What’s “Levelling up” (extended remix)?

If you’re reading this then you might know that successive governments have attempted to come up with regionalised structures and regional development policies to promote economic growth in England outside of London and the greater South East. Most recently we had the Cities and Local Growth policy agenda (incorporating for my purposes Northern Powerhouse) that gave us the current patchwork, including combined authorities, “metro” mayors and LEPs. You might also know that under the Johnson-led government the term “levelling up” has largely replaced the language of cities and local growth, and northern powerhouse.

This is an attempt identify some coherence and structure in levelling up. I pull out several emergent themes. It’s based on readings of political documents, speeches and statements, alongside ongoing work looking at the evolving governance of England. It’s worth saying that I’ve tried to be relatively positive, but my generosity is strained, especially towards the end.

It’s long so I’ve split it into two parts. The second part, here, asks if we’re any the wiser.

Obligatory photo of something northern

Levelling up

Levelling up has replaced rebalancing as the buzz term in regional policy and, as is often the case with voguish political ideas, it is a vague concept. Given this fuzziness, an analysis of its implications is difficult, but there are several consistent themes. First there is a possible shift in geographical focus to smaller places and an emphasis on community identity rather than the ‘cities’ rhetoric of recent years, together with ambitions to boost manufacturing through active industrial policy. There are the familiar themes of infrastructure investment, regional dispersal of civil service jobs, and special economic zones (SEZ) in the form of free ports and perhaps a broader relaxation of planning regulations. In addition, political devolution remains prominent in policy discussions and there is also significant interest in the decentralisation of public funding for research and development. I’m going to look at each of these themes in turn.

The geography of levelling up

The geographic scale of levelling up is likely to be critical but is not entirely clear, although ‘towns’, which began to occupy policy debates after the EU referendum, remain prominent. The exact definition of a town is vague and there will inevitably be political manoeuvring. When city regions were the focus of policy it was pragmatic for policymakers to tacitly encourage the government to think of their territory as such, but combined authorities such as (my workplace) Tees Valley could now present themselves as made up of several towns in a polycentric region (in fact, each of Tees Valley’s five local authority areas is preparing their own bid to the Towns Fund). There is always an electoral dimension to regional policy and the government will want to be seen to deliver for new conservative voters in constituencies that have returned Conservative MPs, in some cases for the first time in many years or even the first time ever in their current form. In this context, there’s a burgeoning interest in ideas of local pride and identity or a new social covenant, (the latter in many ways resembling David Cameron’s Big Society), consistent with the idea that many people feel that the place they live no longer matters in a globalised economy. While much of this is welcome, critics have pointed out that many of the ideas being floated are for things local government used do when it had sufficient resources. Alongside this there is a concern that appealing to this feeling and to the perceived or real social conservatism of many traditional labour voting areas might be a successful medium term electoral strategy more than it is a growth strategy, and this is visible in the focus of things like the towns fund.

Alongside this, Covid-19 and the perceived heightened risks around densely populated cities has promoted a new albeit cautious debate around the future of mega-city agglomerations and added fuel to arguments for more state intervention to promote economic activity outside of the densely populated London and the South East. At the same time, whatever the final geographic focus of levelling up, the geographic fundamentals that have for many years been a problem for peripheral, post-industrial regions are unlikely to disappear overnight and it is important to remain realistic about the death of distance or the end of geography when thinking about potential shifts in industrial policy. In that sense, there has been disappointingly little reasoning or discussion around any economic rationale for a shift in policy away from urban centres with the case appearing to rest largely on calls to fair shares and assumptions that all places have equal economic potential.

Whatever the eventual impact of Covid-19 on cities, or the political intention around towns or so called blue/red wall voters, there needs to be greater clarity on the geographical focus of levelling up. Fuzziness of scale dogged, for example, Northern Powerhouse from the outset and quickly led to suggestions that it was more of a brand than a strategy.

Infrastructure and capital projects.

With government borrowing cheap, infrastructure spending in lagging regions, particularly on transport, is high on the agenda, visible for example in the Towns Fund, Levelling Up Fund, and possibility of multi-year transport settlements to metro regions (including Tees Valley, despite it being a collection of towns only a couple of paragraphs ago). This is welcome although unlikely to be transformative on its own, and we should be wary of eye-catching, ribbon cutting opportunities or using inputs (the amount of money spent on infrastructure and physical regeneration projects) as a measure of success. There is potential for local transport projects to better connect people to employment centres but public transport is widely seen to be expensive and complicated, a problem that requires ongoing financial support and a change in the way transport is managed, ideally regulation by local and regional government, rather than capital investment alone. This is a broader trend; the levelling up initiatives launched so far are built around capital investment, but any serious attempt to reduce spatial disparities will need increased-day-to day spending on the kind of services on which the economy sits, most obviously education and health.

Civil service relocation

Dispersal of civil service teams to peripheral regions would be welcome. Places like the North East and Tees Valley need more and better jobs so civil service job moves that contribute to that could be positive and may also in the long-term lead to some policy influence. At the same time, this kind of dispersal has been tried in the past and on a similarly ambitious scale and while it can provide good jobs it’s difficult to find evidence of it having big transformative effects on regional economies.

It is also important to see this policy in the context of a net loss of public sector jobs in regions outside of London; England’s poorest region, the North East (in the older sense, including Tees Valley), has 30 thousand fewer public sector jobs than a decade ago (the biggest % cut; chart above). It is also probably worth noting in this context that while local government budgets have remained under pressure, elsewhere Theresa May’s Conservative government oversaw the beginning of an expansion of public sector employment from its previous (very low) low, perhaps indicative of the scale of change needed to make a difference people notice. In addition, the chancellor is implementing a pay freeze for many public sector workers that is likely to have a more immediate impact in terms of money circulating in regional economies.

Importantly, dispersed civil servants would still be central government employees working to ministers in Whitehall, probably more so than those in the old regional government offices and quasi-civil servants of the scrapped Regional Development Agencies. Dispersal of national government jobs is not the same as devolution and while some Combined Authorities and Mayors do an effective job, it is with limited power and resources, and an anticipated Devolution White Paper has been delayed with no indicative time for its arrival. Again, in the context of wider public sector jobs cuts, local government has been hit hardest and this is important when thinking about the region’s ability to come up with its own solutions to its problems; it is these policy jobs that have gone and will continue to go when councils try to protect essential services.

Spatial policy: special economic zones and planning reform.

Special economic zones such as free ports might be part of a policy mix but should look for benefits that generate deeper, longer term growth for regional economies. Clearly, this kind of policy objective is not easy to achieve, but spatially targeted tax and regulatory incentives, aimed at competing on the cost of labour have been tried in the past without proving a long-term solution to spatial inequality. In fact, many of the options in the Treasury Free Port bidding prospectus include familiar interventions aimed at unemployment reduction/job numbers, such as capital allowances for property investment and employer national insurance waivers for jobs paying less than £25,000 a year (comfortably below the average FT salary even in Tees Valley).

Ever popular, reforms to the planning system have been widely discussed but, while deregulated zones might be a solution to housing shortages in high demand places like London and the South East, there is limited evidence that planning restrictions are holding back northern regions. Local and regional government is far more likely to welcome potential investors with open arms than they are a committee of officious planners and much reduced council capacity and recent planning changes mean the system is more accommodating than ever.

More generally, land and labour are already comparatively cheap in England’s peripheral regions and, even dressed up in buccaneering rhetoric, it would be regressive and humiliating for an advanced economy like the United Kingdom to position some if its regions as explicitly low wage destinations, offering a “competitive” tax and regulatory regime. Finally, if resources are limited then tax forgone in incentives might be better collected and spent on active government policy to meet some of the socio-economic challenges that hold back many places.

Ambitions to boost manufacturing through active industrial policy.

Even before the Covid19 crisis there was widespread interest in active industrial policy reflected in the approach of the May-led Conservative government. This echoes a preoccupation within regional studies with place-sensitive policies that aim to foster demand for innovation and higher skills in lagging regions. Emerging from the immediate Covid19 health crisis and economic downturn, and whatever the eventual shape of levelling up, regional development policy will almost certainly continue to hang on the two broad objectives of mobilising endogenous potential and attracting and embedding investment. Historically, the latter strategy of bringing jobs to the region has been how success has been measured in poorer English regions but embedding this kind of external investment for the long term or mobilising sufficient endogenous potential has presented a bigger challenge and many places have remained particularly vulnerable to external economic shocks and subsequent scaling back or removal of external investment (note the mild panic whenever Nissan Sunderland trends on Twitter). Regions will need the support of national government if they are to remain focussed on longer-term ambitions to nurture endogenous development set out in things like Local Industrial Strategies (or whatever comes next) and avoid repetition of policies that have locked regions into their current economic paths.

Alongside this interest in industrial policy, there is some discussion of potential shifts in focus of strategy in a post Covid-19 world including a revival of previously unfashionable ideas around import replacement where nations, cities and regions grow their domestic capacity. These ideas have felt somewhat out of place in a world of rapid globalisation, and reliance upon international supply chains and division of labour but, while the debate is tentative and cut through with fears of economic nationalism, a focus on nurturing domestic production and supply chains is a potentially important shift in the debate for older industrial regions.

Research and development

Talk of a wider spread of public funding for R&D is possibly the most interesting aspect of levelling up. Government aims to increase national spending on R&D from 1.7% of GDP in 2018 to 2.4% by 2027, including a big increase in public investment which now accounts for around 30% of R&D expenditure in the UK. A report for Nesta makes a powerful case for regional R&D investment, arguing that if government were to invest in all regions at the same level as in the south east it would spend £4 billion more. However, previous attempts to change the way government distributes R&D money have met resistance within government, sometimes woolly compromises, and limited success. Consequently, it is essential that everyone with an interest in regional development help keep this discussion alive in the face of competing political priorities and inevitable counter lobbying.

A greater emphasis on boosting innovation capacity and R&D funding around the country could be an important shift for poorer regions that have relatively weak innovation networks. The accompanying task would be to improve regional capacity to absorb innovation funds and provide locally rooted higher paid jobs. Even with additional funding, identifying potential areas of specialism will require analytic capability, detailed local knowledge and understanding of the national and international context. The need for local knowledge implies the devolution of additional R&D funding to local institutions where the capacity is there (and interim support to build that capacity where it is not). As the Nesta report argues, there might also be a need for dedicated and complementary regional institutions, so called ‘translational research centres’, tailored to places’ social and economic needs.

Elsewhere, there are tentative discussion around the potential for blending publicly funded research and development with foundation economic sectors. England’s poorer regions required significant investment in services prior to the Covid-19 crisis and social and economic challenges are deep, persistent and beyond the scope of discrete economic development policy. In this context, growth potential is not necessarily found only in the more glamorous high-tech sectors dominated by cities and regions that currently benefit most from public funding. The lower-profile backbone of productivity is incremental improvement in products and organisation across existing industries and public services. A radical approach to levelling up might look to blend R&D driven development with a parallel focus on foundational economic sectors including health, criminal justice or education, combining an opportunity to invest in the local and regional economies and address some of the region’s broad and persistent societal challenges.

Governance and devolution.

Local and regional institutions are a common theme running throughout this discussion and they will need to play a central role if regional development policies are to be successful. Importantly, retaining local and regional state capacity in the face of fiscal pressures will be the essential to any real attempt to level up. Local institutions have at least two broad and related roles. First, development policy might more appropriately designed and delivered locally and regionally. Second, local institutions, most obviously local authorities, are at the heart of providing the services that underpin the broader determinants of wellbeing and growth that underpin the economy, such as health and education that are key to efforts to address long-term socio-economic challenges. Local government is already struggling financially and without properly funded public services, discrete regional economic development policies are tinkering around the edges.

However, while it appear for now that government is likely to retain most of the structures of cities and Local growth and the mechanism of “deal” in particular, the status of devolution within levelling up is unclear and the much-trailed devolution and recovery white paper is delayed and possibly reduced in ambition. There has been some discussion of a “northern growth body” and given the scale of the challenge and the apparent intention to move civil service jobs out of London there may be a role for a dedicated regional office or offices, rooted in place, rather than outposts of Whitehall.

Continues…

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