Nigel Wilcock 27 June 2019

Rebalancing the economy: our time is now

Rebalancing the economy: our time is now image

Last week’s announcement that the cross-party Treasury Select Committee has launched a new inquiry into regional imbalances in the UK economy is a welcome development – and one that the IED will be contributing evidence too.

The Committee is examining the nature of regional imbalances in economic growth which currently exist in the UK; and also establishing what regional data is currently available here, how it could be used more effectively in policy development, and whether there should be official regional economic forecasts produced.

Whilst a joined-up approach to this issue is needed, there is certainly no shortage of evidence out there around the disparities and differences that exists between different areas – north and south, towns and cities, and urban and rural.

Earlier this month analysis from Communities in Charge, a coalition of community leaders and charities, found that the UK’s poorest regions could lose hundreds of millions of pounds of funding to London and the South East after Brexit. The comparison of UK government spending on economic development with the distribution of so-called EU structural funds revealed significant regional differences between the way in which the EU and the UK allocates funding for economic development.

Communities fear that if the UK Shared Prosperity Fund (UKSPF) is distributed in the same way the government allocates current spending on economic affairs, it will unfairly benefit more prosperous areas. Communities in Charge have warned that economic development funding is set to “follow the regional pattern of existing UK programmes and end up increasing regional inequalities rather than reducing them”.

We know that a different approach is needed. Our own consultation on the UKSPF, published in April, provided insight on what the new fund could and should look like and how it must operate in order for it to be successful. However, we remain none the wiser on exactly when the government consultation on the design of the fund will take place, and how much money will be allocated and how it will be distributed.

These latest warnings are not new. The Cities Outlook 2019 report, published by the Centre for Cities, highlighted the consequence of the government withdrawing almost all domestic economic development funds for the regions ten years ago. The report showed that cuts to all spending areas minus social care, where there has been a need to make up for shortfalls, have been deeper in English cities. Economic development has fallen particularly in urban areas – spending is down 43% compared to 24% elsewhere. This means that social care has taken up a growing share of overall spending, rising from 38% of spending in cities in 2009-10 to 46% in 2017-18. At the start of the period four cities spent more than half of their budgets on social care. By 2017-18 half of all cities did so.

At the same time, the report highlights the importance of cities to the economy. Despite covering just 9% of land, British cities account for 54% of the population, 63% of economic output and 71% of knowledge services jobs. This concentration of the UK economy in specific places occurs because of the benefits that cities provide – namely access to lots of workers and proximity to other businesses. And their role goes beyond direct economic links. Because of their scale, they are able to both support a greater number of specialisms and provide a wider range of services, also impacting surrounding areas.

Yet despite their scale, many of the biggest cities punch below their weight. Cities such as Manchester, Birmingham, Liverpool and Sheffield lag the national average on productivity and a range of other indicators, when they should be leading it. Generally, cities have been hit hardest by austerity. As a whole, there has been an 18% fall in the day-to-day spending by local government in cities between 2009-10 and 2017-18, compared to a 9% fall elsewhere. This meant that British cities – home to 55% of the population – have shouldered 74% of the total cuts to local government’s day-to-day spending.

To quote The Cities Outlook 2019 report directly: 'In or out of the EU, for the UK economy to be more prosperous it needs its cities to make a larger contribution than they currently do'. We are now seeing on the-ground campaigns for change. For example, across the north of England have reached a critical level, more than 30 local and regional newspapers and media outlets (alongside major political and business leaders) have called on the government to revolutionise the way the region is governed. Papers including the Sheffield Star, Manchester Evening News and Liverpool Echo have demanded 'a fundamental shift in decision-making out of London, giving devolved powers and self-determination to people in the north'.

At the same time, we need to champion the rural economy. In April, the House of Lords Select Committee on the Rural Economy called on the government to develop a rural strategy and help realise the potential of rural economies. I have previously said that rural communities are likely to face the most serious economic issues of any locations in the UK over the next 20-30 years and the ‘Fourth Industrial Revolution’ is likely to create an existential threat to many. Priority interventions to avoid catastrophe must include digital connectivity, housing, business hubs, community self-help, mobility clubs and decarbonising heat, but rural economic development urgently needs a longer term strategic approach. We look forward to discussing this further at the Rural Services Network’s two-day Rural Conference in September, when IED Chair Bev Hurley is presenting on this issue.

Balanced growth is an issue for all UK residents. Better balance will ensure that public assets are used more evenly and efficiently – avoiding issues such as under-utilised schools, hospitals and transport networks in some locations and pressure from overcrowding in others. A balanced economy can also, in the long term, avoid the payment of subsidies to support under-performing areas and allow improved public finances from greater taxation revenues from across all parts of the UK. Finally, socially and politically, there is surely a need to avoid parts of the country feeling increasingly left behind.

There is a lot to consider – but our time is now. Generally, to ignore the differing roles that different parts of Britain – be they cities, towns or more rural areas – play in the national economy is to misunderstand an important part of how the economy functions. The Treasury Select Committee inquiry is also an opportunity for organisations to showcase how successful regional programmes have been in promoting economic growth. Lessons can be learned, and good practice can help inform future direction.

Nigel Wilcock is executive director of the Institute of Economic Development

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