Economic reality exposes the government’s ‘levelling up’ myth

Regions worst hit by the Covid-19 outbreak will be hoping the government will turn its attention to levelling up, writes Phil Thornton. The economic forecasts point another way

Boris Johnson in Aberdeen this week, during his two-day visit to Scotland (AFP/Getty)

When Boris Johnson ventured out of London to pay a two-day trip to Scotland, all eyes were on the prime minister for evidence of concrete plans to support the economic “levelling up” agenda that contributed to his landslide victory.

Inevitably what they received was a joke, and one in incredibly poor taste that credited the late Margaret Thatcher’s closures of coal mines for accelerating Britain’s journey towards a net zero carbon economy.

With an election now three years away – but possibly as soon as 12 months’ time – businesses, regional policymakers and consumers were hoping for something more than the empty “skeleton plan” speech that Johnson gave on a visit to Coventry despite acknowledging 11 years of Tory rule had left many areas poorer than in the former East Germany.

The hope was that having managed to deliver a faltering stabilisation in infection rates thanks to a successful Covid-19 vaccination programme, that the government would direct the great economic ministries of state – the Treasury and the business and international trade departments – towards delivering an agenda that would correct the regional inequalities that have kept the Midlands, the north of England and the devolved administrations of Scotland and Wales lagging behind the economic powerhouses of London and the southeast of England.

But unlike the political arena where a bon mot, a slogan or a good joke carry a lot of wake, the only way to deliver an economic agenda is by actually altering the incentives and mechanisms that alter firms’ behaviour and deliver real gains. In the absence of action, nothing will change.

An indication of what the English regions and devolved nations can expect was laid out in harsh detail last week by the National Institute of Economics and Social Research (NIESR), the independent academic think tank. It said that since its previous forecasts in May, the pace and pattern of regional disparities has become clearer. Its analysis of the outlook for the regions of the UK tells a familiar story. By the end of 2024, only the West Midlands and London are projected to have economic output between 4 and 5 per cent above the pre-pandemic level at the end of 2019.

Other parts of the UK are also thought to fall short of their pre-pandemic levels, including English regions such as Yorkshire and the Humber, as well as the devolved nations of Wales and Northern Ireland – with the northeast still about 3 per cent below its pre-pandemic level.

Employment, which will be crucial for whether people feel they are benefitting from economic reforms. is expected to vary dramatically across the devolved nations and English regions. All parts of England except London are projected to remain below their pre-pandemic levels until 2024, with some regions such as the Midlands below their fourth quarter of 2019 levels well into 2024 and probably 2025.

One particular issue is their economic activity that has been a curse for UK regional economics ever since the appreciation of sterling in the early 1980s under Thatcher’s first government that devastated industries and left areas nursing intergenerational joblessness – children, parents and grandparents all out of work.

According to the NIESR, unemployment and economic inactivity – economists’ term for people unable to work or unwilling to look for it – will plague the regions outside the home counties. By 2023 inactivity rates will be above pre-pandemic levels in all regions bar London. The inactivity rate will be the same in 2023 as in 2019 despite a rise in unemployment in Scotland, a country where NIESR tellingly says that a “greater alignment of skills” to jobs is a key component of the Scottish government’s economic transformation strategy.

The government has set out a £4.8bn Levelling Up Fund, which will invest in infrastructure such as town centres and local transport. But a committee of MPs last month said that there was a lack of clarity on what the government means by “levelling up” and how it translates into coherent and specific initiatives. This month the Rural Services Network of local councils accused ministers of prioritising the so-called former red wall constituencies at the expense of deprived rural areas.

Last month Lord Kerslake, the former head of the civil service who chairs the UK2070 Commission, reminded the prime minister that his commission had set out a 10-point plan to translate the rhetoric of levelling up into programmes of action, adding that nothing less than large-scale, comprehensive and long-term aligned action across the whole UK will deliver levelling up.

Johnson will have another chance in the autumn when he publishes a levelling up white paper. Ignore the froth and focus on the hard proposals for economic reform – without those it will be London and the south that will again be the ones looking to widen the gap with their neighbours in terms of growth, employment and economic activity.