Break London’s domination of state spending to level up Britain

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Here’s a weird thing. There are certain types of government spending which do more than others to get a local economy moving.

Like better transport, to join up places and connect people to new opportunities. Housing infrastructure to open up new development and more homes. Research and development (R&D) spending to spur the creation of new businesses and help existing firms become more high-tech. Culture spending, to make a place a magnet for skilled people.

But the weird thing is that for decades we have we spent more on these productivity-raising things in areas that are already the most productive, but less in the places that most need it.

In a report I have out today for Onward we reveal the full, surprising extent of the problem.

Per head, London receives nearly twice the UK average R&D spending, nearly three times as much capital funding for transport as the rest of England. It gets five times as much financial support for affordable housing as the rest of England, and enjoys nearly five times the as much spending on culture as the rest of England.

It’s a big problem for Boris Johnson’s plan to “level up” poorer areas.

In each case the reasons why officials have maintained this pattern of spending over the years varies. And if we understand the rationale, we can figure out how to change it, while benefitting the economy overall.

For example, when it comes to R&D spending, officials are focussed on funding lots of “pure”, early stage research in universities. Compared to places in Asia or the US, we don’t spend so much on industrial R&D, outside universities.

To stereotype a bit, compared to China, we’re investing lots on exploring the nature of the early universe and so on, and less on trying to make a car part 20% cheaper or greener.

This approach has meant more and more spending is focussed on a small number of leading universities. The share of the core research budget spent in just three cities, Oxford, Cambridge and London, rose from 42% in 2003 to 46% in 2018.

That’s nearly half our spending in just three lucky cities.

Business spending on R&D is much more balanced across the country. The private sector spends roughly as much as the government in London. But five times more than government in the West Midlands.

If we change the paradigm, and make our R&D spending more industrially focussed, that would be a good thing in itself. But it would also make for a fairer balance of spending across the country.

The story in housing is different again. London gets half the total budget for social housing devolved to it. The thought is simply that London is an expensive place to live. Supporting housing there is widely regarded as “obviously” the right thing to do.

But hang on a minute. London already has more social housing than the rest of the country: 22.6% of homes in London, compared to 17.1% in the rest of England. London doesn’t have half the people on waiting lists in England – it has a fifth.

For the price of one council house in an expensive area like London you can build two up north. It’s not obvious that just having expensive housing should mean London scoops half the money.

In transport there are several reasons the richest areas get the most money.

It’s partly capacity: London has a powerful devolved government, while in much of the country councils don’t even have the money to work up schemes to bid for. It is partly about the way we evaluate schemes.

It’s partly because we spend a lot on rail, which is big in London but a tiny share of journeys elsewhere.

And it’s partly because if you focus on narrow measures like the number of minutes saved, then funding will go mainly to areas that are currently booming and have the congestion to prove it. If, in contrast, you take a wider view of the economic benefits of a new investment, and the potential for journeys that are not taken today because transport is so poor, then areas with fewer constraints on growth (like more available land) will do better.

When it comes to culture spending, London gets half (47% of the total). There isn’t really an intellectual argument for this – it is just the continuation of a longstanding pattern. DCMS directly funds “national” institutions like the Royal Opera House, and most such institutions happen to be in London: the capital gets 90% of such spending.

If we spent more on, say, music lessons for kids, so people at the opera paid a bit more, we’d have a fairer balance of spending.

In all these types of spending there is a circular logic. We’re trying to solve problems of congestion and house prices in rich areas by throwing money at the problem. But that spending stimulates more growth, more congestion and so on. We are trying to put out a fire by pouring on petrol.

If you map the seats Boris won in his triumph last year, the centre point is on the moors just outside Sheffield. Many of the seats he won are in places that have never voted Tory before, and where people are frustrated about being overlooked. It is time to repay their trust and change the old established ways of doing things which officials have presided over for so long.

REPORT

Levelling Up Growth-Enhancing Spending

Rebalancing growth-enhancing spending

The Observer

Break London’s domination of state spending to level up Britain

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