The good news for Levelling Up (LU) in the Autumn Statement is that it wasn’t abandoned altogether. The bad news is that the Chancellor effectively decided not to accept the twelve grand missions of the LU White Paper published less than a year ago. In their latest blog, Geoff White, Colin Warnock and Peter Tyler argue that the Government needs to adopt a growth-geared LU strategy focused on a limited set of the original LU missions in priority left-behind areas.
What the Autumn Statement did for Levelling Up
The Autumn Statement confirmed the Government’s commitment to Levelling Up (LU). With Michael Gove reinstated as secretary of state at the Department for Levelling Up, Housing and Communities (DLUHC), the focus can hopefully turn to the elements of the LU White Paper to be prioritised over the next few years. Devolution is to be extended to more areas of England and deepened in Greater Manchester and the West Midlands. There are also welcome proposals for ‘single departmental-style settlements’ in those places rather than wasteful competitive bidding. The LU Fund and the Northern Powerhouse Rail investment are to be continued. Local authority flexibility will be increased to fund local services and investments. And the revised proposal for Investment Zones will see them concentrated on a limited number of the highest potential knowledge-intensive growth clusters.
It would be churlish not to welcome these initiatives, but they remain wholly insufficient to tackle long-term spatial inequalities and unlock the growth potential of left behind places. DLUHC’s resource and capital expenditure is barely set to increase in nominal terms between 2021/22 and 2022/23. The 12 Levelling Up Directors have yet to be recruited. The LU Rounds 1 and 2 and Shared Prosperity Funds will not be ‘inflation-proofed’ and, on one estimate, this means about £500m will be lost, leading to projects – and outcomes – being scaled back. The Chancellor, the Rt Hon Jeremy Hunt MP, said Investment Zones are to be targeted on higher value added activities (as we recommended in our last blog) and located in left-behind-places, but this latter crucial condition does not appear in the published Autumn Statement. Raising council tax limits will tend to favour the wealthiest areas and will leave less well-off places more exposed to inflation. The Northern Powerhouse Rail commitment does not take it beyond the skeleton form set out in last year’s Integrated Rail Plan.
Whilst the Autumn Statement highlighted the key growth sectors in the Industrial Strategy, we must wait – yet again – for a more focused version to emerge in 2023. Moreover, the Statement failed to offer any new funding for skills without which sustainable growth, especially in left behind places, will remain just a pipedream.
The increased funding for education and health announced in the Statement was not accompanied by any assessment of how this, and existing spend, is to be allocated so that it addresses geographical variations in need. This desperately needs attention as we argued in our previous blogs and as a recent IFS analysis so powerfully demonstrated. The allocation of spend on public health, the police, social care and local government has, as Paul Johnson put it, “become increasingly random and unrelated to any measure of need” with the result that, in general, “spending in areas with greater need has fallen further and faster than spending in more affluent areas”.
We may not be able to get a quantitative fix on the consequence of the Autumn Statement for LU but one thing is clear. With money so tight it will be politically more difficult to change the spatial distribution of funding with some more well-off areas transparently losing out. And yet, at the same time, it will be even more important to allocate and use that money as effectively as possible to address spatial inequalities.
With just two years left in this Parliament and sharp cuts in public expenditure for the three years beyond, where does this leave LU policy? We see three clear implications. First, there is an urgent need for the DHLUC to establish much sharper focused spatial priorities. Second, it must be geared to growth and seen as a key element in the Government’s growth plans – not purely a redistribution device. Third, it must mobilise other sources of funding, notably private sector funding, to the LU purpose.
Twelve missions impossible … But growth-geared missions are possible!
The mission approach of the LU White Paper was welcome. Engaging all parts of the country in contributing to and benefitting from growth is a ‘grand challenge’ worthy of such an approach. But, it needed to have a clear strategic direction, strong policy coordination and effective implementation. This was always going to be difficult with the White Paper’s12 missions, four objectives, six ‘capitals’ and some 30 policies.
Against the tight fiscal backdrop of the Autumn Statement it is time to acknowledge the impossibility of the 12 missions and to focus on a limited number of key missions with growth-geared spatial priorities. Such a strategy would have the following key elements:
- An overarching LU strategic objective: The LU objective should be growth-geared along the following lines:
“To increase the capacity and capability in specific sub-regions and local areas of the UK to enable them to contribute significantly and sustainably to the growth of the national economy at the same time as benefiting the residents of their left-behind places”.
- A clear, high level LU rationale: The LU strategy needs an underpinning rationale spelling out the primary mechanisms by which this objective will be met. A critical ingredient in this, in our view, will be the supply of and demand for high skilled workers in left-behind places. The growth objective requires an increase in the supply of skilled workers resident in left-behind places to service unmet demand for them, either from within the areas or in locations easily accessible from them or made more easily accessible via transport improvements.
- A limited set of missions: On the basis of the above rationale, the priority missions would be those labelled in the LU White Paper as ‘skills’, ‘transport infrastructure’ and ‘living standards’.
- Well-specified mission objectives with spatial priorities: The objectives should be geared to growth and mobilising private as well as public funding. Priority should be given to areas most likely to deliver growth-geared LU. For example, the White Paper ambition for globally competitive cities in each region should be focused on specific cities in the short to medium term. An independent, transparent analysis should be commissioned to map areas’ needs and growth opportunities to underpin the selection of spatial priorities. This should be a strategic opportunities framework (rather than a blueprint) that will evolve through dialogue with national and regional/sub-regional stakeholders and the passage of time.
- Actions specified to deliver the mission objectives: These should be a mix of demand side (including public procurement and relocation decisions) as well as supply side measures (fiscal allowances, de-regulation and investment in skills and employability and transport (inter-city and city-town)). They need to be relentlessly targeted on the spatial areas selected in the spatial opportunities framework. This is in recognition that some priority areas will need a demand injection as well as supply side improvements to contribute to growth.
Harnessing private sector investment and bending mainstream public spending
The Government’s decision on changes to the so-called Solvency II regime was received with cautious optimism by institutional investors. The Association of British Insurers notes that “meaningful reform of the rules creates the potential for the industry to invest over £100bn in the next ten years in productive finance, such as UK social infrastructure and green energy supply”.
A strategic opportunities framework with clear spatial priorities would help direct the potential private sector investment funds released through the Solvency II reforms. This will require effective joint working between DLUHC, HM Treasury, the UK Infrastructure Bank, and regeneration agencies like Homes England as well as Combined Authorities. There is a real and significant opportunity to foster a new era of public-private partnership, unlocking billions of pounds of institutional investment in long-term, sustainable infrastructure projects.
At the same time, there appears to be a welcome acceptance that the long-standing mismatch between public spending and spatial needs requires a cross-party approach and resolution. It may no longer be possible to achieve this resolution in this Parliament, but now is surely the time to set up a cross-party commission or something similar to operationalise the important work of the IFS through the Deaton Review. We urge that this issue be considered in the current LUHC Committee inquiry into LU. There might then be the opportunity, when the fiscal sun shines again, to deliver the public expenditure allocation reforms needed to fulfill the LU White Paper’s ambitions.
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