Levelling up, what it means and why it won't happen

8 Jul 2022 Nick Garbutt    Last updated: 8 Jul 2022

Trouble is, there's not much choice. Pic: Unsplash

As the UK government drifts further into farce and chaos it seems increasingly unlikely that anything will be done about the greatest challenge of our time: levelling up.

The problem is too complex to craft into a neatly packaged sound bite, and would take too long to resolve, especially for a government that lives on the seat of its pants and counts its continued survival in hours and days.

Yet the inaction is not just an affront to those affected it is also a betrayal of voters many of whom abandoned traditional loyalties to Labour in the belief that a government led by Boris Johnson would put their interests to the fore. It hasn’t, it won’t and Johnson himself has been ousted in disgrace.

The trouble is that we desperately need an economic strategy that helps to tackle stagnant living standards and weak productivity and addresses stubborn disparities in economic performance across the UK.

An economic strategy that helps the UK respond to change, and tackle stagnant living standards and weak productivity, will need to address stubborn spatial disparities in economic performance across the UK. Addressing these disparities requires a good understanding of their extent, causes and consequences. Not least for the benefit of Northern Ireland whose economic performance has lagged behind the rest of the UK for many decades.

And the more you learn about them, the more you realise just how deep-seated they are and that the price for resolving some of them might be making matters even worse in other areas and so achieving political consensus appears unlikely.

First a quick glimpse at the scale of the challenge.

Productivity is often measured by GVA gross value added which measures the contribution of a business, or even an individual job to an economy.

In 2019 London produced £76,000 of gross value per job which is more than twice that produced in the worst performing area (Powys in Wales).

These disparities are also persistent. London’s productivity was 40 per cent above the national average in 2002 and 50 per cent in 2019. By contrast, Powys was 20 per cent less productive than the average in 2002 and 30 per cent less productive in 2019. Looking across the UK, few areas have seen large changes in their relative positions over the past twenty years.

So there is nothing new about it, and also, this is by no means a problem confined to the UK – comparable countries with comparable economies have similar issues what makes the UK stand out is the extent of the difference.

Here the problem can be traced back to de-industrialisation. The industries that once powered the industrial revolution have long since gone, the UK, including Northern Ireland is now a services-led economy.

This, in itself is not necessarily a bad thing. However specialising in high skilled tradeable services, like insurance and consulting is one of the prime causes of the problem. It gives huge benefits to those regions where large numbers of businesses cluster together in high population areas, and most particularly to London.

This also generates a really difficult dilemma for policy makers. In a fascinating, though complex report the Resolution Foundation examines the multi billion pound challenge.

It identifies four factors that have the most impact on the economic performance of an area. The first is its size (measured by how many are employed there) the second is the proportion of graduates in the workforce; the third is the physical infrastructure and transport services and the fourth is what it describes as the “intangible infrastructure” – research and development and the like.

To boost the productivity of an area all need to be improved.

To give an idea of what would be involved in “levelling up” take Manchester – the UK’s second largest conurbation. Here you would need an overall increase in the population of 500,000 , 11% more graduates and tens of billions in investment. This would still leave Manchester’s economy 15% short of that of London.

Clearly if the government were truly serious about levelling up it would need to devote enormous sums to it, far, far beyond those which are currently available.

And that’s even before you get to the difficult policy choices that will have to be made.

The fastest and most efficient way of increasing the UK’s productivity would not be to invest in other conurbations, least of all the “red wall” better returns are available from London, and if not London, then the already prosperous areas that surround it. London’s economic advantages stem from its concentration of human, physical and intangible capital and from its economic size.

These factors are self-reinforcing, according to the Resolution Foundation report.  And that very strength spills over across South East England.

The report adds:  “The large investments required to close productivity gaps will also need to be targeted at cities to generate the high returns that arise from the self-reinforcing feedback loops that explain London’s big productivity advantage.”

Investing more in London and the South East is not levelling up, but you have to trade off a lower return on any investment when it goes elsewhere – and then you have the dilemma of where that should be. The lower the population, the number of graduates and levels of infrastructure the more it will cost. Yet unless there are tangible impacts on areas most struggling there will be no electoral benefits for this, or indeed any subsequent government.

And investing in one area is likely to be detrimental to another. Taking the Manchester example from earlier, those additional people will have to move from somewhere else, causing depopulation and rising poverty and there are a finite number of graduates. So Manchester’s increase will be another area’s loss.

As for seeing Northern Ireland “levelled up” we continue to see young people graduating elsewhere and for our own graduates to seek work elsewhere. Our infrastructure is creaking, lack of capacity for instance in sewage is hampering developments in Belfast and elsewhere.

Our unique position post Brexit has brought economic benefits, but those come with a price that the largest unionist party is not prepared to pay. And as neither of the main British parties even stands here, neither has anything to gain in electoral returns for investment to the level required.

This is the sort of debate we’re not having in Northern Ireland or elsewhere in the UK for that matter.

It’s a great pity because we’re likely to miss out on opportunities as a result. That’s what happens when politicians are allowed to get away with parroting slogans and society fails to ask what they mean by them.

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