The potential for growth needs to be raised in all parts of the UK to meet the challenges and opportunities of the new industrial revolution. Geoff White, Peter Tyler, and Colin Warnock argue that this requires a long-term, place-based growth strategy grounded in a better understanding of the needs of, and opportunities for, local areas, and in partnership working between local and central government and the private sector.
A growth strategy must be place-based
The spatial divide in the UK has been widening. A chart published in the Financial Times makes the point depressingly well. Take London out of the mix and the UK would be much poorer per head than Germany, the Netherlands and Mississippi. Even the recent upwardly-revised figures show that UK growth languished after the global financial crisis and “compared to the pre-pandemic level, UK GDP in Q2 2023 was 0.2% lower… with Eurozone GDP being 2.7% higher… whilst US GDP was 6.2% higher” (House of Commons Library Briefing).
A transformational reboot of the economy, especially in its most left-behind areas, has become even more urgent if the UK is to seize the opportunities of the new industrial revolution driven by carbon substitution, life-sciences, and digital technology. The strategic objective could be simply stated: “To increase national growth by building on the strengths in all parts of the UK to make the most of new opportunities and to benefit all of its people and communities especially in left-behind places”.
It is not helpful to think about this in terms of redistribution. The challenge is about generating high value-added activities, building strong and resilient businesses, employing people for their skills, and paying them decent wages – wherever they live. That is harder to do in places starting out with lower value added per capita, more fragile businesses, lower employment rates, poor skills, and low wages. So the UK’s economic strategy will have to be based on a spatial growth framework.
A spatial growth framework: getting the evidence
A spatial growth framework would map growth opportunities against needs across local authority areas. This should be done centrally using national and local metrics and analysis. But it will also need growth strategies developed at local levels. The latter could be drawn from the Local Industrial Strategies produced in the wake of the short-lived 2017 Industrial Strategy. As the 2021 report by the Industrial Strategy Council argued (before it was abolished): “Sustained local growth needs to be rooted in local strategies, covering not only infrastructure but skills, sectors, education and culture.”
Spatial needs
The Levelling Up White Paper included a map of the “most left-behind places, including large parts of the North and Midlands with industrial legacies, coastal communities previously associated with tourism, and rural parts of Scotland, Wales, and Northern Ireland. The UK’s cities tended to perform better in general, but often harboured both some of the best and the worst performing areas.
Recent work by the Local Government Association (LGA)[i] used participation and vacancy rates to identify local authority areas in need (low participation rates) and those with growth opportunities (high vacancy rates). Figure 1 shows areas running down the north east coast of England where both participation and vacancy rates are low (i.e., high need and low opportunities). Moreover, these places generally do not nestle against areas with high vacancy rates (i.e., high opportunities).
However, there is not an agreed and up to date set of official metrics that defines and maps local need. A presentation by the Institute for Fiscal Studies at the 2023 LGA Conference pointed out that the system for spatial allocation of some key components of public expenditure (such as local government) is based on a needs assessment that has not been updated for over a decade. It highlighted that some of the underlying data in these assessments are drawn from the 1990s. So the allocation system for public spending needs updating and building on the available evidence.
Spatial opportunities
The Levelling Up White Paper included maps of the spatial distribution of the opportunities arising from the transition to Net Zero and of the UK’s sectoral strengths, but depicted at broad geographies. Something more granular is needed. Mealy and Coyle used two indices – the Economic Complexity and Product Complexity Indices (ECI and PCI) – to provide insights into the distinctions between high and low income places. They found that areas with high ECI tend to have higher per capita earnings, growth rates and the capacity to develop industries with greater earnings potential with the opposite being the case for areas with low ECI. Their ECI map – Figure 2 – shows the same band of low ECI areas along the North East coast of England as Figure 1 depicted with low participation rates/low vacancy rates.
This suggests that, with enough political will and application, it would be possible to develop a granular map of spatial strengths and opportunities to overlay the map of spatial needs.
A spatial growth framework: biting the bullet
A spatial growth framework of this kind would help inform the geographic allocation of categories of public spending by including an up-to-date assessment of local needs. That could be of enormous benefit in itself to left-behind places.
It could also help define the spatial dimensions of a growth strategy across different parts of the country. Consider, for example the matrix of needs and opportunities that would drop out of the LGA analysis at Figure 1 if we were prepared to accept that low participation rates reflected need and vacancy rates captured opportunity (see Figure 3).
This framework identifies the places where a growth strategy could be light touch, focusing on enhancing local strengths to exploit the available opportunities – i.e., in the top right-hand quadrant. It would also identify where needs are most profound and opportunities the weakest and/or most difficult to access – the bottom left-hand quadrant. Growth strategies in this quadrant would need to be pursued more intensively and persistently with demand side (e.g., public procurement, relocation decisions, tax, and other incentives) and supply side measures (skills and transport, business support, regulation).
That is what we mean by biting the bullet – explicitly and analytically specifying what growth strategies are appropriate given the configuration of spatial needs and opportunities in different places. Specifically, growth strategies are needed that combine demand and supply side measures at scale and sustained over decades to ensure that the most severely and persistently left-behind places can contribute to and benefit from national growth.
We have argued for a strategy to enhance national growth and realise the growth potential of the UK’s left-behind areas. The actions required for areas in need of more growth opportunities include:
- how public revenue and capital spending and public procurement could be made more spatially attuned to local needs;
- what mix of support to local businesses, people and communities is likely to be most effective and efficient in bringing about growth in the most left-behind places; and
- what can be done to lever in private sector investment at scale to such places (learning from the US Opportunity Zones).
We will follow up in the next post with specific policy proposals.
The views and opinions expressed in this post are those of the author(s) and not necessarily those of the Bennett Institute for Public Policy.
