3 February 2022

This pick-and-mix statism is no way to generate prosperity

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The problem with Levelling Up isn’t that it’s an empty slogan. Nor, contrary to some critics, is it a lack of new policy ideas or the unwillingness of the Treasury to splash yet more cash.

The real issue is far deeper: levelling up is, at root, a bad idea.

The whole notion of recalibrating Britiain’s economic geography rests on a broken idea of how modern economies function. It puts place before people, state handouts before free enterprise and central targets before emergent order. It treats people as objects that need saving, rather than empowering with opportunity.

The White Paper itself has a very Five-Year Plan feel to it. Comrade Gove may not have announced increased production targets for shoes, but there are 12 new ‘national missions’ to be ‘given status in law’. 

By 2030, we are told, 90% of children will achieve the expected standard in reading, writing and maths; 200,000 more people will pass through skills training; a majority of the population will have 5G coverage. Some of the ‘missions’, however, don’t have numbers attached. ‘Pride in place’ will simply have ‘risen in every area’; public transport will be ‘significantly closer’ to London standards; and ‘pay, employment and productivity’ will rise in every region – it would be strange if it did not, but that’s unlikely to be thanks to the Government.

In the service of these goals we have a baffling array of different spending programmes. This government press release on regenerating towns and cities, for instance, namechecks no fewer than nine different ‘Funds’, from the Shared Prosperity Fund (£2.6bn), to the Brownfield Fund (£1.5bn), the Levelling Up Fund (£4.8bn) and the Towns Fund (£3.6bn). 

The White Paper also promises more council housing, cultural and sports funding, boosting the Community Ownership Fund (£150m) to help nationalise football club grounds, and dozens of other spending commitments.

Will this be money well spent? Well, the National Audit Office, perhaps not incidentally, also released a report yesterday on the £29bn already spent or allocated to be spent between 2011 and 2026 supporting local economic growth. The NAO found money was not being spent ‘based on evidence’, and was too often going on relatively inconsequential things (that is, politicians’ favoured pet projects).

What’s also striking is how little of this stuff is actually new: eight of the 12 ‘missions’ were mentioned in Theresa May’s industrial strategy in 2017, and the focus on regional targets strongly resembles New Labour’s Public Service Agreement targets, abandoned by David Cameron in 2010. 

But beyond whether this or that measure works, we ought to be asking a more fundamental question: is ‘ending’ geographical inequality actually a legitimate or achievable policy goal?

Urban economist Edward Glaeser puts the issue succinctly.

‘Why should national policy encourage firms to locate in unproductive places? National policy should strive to enrich and empower everybody, not to push people to live in any particular spot…Expensive efforts to renew cities often do more for well-connected businesses than for the poor people living in those declining areas.’

Among the examples Glaeser gives of misguided regional policy is the National Centre for Popular Music, opened in Sheffield in 1999 with the hope of attracting 400,000 visitors each year. It achieved a quarter of that number and closed the same year.

The central reason for different outcomes across the country is agglomeration effects in cities, that is, when lots of people come together magic happens. We get higher paid jobs and innovation, more people to play and work alongside, access to a greater array of entertainment and dating opportunities, and so much more. Even the pandemic, which may allow some people to live further away, has not seen demand for housing in London more than temporarily diminished.

But instead of leaning into this advantage by allowing people to move to more productive parts of the country, the Government wants people to remain where they are – and is carrying on with restrictive planning rules that mean many cannot afford housing where they would be most productive. 

At its core, levelling up means spending more taxpayer money in less productive places to achieve worse outcomes. Every policy across government will be subject to ‘spatial analysis’ focusing on where rather than ensuring broad benefits. Brownfield regeneration funds will no longer be spent funding projects where there’s the most acute affordability issues, in London and the south-east, but in areas where housing is actually relatively affordable.

Public investment in R&D will be redirected outside of London and the south-east (putting aside the consistent finding that private sector R&D investment is what boosts innovation and growth). Local government pension schemes will be encouraged to invest in local projects rather than higher return overseas ventures. 

This underscores another fundamental problem with the Government’s approach – the huge bias towards the public sector:

The White Paper contains hundreds of references to state spending programmes, but there are fewer than a dozen references to the regulatory and tax burdens faced by businesses. The phrase ‘red tape’ appears just once, in reference to changing procurement rules so the state can spend more subsidising local businesses. If anything, levelling up mean more red tape, with new minimum standards for rented homes and abolishing ‘no fault’ evictions – two headline-grabbing measures that risk having highly damaging unintended consequences.

That’s not to say there aren’t good ideas in the White Paper. The creation of new mayors – modelled on places such as Greater Manchester and the West Midlands – could help address the UK’s extraordinarily centralised government. It makes sense for decisions to be made as closely as possible to those who are impacted. 

But ‘devolution’ has often just meant titles with little actual power, responsibility, or money. Most importantly, the dependence on grants from central government, rather than local taxes, reduces accountability and means a scramble for who can get the most for Westminster. If decentralisation is to work it must include fiscal decentralisation, so the people who are spending our money are directly accountable.

That speaks to the central problem with levelling up. For all the rhetoric about empowering local people, it is an essentially Whitehall-led project, with taxpayers money being doled out to the Government’s favoured areas. Rather than this pick-and-mix statism, the Government would be much better off focusing on making the whole country richer.

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Matthew Lesh is head of Public Policy at the Institute of Economic Affairs.

Columns are the author's own opinion and do not necessarily reflect the views of CapX.