Institute for Fiscal Studies warns that ‘levelling up’ is not about ‘London versus the rest’

Institute for Fiscal Studies warns that ‘levelling up’ is not about ‘London versus the rest’

Leading economic research body the Institute for Fiscal Studies has criticised characterisations of Britain’s geographical inequalities as “a simple case of London and the South East of England versus the rest” and urged Chancellor Rishi Sunak to use his forthcoming spending review as an opportunity begin setting out clear policies for addressing a far more complex true picture, “potentially as part of a broader devolution strategy”.

In an analysis entitled Levelling up: where and how? IFS researchers Alex Davenport and Ben Zaranko emphasise that “the inequalities within regions are larger than the inequalities between regions” and that “this is not a simple story of a North-South divide”, with different towns and cities across the UK facing different types of “levelling up” challenges that will require different policy solutions.

It warns against taking a “naive approach”, saying that “If the government were to take a literal and blunt approach to ‘levelling up’…it would mean delivering additional funding to the areas of the country with the least need for it (or cutting spending where pressures are greater). While this perhaps sounds impossibly naïve, this is the broad approach that has already been taken with schools.”

The researchers also say that “Local government organisation as well as funding ought to be considered in light of the ‘levelling-up’ agenda. Devolution of significant economic power to the regions could be as important as, or more important than, decisions made in Whitehall”.

Using a combination of four economic indictors – employment rates, pay, health and formal education levels – the they identify and sort “left behind” areas into three broad, partially overlapping, categories of large towns and some cities outside London and the south east, former industrial regions (notably former mining and steel making parts of South Wales and South Yorkshire) and coastal towns and regions such as Margate, Blackpool and Aberystwyth.

The analysis records that “between-region inequalities in earnings and household incomes” have “narrowed slightly since the early 2000s”, largely reflecting the fact that, “after accounting for housing costs, median household income in London is not all that high (only 1% higher than the national average).”

It adds: “The key difference between London and other parts of the UK is that London is over-represented at both the top and bottom of the income distribution: it has a great number of very high-income people, but also a large number of households living in poverty (after accounting for housing costs).” Previous IFS research has found that London contains the highest and most extreme poverty rates in the country.

Another finding is that although more public investment in transport and on research and development in place outside London and the South east “might help with ‘levelling up'”, immediate support for schools and further education might be equally if not more effective.

The analysis, which forms a chapter of the IFS’s wider response to the government’s spring budget, notes that “while ‘levelling up’ is clearly a priority of this government, precisely which areas are to be ‘levelled up’, and how, remains to be seen.”

It documents the long history of regional disparities in economic performance across the UK, with gross domestic product per person in London 34% higher then the Great Britain average as far back as 1901, and cites a Treasury report published in 2003 which declared that “‘for too long, too many nations and regions of the United Kingdom have been allowed to fall behind” and argued that “real economic gain must come from a process of ‘levelling up’ – enabling every part of the UK to develop and grow to its full potential.”

Brexit is described as possibly making “levelling up” more difficult, “as the options on the table are likely to impose a particularly high economic cost on some groups, such as less-educated male workers in blue-collar jobs. Many of these are concentrated in traditionally ‘left-behind’ areas in the North of England, South Wales and the West Midlands”.

The impacts of Covid-19 too are seen as having implications for where “levelling up” support should be directed, with rural and coastal areas, “hospitality-dependent cities” and “large parts of London” taking particularly heavy hits from the pandemic.

Last month, think tank Centre for Cities concluded from a dissection of the Treasury’s Green Book guidance for making public spending decisions that the biggest obstacle to “levelling up” the UK’s regions is the lack of a national government strategy for achieving it.

Read the whole of Levelling up: where and how? here.

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