Neil O’Brien: Introducing the new Levelling Up Taskforce – and its first report on how we can measure progress

7 Sep

Neil O’Brien is MP for Harborough.

Were you still up for Penistone? One of joys of election night last December was winning so many seats we’ve not held for decades.

The constituencies we won over in 2019 are quite different from the party’s traditional base, in the deep red bits of the map above. Seats we gained last year don’t just have lower earnings than the seats we held, but earnings five per cent lower than Labour seats. Of the bottom quarter of seats in Great Britain with the lowest earnings, more are now held by us than Labour. Compared to seats we gained, homes in Labour constituencies are a third more expensive.

Many of the places we won have felt neglected for a long time. And led from the front by the Prime Minister, the new Government has committed to “levelling up” poorer places. But what does that really mean? How can we measure if we are succeeding? How can we get the private sector growing faster in these places, making the country stronger overall?

To help the Government answer these questions, I and 40 other Conservative MPs have formed a new Levelling Up Taskforce.

Our first report is out today, looking at how we can measure progress. It also examines what’s been happening in different parts of the UK economy over recent decades.

Income per person in London (before paying taxes and receiving benefits) grew two thirds faster than the rest of the country between 1997 and 2018: it’s now 70 per cent higher in London than the rest of the country, up from 30 per cent higher in 1997.

While the divergence seen since the 90s has been a story of London pulling away from all of the rest of the country, it follows decades in which former industrial areas in the north, midlands, Scotland and Wales fell behind. Between 1977 and 1995 South Yorkshire, Teesside and Merseyside saw GDP per person fall by 20 per cent compared to the national average, and most such areas haven’t caught up that lost ground.

Why does this matter?

It matters, first, because opportunity is linked to the economy. There are fewer opportunities to climb the ladder in poorer places. Not just fewer good jobs, but less opportunity in other ways.

In London, over 45 per cent of poorer pupils who were eligible for free school meals progressed to higher education in 2018/19. Outside London there were 80 local authorities where richer pupils who were not on free school meals were less likely than this to go to university. Overall, more than 60 per cent go to university in places like Kensington and Chelsea and Westminster. But less than a third go places like in Knowsley, Barnsley, Hull, and Thurrock.

It also matters because more balanced economies are stronger overall. In an unbalanced economy, resources like land and infrastructure are overloaded in some places, even while they are underused elsewhere. This might be particularly true where cities have seen population shrinkage, and have surplus infrastructure and land. If there are greater distances between workers and good job opportunities that makes it harder for people to get on: not everyone can (or wants) to move away from family to find a better job.

More balanced is stronger overall, but on a wide range of measures the UK is one of the most geographically unbalanced economies. In Germany 12 per cent of people live in areas where the average income is 10 per cent below the national average, while in the UK 35 per cent do. It is very striking that there is no industrialised country that has a more unbalanced economy than the UK and also a higher income, while all the countries that have a higher income have a more balanced economy.

What are we going to do about it? Well, that’s the question our new group will try to answer.

The answer isn’t any of the traditional Labour ones: pumping public sector jobs into places, or subsidising low wage employment, or trying to hold back successful places: we’re interested in levelling up, not levelling down.

Different things will work in different places.

For example, transport improvements might make a bigger difference for remote areas. The ONS defines certain places as “sparse”: the north of Devon and Cornwall, most of central Wales, Shropshire and Herefordshire, most of Cumbria and the rural north east, along with large parts of North Yorkshire, Lincolnshire and North Norfolk. In these places income levels are 17-18 per cent lower. Even controlling for the qualifications and age of people living there, these sparse areas have income levels between £600-£1,300 a year lower, likely driven by poor connectivity.

In other places, the answers are different. I’ve written before about how the way we spend money on things like R&D, transport and housing is skewed towards already-successful areas, creating a vicious circle. We should change that.

But tax cuts could also play a bigger role in helping poorer areas. There’s actually been convergence between regions at the bottom end of the earnings distribution, driven by things like the National Living Wage, tax cuts for low income workers, and things like Universal Credit, which have reduced the differences between places by levelling up the poorer areas more. In poorer places, more people benefit from these policies.

The reason there are growing gaps between areas overall is divergence higher up the income scale.
Looking at the gap between earnings for full-time workers in London and the North East, the pay gap shrank for the bottom 30 per cent of workers, but grew for those higher up. For those at the 10th percentile the pay gap between the two places shrank from 32 per cent to 20 per cent. But for richer folks at the 90th percentile, it grew from 62 per cent to 88 per cent.

So how do we get more good, high-paying jobs into poorer areas? There are a million different specific opportunities, but one that’s relevant in a lot of Red Wall seats is advanced manufacturing.

Over recent decades, Chancellors have tended to cut capital allowances (a tax break for investment) in order to lower the headline rate of corporation tax. I’m not sure that was a good idea: Britain has a lower rate of fixed capital investment than competitors and our tax treatment of investment is stingy. But either way, this change has had a pronounced regional impact: it favours services over manufacturing, so helps some areas more than others.

One way to blast our way through the current economic turmoil would be to get businesses investing again by turning capital allowances right up (“full expensing” in the jargon). That would be particularly likely to help poorer areas. Indeed, when we have tried this in a targeted way before it worked.

Government should think more about how tax and spending decisions can help us level up. It should produce geographical analysis of all budgets and fiscal events, setting out the different impact that tax and spending changes will have on different areas. The Treasury’s Labour Markets and Distributional Analysis unit should have geographical analysis added to its remit.

This whole agenda is exciting. But a lot of people are cynical, because they heard New Labour talk the talk – but not deliver. We’ve got to deliver. So let’s hold ourselves to account, and set ourselves some ambitious goals.

Let’s get earnings growing faster than before in poorer areas. Let’s get unemployment down in the places it’s worst. They say that “what gets measured gets managed.” So let’s “measure up” our progress on levelling up.

Archie Hill: Strong devolution must mean giving more counties unitary status

6 Aug

Archie Hill is a researcher at Henham Strategy. He also works in the research team at the Centre for Policy Studies.

Just over a year ago, during his very first week as Prime Minister, Boris Johnson made a speech in Manchester, warming to a familiar theme:

“We are going to give greater powers to council leaders and to communities. We are going to give more communities a greater say over changes to transport, housing, public services, and infrastructure that will benefit their areas and drive local growth.”

Familiar, in the sense that every recent government has promised greater devolution of powers at a local level. A new wave of decentralisation is always on the horizon.

But this Prime Minister’s commitment to devolution rings true. Decentralisation may be a common refrain, but it is a long time since it has assumed so central a role in a government’s platform: the ‘levelling up’ agenda upon which the Conservatives fought and won so handsomely is rooted in local devolution. Not for nothing did the Prime Minister describe himself, grappling when pressed for a definable ideology, as “basically a Brexity Hezza.” As well as a flamboyant hairstyle, he shares with Lord Heseltine a belief that reforming local government, and setting out more coherent efficient structures which work properly, can help unleash growth around the country.

It was Heseltine, after all, whose report No Stone Unturned demonstrated the disjointed state of local government in England, with different tiers of councils operating at different levels and overlapping responsibilities; as wasteful as it is confusing. At a local level, this confusion reaches absurdity: just getting a pothole or a sign fixed can involve negotiating county, district, and parish councils, each with their own separate remit. Small wonder, then, that we found that fewer than one in five of those surveyed in our polling thought it was easy to understand who was responsible for what, across local government. This confusion leads very quickly to apathy.

In recent months, as part of a team at Henham Strategy, I have been working on a report, commissioned by the County Councils Network and published this week, setting out where the current system is failing and how powers can be devolved more effectively at a local level.

A more effective – and accountable – means of local decision-making is vital. Fortunately, the government has an opportunity to make lasting changes, in the form of the upcoming, much-trumpeted Devolution White Paper from the Ministry of Housing, Communities and Local Government.

Even before the Covid-19 pandemic, ours was the most centralised state in the western world. As the Centre for Policy Studies found in their report A Rising Tide, locally determined taxes make up just 1.7 per cent of GDP in the UK, compared to 15.9 per cent in Sweden, or 10.9 per cent in Germany. But during the current crisis, the government has felt compelled to take further control of large segments of the economy and manage it from the commanding heights of Whitehall. This ignores the real lesson of Covid, which is that it is at the local level where the most effective response has occurred.

County authorities have made some of largest contributions to the national effort, ranging from shielding the vulnerable and protecting the NHS, putting in place infection control plans for care homes, sourcing hundreds of thousands of pieces of PPE, and helping secure local businesses’ futures. When previous governments talked about local devolution, too often what they had in mind was the creation of new mayoral bodies covering a large urban area, in London, Greater Manchester, or the West Midlands. This focus on metropolitan areas has been to the cost of counties and those who live in them.

Half of our population is located in England’s counties; half of our overall economic output is created there too. They already provide accountable local leadership – in the form of elected councillors – that is readily recognisable by people who live there. Indeed, our commissioned polling found that only nine per cent of those surveyed thought that mayors should have more powers than county council leaders.

A number of county councils have become unitary authorities, and many other councils we spoke to are keen to follow suit. The opportunities of a single, more streamlined body that can speak with a unified voice for the whole county are enormous, both in terms of cost savings and more effective decision-making at scale. Where district councils too often act as a brake on development and strategic planning, unitary authorities provide a more responsive, joined-up form of local leadership across a larger population. Cornwall Council demonstrates this, bringing together representatives from health, business, transport, and local town/parish councils all round one table: the result is that Cornwall has seen the highest annual average increase in new homes in England since it became a unitary authority, all whilst saving £15.5m per year through reduced running costs. It has also been able to distribute grants during Covid faster than anywhere else.

The government must make it easier for more counties to follow this path, setting out a consistent approach to unitarisation for local leaders rather than relying on a ‘deal-by-deal’ basis. To embrace levelling up, they must start by giving local areas the means to pursue this agenda themselves – from housing and planning to infrastructure, from skills and employment to health and social care. Instead of the current patchwork system, a new, more effective form of local governance is necessary to unlock regional growth and drive our economic recovery. If, where previously there have been only promises, the Prime Minister wants action on local devolution, then it is time to make counties count.