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When he became prime minister in July 2019 Boris Johnson brought with him a new priority in the form of ‘levelling up’. It’s an old idea and an enduring political concern, one that, getting on for a hundred years, has gone by the name of regional policy. A growing focus on inequalities of income, health and opportunity across Britain has brought regional policy back to the fore. The Conservative’s 2019 general election success in Labour ‘red wall’ seats in the North, the Midlands, Yorkshire and Wales, has lent political weight to the cause. And in the last year the pandemic has added a new dimension to regional inequalities. Levelling up’s time has arrived.

With the pandemic in retreat, levelling up will need to develop into a set of policies and objectives. The government is likely to outline how it plans to make a reality of levelling up within the next few weeks. We have been discussing the nature of the challenges in a series of events with private and public organisations across the UK. Here are eight conclusions we have drawn from those discussions and our research.

First, differences in economic performance between the regions of the UK are large, in absolute terms and by international standards. According to the Institute for Fiscal Studies (IFS), the UK is one of the most regionally unequal countries, ranking near the top on most measures of inequality in a universe of 26 industrialised countries. The regional divide is longstanding. Differences in regional GDP per head today are similar to those of over a hundred years ago. Regional income inequality narrowed in the first half of the last century, then widened between the 1970s and the 1990s. While the income and earnings gap has narrowed somewhat since, it remains large and its effects have been intensified by a wider stagnation of incomes since the global financial crisis.

Second, this isn’t just a North-South divide. The towns and cities of the former industrial regions have particular and longstanding problems, but so do many coastal and remote rural areas. An index of the most ‘left-behind’ areas, created by the IFS, includes many English seaside areas including Great Yarmouth, North Norfolk, Thanet, Portsmouth and the Isle of Wight. Moreover, the income difference between local authority areas within regions is greater than the difference between the regions themselves. In the jargon, intra-regional differences are greater than inter-regional ones. The claimant count unemployment rate in Lancashire, for instance, varies from a low of 3.1% in the Ribble Valley to a high of 8.9% in Burnley, a distance of just ten miles. Life expectancy within local areas in counties, including Essex, Kent, Cumbria and Greater Manchester, varies by as much as five years.

Third, regional disparities are complex in nature and understanding them calls for a set of measures that go beyond GDP per head or productivity. Housing costs clearly have a major impact on actual standards of living. High London house prices mean that most of the London salary premium is swallowed up by higher housing costs. After-housing income for the median London worker is just 1.0% above the national average and, partly because of housing costs, London has the highest poverty rate in the UK. Wellbeing is a function of a host of factors including education, health, local services and job opportunities. Some areas, of the UK, including South Derbyshire, West Devon and Northern Ireland, report high levels of wellbeing despite being relatively low down the GDP per head league. Broad measures of welfare are needed to capture the quality of life.

Fourth, the varied and specific nature of the challenges calls for local solutions and a partnership between central and local government. Active, heavyweight political sponsorship from the centre, as was provided by Michael Heseltine in the 1980s, helps. Deloitte’s “State of the State” report found that what people want levelled up varies. Londoners are most concerned about housing, crime and the local environment while people in the North East worry most about jobs, schools, transport, adult skills training and local amenities. Devolving authority to regions can allow policy to be more closely tailored to local needs. Research by the OECD has found that tax and revenue decentralisation tend to reduce regional disparities. Since the turn of this century government has sought to encourage direct mayoral elections. Local referendums have rejected the approach in some areas, but elected mayors have become more prominent and influential locally and nationally.

Fifth, levelling up, though often construed as such, is not just about the public sector. The private sector accounts for the great majority of jobs and GDP across the regions. The lesson from the regeneration of urban areas, including Liverpool and the London docklands, is that success comes from a close partnership of the public and private sectors, repurposing industrial sites as business parks and attracting investment with government support and tax incentives. Strong collaboration between the private sector, local authorities, national government and universities is essential.

Sixth, policy needs to operate at a local, regional and national level. Major infrastructure projects, such as HS2, 5G and broadband, loom large in regional policy, though their scale and complexity can mean they take years to come to fruition. A recent Oxford university research paper argues that rapid improvements can be achieved through small, tailored projects. Examples of standardised modular projects include wind farms and battery storage, electrifying public and private transport, retrofitting buildings to improve energy efficiency and construction of schools, hospitals and care homes. Spending needs to go beyond traditional capital projects, into skills and current spending more generally, such as on policing, schools and social services, where funding has fallen in recent years. Spending per student in real terms in further education and sixth-form colleges has fallen by 12% in the last ten years and by 23% in school sixth forms, more than in the secondary school or university sector. Local government revenues, from council tax, business rates and central grants, have fallen 18%.

Seventh, the complex and deep-rooted nature of regional disparities means that policies need to be set for the long term. Changes in structure and funding are disruptive. As with major infrastructure projects, success in regional policy calls for consistency over time.

Eighth, and finally, progress is possible. Rates of unemployment between UK regions have narrowed significantly since the 1980s, while employment rates have risen across the country. By the end of 2019 unemployment rates across the UK were at the lowest levels since the 1970s. Meanwhile the fortunes of a number of cities have revived, including those of Edinburgh, Derby, Dundee, Bristol, Southampton and Leamington Spa. Regional performance and inequalities are not immutable.

The UK economy will be shaped in coming years by Brexit, the aftermath of the pandemic and the transition to net zero. The shifting balance between office and home working creates new opportunities and risks for all parts of the country. Levelling up should be seen not as a standalone policy, but as the vehicle for spreading opportunity across the UK.

For the latest charts and data on health and economics, visit our COVID-19 Economics Monitor:
https://www2.deloitte.com/uk/en/pages/finance/articles/covid-19-economics-monitor.html