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.

Neil O’Brien: The next algorithm disaster – coming to a Conservative constituency near you. This time, it’s housing growth.

24 Aug

Neil O’Brien is MP for Harborough.

Algorithms have been in the news, not for good reasons. One lesson from the A-levels row is that principles which seem reasonable can lead to outcomes you don’t expect. Another algorithm’s coming down the tracks: the new formula for how many houses must be built in different places. There are few with higher stakes.

I wrote about the housing White Paper in my last column: it proposes not just to change the methodology for assessing housing need, but also to make a standard methodology compulsory for the first time. In other words, if we don’t like the results of the new algorithm, we’ll have blocked off the emergency exits.

The new algorithm is set out here. It’s not particularly easy to read. For example, one of many factors is set out in bullet point 30:

Adjustment Factor = [( Local affordability factor t = 0 – 4 4) x 0.25) + (Local affordability ratio t = 0 – Local affordability ratio t = 10) x 0.25] +1 Where t = 0 is current yearr and t = -10 is 10 years back.

Clear enough for you?

I thought it might be a while before we saw what the new algorithm would produce in practice. But Lichfields, the planning consultancy, has translated the algorithm into what it would mean for local authorities.

The numbers that the formula spits out can be compared to the number of homes actually being delivered over recent years, or to the numbers in the current (optional) national formula. Whichever way you look at it, it’s controversial.

I’ve long argued we should concentrate more development in inner urban areas, for various reasons I’ll come back to below.  But this algorithm doesn’t do that – at least not outside London.  In the capital, the algorithm would indeed increase numbers substantially.

But in the rest of England the formula takes the numbers down in labour-run urban areas, while taking them dramatically up in shire and suburban areas which tend to be conservative controlled.

Overall, the algorithm proposes a south-centric model of growth for Britain (with some growth in the midlands).

If we compare the algorithm to recent delivery, the South East has been delivering just over 39,000 homes a year, and will be expected to increase that to just over 61,000, a 57 per cent increase. The East of England would see a 43 per cent increase, the East Midlands a 33 per cent increase, the West Midlands a 25 per cent increase and the South West a 24 per cent increase.

For the North East, North West and Yorkshire, the numbers the algorithm proposes are lower overall than the numbers delivered over recent years. But as with A-levels, the devil’s in the detail.

The really controversial changes are within regions, where the algorithm suggests jacking up numbers for shires, while taking them down in urban areas. Comparing the existing national formula to the proposal, we can see this for most large cities.

The number for Birmingham comes down 15 per cent, while the rest of the West Midlands goes up 52 per cent.

Numbers for Leicester go down 35 per cent. The rest of Leicestershire goes up 105 per cent.

Nottingham goes down 22 per cent, the rest of Nottinghamshire goes up 48 per cent.

Southampton goes down 17 per cent, Portsmouth down 15 per cent and Basingstoke down 23 per cent, but the rest of Hampshire would go up 39 per cent.

Wealthy Bristol would see some growth (5 per cent) but much lower than the rest of Gloucester, Somerset and Wiltshire (47 per cent).

It’s the same story up north. Leeds down 14 per cent, Sheffield down 19 per cent, and Bradford down 29 per cent. But the East Riding up 34 per cent, North Yorkshire up 80 per cent, and North East Lincolnshire up 123 per cent.

In the north west the core cities of Manchester (-37 per cent) and Liverpool (-26 per cent) see huge falls, while the areas around them shoot up. In Greater Manchester, for example, the growth is shifted to the blue suburbs and shires. Outer parts go up: Wigan up 10 per cent, Bury, up 12 per cent, and Rochdale up 97 per cent. And areas to the south and north of the conurbation up much further: Cheshire up 108 per cent, while Blackburn, Hyndburn, Burnley and the Ribble Valley together go up 149 per cent.

But it isn’t just that the numbers in the new formula are lower than the old formula for urban areas. In many cases the new formula suggests a lower number than their recent rate of delivery. This is true of Sheffield (12 per cent below actual delivery), Leeds (16 per cent), Bradford (23 per cent), the entire North East (28 per cent), Nottingham (30 per cent), Manchester, (31 per cent), Leicester, (32 per cent) and Liverpool (59 per cent). The new formula seems to assume we are going to level down our cities, not level up.

It’s true that there’s another step between the Housing Need Assessment which this algorithm produces and the final housing target, which can be reduced a bit to account for delivery constraints like greenbelt.

But if we go with this algorithm unamended, outside London most Conservative MPs will be seeing large increases in the housing targets for their constituencies, while many Labour MPs see their local targets reduced. Is this what we want?

Leaving aside the politics, I think not. Compared to the rest of Europe, the UK has much less dense cities.

Places like Dundee, Glasgow, Liverpool, Sunderland, Birkenhead, Hull and Newcastle all had smaller populations in 2017 than 1981, while places like Birmingham and Manchester weren’t much bigger. Our cities have untapped potential, many went through a period of shrinkage and have space, and there are health and environmental reasons to prefer urban growth too.

In dense urban areas, people are more likely to walk or cycle – and in the UK, people in cities walk twice as far as those in villages each year. This reduces public transport costs and improves health.

Denser cities can sustain better public transport and so cut car congestion and time spent travelling. As well as reducing pollution from transport, denser cities reduce energy use and pollution because flats and terraced homes are much more energy efficient.

I’m not sure the draft algorithm is even doing what Ministers wanted it to. The document in which it is set out says that “the Government has heard powerful representations that the current formula underestimates demand for housing in the growing cities in the Northern Powerhouse by being based on historic trends.”

But the algorithm seems to do the exact opposite.

There may be technical reasons why things aren’t working out: there’s lots of ways to measure affordability… differences between residence-based and workplace-based income measures… there were certain caps in the old model, population projections have changed and so on.

However, the bigger issue is this.

There’s no “objective” way of calculating how many homes are “needed” in an area. While there are ways of carving up the numbers that are seen as more or less fair, ultimately a vision is required.

Projections of population growth are circular: the projected population growth for the farmland between Bletchley and Stony Stratford would’ve been pretty low before we built Milton Keynes there.

Likewise the forecast for the derelict Docklands of the early 1980s. While there are real economic constraints, the future need not resemble the past.

Though it took a huge effort, Germany raised East Germans from 40 per cent to just 14 per cent per cent below the national average income since reunification. That’s levelling up.

Do we want to continue to concentrate growth in the South East? Do we want European-style denser cities, or for them to sprawl out a bit more? An algorithm can help deliver a vision: but it’s not the same as one.

Alexander Stafford: Renewables – not just providers of green energy, but enablers of levelling up

15 Jul

Alexander Stafford is MP for Rother Valley.

In every conversation around the clean recovery there is, rightfully, a tendency of NGOs and commentators to look at how we can take the steps needed to achieve our net zero ambition. Job-rich initiatives such as energy efficiency and EV charging development are particularly alluring. The development of green hydrogen is promoted as strongly for its regional growth benefits as much as its importance for decarbonising heat.

The potential role of renewables in the green recovery is celebrated, but often overlooked. But it is these that are already driving jobs in the North of England and would help with this Government’s “levelling-up agenda”, as well as being the most publicly popular.

The Government has an ambitious target of 40GW of offshore wind by 2030, which will bring over £50 billion of investment into the UK over the next decade. The industry is already transforming ports across the country such as Grimsby, Great Yarmouth and Tyneside, employing thousands in high-wage high-value jobs and supporting our levelling up ambitions.

What’s more, as the cheapest large-scale new power source, the offshore wind that the UK will be building in the coming years, and indeed the onshore wind and solar, will be helping the British economy stay competitive.

Our competitive market framework of Contract of Difference auctions has ensured consumers get the lowest cost renewables, whilst supporting the development of a world-leading supply chain. New companies like Tekmar in Sedgefield have emerged as world-leaders in cables. Traditional oil and gas companies such as James Fisher, headquartered in Barrow-in-Furness, have found new contracts servicing offshore wind farms. However, we could be doing much more to support the development of the UK’s supply chain.

The Prime Minister is looking for infrastructure investment which will unlock future regional growth. The next generation of offshore wind turbines will be almost as tall as the Shard, so it is essential that we re-develop our ports so that they’re able to handle these incredible machines and their component parts.

Similarly, our manifesto rightly saw the opportunity of floating offshore wind, and the Government is looking at the CfD reform needed to develop it. We are well placed to become world leaders, with an established wind industry supply chain, expertise, and great wind resources. There’s the potential to power millions of homes by developing floating offshore wind in the Celtic Sea and deep in the North Sea, but we need to invest in ports like Milford Haven and Nigg to do so – vitally, to maximise the development of the UK supply chain in the process.

We know proactive industrial strategy works in renewables. It was a mixture of market opportunity and Government support that unlocked £310 milliom of private investment in the Siemens Gamesa blade factory in Hull, which now employs over a thousand people, 96 per cent of whom live within a 30 mile radius of the factory.

We need to reignite bilateral conversations with major supply chain companies, and set up a policy environment that better supports the vast number of UK SMEs. Test facilities like the ORE Catapult in Blyth are fantastic in allowing UK innovators to trial new products on wind turbines but, once they’re proven, we will need to ensure the grants, tax relief or financial de-risking schemes are in place which help these innovators to scale-up their businesses.

Increasing our research and development funding to the levels of competitor countries like Germany, Denmark, the Netherlands and Japan will ultimately ensure UK’s companies are at the forefront of innovation and remain competitive in the global market.

When the global market in offshore wind is set to increase to at least £30 billion a year by 2030, we should be increasing our export ambitions and the support that government gives companies in entering these global markets.

Just as Denmark has an ecosystem of multiple agencies working to boost renewable exports, we too should work across Government. We’re rightly levering our role as COP President and world leadership in offshore wind to encourage countries such as Brazil, Mexico and India to take advantage of their vast wind and seabed resources too. We do so for the future of the world’s climate. But we should also acknowledge that, in doing so, we’re developing markets for our supply chain companies, and departments should act accordingly.

Finally, and most importantly,  the Government shouldn’t lose sight of the importance of also ensuring that people are re-skilled so they can take advantage of the jobs we create through the nurture of our renewables sector. We need to manage the transition.