4 March 2019

The Stronger Towns Fund is gesture politics. And that is no bad thing

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This morning Communities Secretary James Brokenshire announced £1.6bn for a Stronger Towns Fund. That is set to include £281m for the North-West, £212m for the West Midlands, £197m for Yorkshire and the Humber, £105m for the North-East and £110m for the East Midlands. Much smaller sums would be available for southern English regions.

Regional policy in the UK has taken many forms over the years: subsidies for workers to relocate from higher-unemployment regions to lower-unemployment regions; subsidies for workers from abroad to locate into regions with labour shortages; subsidies for firms to invest in lower-growth regions; active decisions to locate civil service activities or nationalised industry plants in lower-growth regions; special salaries for workers in certain regions (eg “London weighting”); training schemes and business start-up advice.

By and large, such schemes have been regarded as unsuccessful in narrow economic terms — i.e. they tend not to trigger large movements of people or capital that equalise regional disparities. It’s sometimes claimed that the UK exhibits unusual regional inequality. That impression is largely based on rather crude studies that compare incomes in the capital city with the average national income. On such crude measures, the UK looks geographically unequal, with average incomes in London much higher relative to the national average than is the case in other large European countries such as France, Germany or Italy. That leads some commentators to compare, unfavourably, the UK’s regional policies with much more extensive regional policies pursued elsewhere. For example, Germany and Italy have constitutional commitments to equitable regional development. In Germany there is even a requirement for “equivalent living conditions” supported by a formal system of “equalisation payments”.

A more subtle analysis of the regional data gives a different picture. Just over a year ago, a colleague of mine, Dr Stefano Ficco of Europe Economics, published some research he had done using official European data from Eurostat. That compared average GDP per person in 1,355 detailed local authority “regions” across the EU. For the UK there were 173 regions, including, for example, “South Lanarkshire” and “Kensington and Chelsea”. Germany had 402 regions, including “Aschaffenburg, Kreisfreie Stadt” or “München, Landkreis”.

Ficco sought to understand what percentage of key European countries’ populations live in regions with incomes below the average, below two thirds of the average, at more than 25 per cent above average, etc. Looked at in this way the UK is no more geographically unequal than other similar-sized European countries. Almost exactly the same proportion of the UK population lives in regions where income is below the national average as in Germany and France (70 per cent). Almost exactly the same proportion of the UK population lives in regions where income is below two thirds of the national average as in Germany (12 per cent). At higher incomes, Germany is much more geographically unequal than the UK. In Germany nearly 20 per cent of the population lives in regions where incomes are more than 25 per cent above the national average, whereas in the UK only 10 per cent do so.

Given that the UK’s regional inequalities are no higher than those in comparable EU member states and lower, in some dimensions, maybe it doesn’t matter much that regional policies tend to be ineffective, provided we aren’t tempted to spend too much on them — the art may be to spend the least, on ineffective policies, that one can get away with. Indeed, perhaps it is a mistake to see regional payments such as the Stronger Towns Fund as having a primarily economic purpose. Perhaps instead their main role should be understood as a demonstration of solidarity, a way for wealthier regions of the UK and the UK’s central authorities to signal that they care about all regions of the country, that no region is superfluous or expendable.

By that measure it could well be argued that in recent years cuts to regional policy, under the UK government’s austerity programme, went too far. Because the NHS and schools budgets were ringfenced, cuts in other departments were much larger than they otherwise would (or should) have been. One of the biggest victims was the Communities and Local Government budget, which  was slashed heavily, with local authority budgets dropping £16bn since 2010. With the era of austerity on pause, it could well be a good time to signal solidarity with lower-growth, lower-income regions once again. Provided we do not start expecting our regional policies to reduce regional inequality (or buy into the myth that the UK is unusually geographically unequal), a billion or two here or there is a relatively painless way to show a little love.

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Andrew Lilico is an economist and political writer.