Although his proposed freeze on public sector pay outside of the NHS and reduction in the share of GDP for foreign aid were extremely mean-spirited, the Chancellor largely resisted the temptation to squeeze public finances too hard in the 2020 Comprehensive Spending Review. Instead he concentrated on trying to limit the long-term economic consequences of the current crisis, allocating over £4 Billion to support the labour market by helping people back into work.
Important as short-term support for the economy is, the Chancellor’s announcements on the future direction of policy were eagerly awaited. After nearly a year in office, the Government has provided little insight on how it plans to deliver on its commitment to “levelling up”. For the first time, we were given a glimpse of how the Government plans to level up the economy: areas outside of London and the South East will receive a significant share of the £100 Billion on public investment in 2020/21 on a revised National Infrastructure Strategy (NIS).
Amongst the resources allocated to levelling up are:
- £5 Billion to support Gigabit broadband and 4G mobile roll-out nationwide and a similar amount over the Parliament to support bus and cycling infrastructure;
- The creation of a £4 Billion cross-departmental levelling Up Fund;
- Investment of £5.2 Billion in intra-city transport in the largest city regions outside London; and
- £5.2 Billion by 2027 to protect communities from flooding and coastal erosion
While the recognition of the need to improve infrastructure provision across the country is welcome as are the proposed changes to the Green Book investment appraisal methodology, we do not believe the proposals set out in the NIS focus will deliver on “levelling up” for several reasons.
Firstly, spending on infrastructure alone will not deliver the magnitude of change required. The challenges facing towns and other places go far beyond the quality of infrastructure. Levelling up requires a more comprehensive approach including improving the quality of education across the country, investing in developing higher level skills that match the demand in local labour markets and delivering a step change in the level of health and social care on offer to everyone. A narrow definition of infrastructure will limit any progress: we need to make places appealing to live in to retain talent and to attract new people in – social and cultural facilities are important in this respect. Failing to match capital spend with a higher level of resources for local authorities will limit any economic rebalancing.
Secondly, it appears the Government has learnt nothing from efforts over the last 3 to 4 decades to reshape the UK’s economic geography. The NIS states:
“The government shares the National Infrastructure Commission’s (NIC’s) view on the importance of strong regional cities; the vital organs of the UK economy. Cities drive economic growth through agglomeration effects; they encourage specialisation, drive competition and spread ideas and innovation faster than other places.”
Cities are an important part of the economy and require public support, but not at the expense of other places. Recent initiatives based on City/Region deals have tended to benefit a small number of large cities disproportionately while towns and smaller places have fallen further behind economically. The NIS lays great store on plans to improve the productivity of the UK’s mid-size regional cities even though it is not clear that alternative approaches might be more beneficial. More work is required to identify the most effective policy approach.
Further, the proposed approach in the NIS is backward looking. Although the pandemic has been an extremely difficult period, the response to COVID-19 has shown us we can organise ourselves differently, creating economic, social and environmental benefits along the way. By concentrating on road and rail schemes centred around cities, the NIS risks passing up the opportunity to learn from recent events and change how we live and work. We want to build back better not return to the past.
And finally, we do not believe that top-down initiatives are the most effective way to level up UK economy and society. The “levelling up” initiatives outlined by the Chancellor have been developed centrally and even proposals to relocate civil servants outside of London, appear to assume continuing central direction. Responsibility for identifying priorities and delivering them needs to reside at a local level. This means empowering local bodies and providing them with the resources to deliver their plans. Centrally driven competitions for resources such as the Levelling Up Fund are not the way to achieve economically balanced outcomes as they risk becoming politicised. We should move civil servants out of London to provide expertise to support and facilitate the best possible local decision-making rather than to deliver centrally determined priorities.
The 2020 Comprehensive Spending Review was the latest opportunity for the Chancellor to begin to articulate his vision for the post-pandemic economy. While there is no escaping the challenges in managing the public finances going forward, cost reduction and higher taxes will not solve the fiscal problem: as in the period after World War II, a higher rate of economic growth how we should seek to improve the UK’s finances. By maximising the potential of the whole of the UK, levelling up is the best way to accelerate the UK’s post-COVID recovery. However, it is about much more than spending money on infrastructure, a comprehensive plan that is rooted in local knowledge and preferences is the way to deliver it.