and with an economic gap which runs the risk of getting wider, we could face an increasingly unbalanced economy - something that is in nobody's best interests.

Unemployment is highest in the North-East; business start-ups are lowest. But a ripple from the South-East's boom has led to higher house prices, and higher shop and oil prices in the region - prices which only make the gap seem wider.

"If we take a laissez-faire attitude, the gap is only going to widen," says Professor John Wilson, director of Teesside Business School. "Despite the positive signs from the North-East, unless it grows as fast as the South-East, we have a problem."

This wide gap between different parts of the UK is risky when it comes to macro-economic policy - or, in simpler terms, setting interest rates and keeping inflation steady across the UK.

A former Bank of England governor, the now infamous Lord "Eddie" George, was quoted in 1998 as saying that the haemorrhaging of manufacturing jobs in the North-East was a fair price to pay for keeping inflation rates down in the South.

Prof Wilson says: "For too long we have been a victim of macro-economic decision- making. One of the downsides of having an economy which is so out of balance is that there can be a gravitational pull towards one region - in this case the South-East.

"This, in turn, leads to wider social problems in the areas that are left behind, such as educational attainment and levels of crime.

"The scale of the difference between North and South is such that the Government has a crucial role to play in terms of providing resources, but also in creating the appropriate environment for business to flourish."

Prof Wilson compares the North-East to areas such as New Orleans, in the US, which have been left behind economically, which has led to social inequalities, highlighted by the devastating effect of Hurricane Katrina.

Current Bank of England governor Mervyn King is more relaxed about the effect his committee's economic decisions have on the regions.

He told The Northern Echo last year that he believed the North-South divide was at an historic low and said keeping the economy stable was in everyone's best interests.

But North-East industry leaders are united in the view that there is a serious divide which needs to be tackled.

Alan Hall, of manufacturers' organisation the EEF, said: "There's a huge pulling power for the economy in the South-East. There is a danger of London-centric thinking because so many decision-makers are based there.

"For example, I am very pro the Olympics, and I think we have to fight for our share of it, but it isn't the London Olympics, it is for the whole UK and there is a danger that people will forget that."

Infrastructure and transport issues are a major driver of the gap between North and South. As Mr Hall points out: "We will never succeed in narrowing the gap without a blue line - a motorway - coming into the region.

"The politicians always use the argument that demand is so much stronger in Birmingham and the South-East, but we have an economic case for that motorway - that it would help us rebalance the economy."

The Government's Northern Way initiative aims to bridge the gap between North and South, which is estimated to be about £29bn of gross domestic product.

North-East industry fears the Northern Way could turn into an "M62 corridor" initiative, more likely to benefit the thriving hubs of Leeds and Manchester than Teesside, County Durham, Wearside and Tyneside.

Mr Cowcher says: "The Northern Way is not as significant as some of us might have hoped. But it has had one effect. It has given more focus to the North and therefore is highly desirable. But it is to some extent repackaging initiatives that are already in place.

"We have to get the conditions right to be attractive to people relocating to the region. There are cultural aspects and infrastructure aspects which, at the moment, are simply not as attractive."