Timothy Foxley is a strategic communications consultant from Stoke-on-Trent, and winner of this year’s £50,000 Richard Koch Breakthrough Prize.
There is a sadness about the UK’s ‘left behind areas’. My hometown of Stoke-on-Trent is a typical example: a proud past, good people, and decades of industrial decline and political neglect. While there are still some remnants of its once world-famous pottery industry, its economy is now dominated by the public sector and distribution warehouses, and six slowly dying town centres.
Aside from the emotional aspect, there are sound economic and political reasons for the need to ‘level up’ these areas, from boosting productivity across the UK as a whole, to reducing reliance on public services.
It is right that we are having a debate about levelling up every region of the UK, but we are yet to come to an agreement on how to get there.
Some have spoken about greater localism and devolution as the key to unlocking growth across left behind areas, while others have focused on the need for infrastructure investment. Concerningly, everyone in Westminster and beyond seems to believe that their pet project or industry is the key to fixing the UK’s regional imbalance. In these pages alone, contributors have called for investment in manufacturing, healthcare, education, a community wealth fund, and even grassroots football – all in the name of levelling up.
As necessary as these projects may be, they will not fundamentally alter what is a structural economic problem. Worse, there is a danger that the levelling-up agenda becomes nothing more than a cash-machine for any and every project proposed for the Midlands and the North, with a dollop of statist intervention on top.
Left-behind regions will not become wealthier through more spending and higher taxes. We know that the free market is the only tried and tested way to encourage entrepreneurship and create wealth, but we also know that cutting taxes and regulations would disproportionately assist the already productive South East. The question is: how can we combine the benefits of the free market with the goals of the levelling-up agenda?
That was the problem behind the question posed by Dehenna Davison MP for the Institute of Economic Affairs’ annual Richard Koch Breakthrough Prize competition: in the current severe economic climate, what pro-market, pro-enterprise policy would be the best way of supercharging growth, employment and living standards in ‘left behind’ Britain?
I won with my proposal for the ‘People’s Rebate’: a plan significantly to reduce taxes in left-behind areas. Unlike many suggestions for how the Government can level-up the UK, this would be targeted at all low-earning areas automatically rather than just those decided by Whitehall. It would immediately increase their spending power, and would encourage entrepreneurship and business growth.
Under the People’s Rebate, local authority areas would be divided into deciles by workers’ average earnings. Individuals and businesses would then be given a rebate on income tax and National Insurance contributions on a sliding scale, from 90 per cent in the lowest-earning areas, to 0 per cent in the highest-earning.
For example, this would allow a supermarket worker earning £20,000k in Newcastle-upon-Tyne to keep an extra £207 a month, a nurse earning £30,000 in Swansea an extra £397, and an engineer earning £40,000 in Derby an additional £458. Moreover, workers in all of those areas would be cheaper for businesses to employ, due to reduced employers’ NI contributions.
Each year, deciles would be refreshed using the updated average earnings data, with fast-improving areas paying a little more tax, and those falling further behind receiving a larger rebate. There would be no Whitehall decisions to be made about which areas or industries to support, nor any of the associated lobbying by MPs, councils, or business groups – only automatic, focused tax breaks in those areas most in need of improvement.
The potential benefits of the People’s Rebate are fourfold. First, left-behind areas would receive an immediate boost to local spending power, from £684 million in Newcastle-upon-Tyne, £531 million in Swansea, and £483 million in Derby (in 2020-21 terms).
It would also give businesses an incentive to expand in those areas, through the prospect of a lower NI bill. In the medium term, it would increase local authorities’ tax base for the provision of services such as social care, and improve living standards, reducing overall demand for public services. Finally, in the long term, it would instil within people an appreciation for the benefits of a low-tax economy, returning free-market principles to the forefront of political debate.
This would represent both one of the largest tax cuts in modern British history – of £96 billion (4.7 per cent of GDP) – and boost spending power in left-behind areas by many times more than all the current proposed ‘levelling-up’ schemes put together. Simply, it would fundamentally alter the lopsided nature of the economy, and fundamentally improve the lot of left-behind areas forever.
Active government intervention will never level up our left behind areas. However, by marrying free market principles and tax cuts with targeted support, we can finally address the UK’s most pressing economic and political problem.