LEVELLING UP
It is no wonder some parts of the country feel short-changed. For decades we have piled fertilizer on the parts of our economy that are already flourishing while refusing to water the seeds of growth elsewhere. The PM’s mission to level up poorer parts of the country is vital. To change trends that have gone in the wrong direction for decades will need not a few tweaks, but taking a bazooka to the problem. That means we have to use every tool at our disposal, starting by rebalancing the types of spending that do most for growth towards poorer areas.
The Chancellor will need to unwind decades of fiscal decision-making that has left productive spending skewed towards already prosperous places if he is to succeed in “levelling up” regional growth. As this report shows, the most growth-enhancing items of public spending – transport, innovation, housing and culture – are skewed towards London and other regions that are already productive.
This is not new – it has been the case under governments of all political parties for many decades. Looking in more detail, the analysis reveals that headline figures published by the Treasury conceal even wider variations in the kinds of spending most likely to get the local economy moving:
Taking all of this together, it is clear that some regions are receiving considerably less growth-enhancing spending despite being relatively less productive and having lower incomes.
The richest region, London, is one of the top recipients across all four types of spending. Scotland, followed by the East of England, come next, both with productivity close to the national average. Meanwhile, regions like the East Midlands, Yorkshire and the West Midlands received less productivity enhancing investment, despite lower than average productivity.
The formal process has often historically been overruled, with a bias towards funding projects in London. The process is not transparent.
Too much project appraisal is static, not dynamic, and favours richer areas by using current prices. For macroeconomic and welfare reasons we might want to weight growth enhancing spending towards poorer areas, but wider economic welfare
analysis is rarely carried out in practice.
Some areas are in a stronger position to generate more and better bids.
UK spending on R&D is heavily focused on early stage research in a small number of research intensive universities. In practice this means funding is concentrated in the richest regions. It may also mean less economic impact than more industrially focused spending would.
Business spending on R&D is more evenly spread across the country than government spending. However, some regions combine both low public
and private R&D investment so are stuck at low levels of innovation.
London had around 21% of those on waiting lists for social housing in England in 2019. London also has more social housing: 22.6% of homes, compared to just 17.1% in the rest of England. Yet without any assessment of value for money, over half the affordable housing budget is devolved to London.
Money that might fund one social property in London might fund more than one in a cheaper region, but funding rules exclude such areas. Funds for housing infrastructure are very heavily skewed towards the south of England. In both affordable housing and housing infrastructure programmes there is little consideration of the second-round effects of such spending on growth. In some cases data on the distribution of spending per head is not even published.
Unlike the other fields discussed here, it is not the case that there are strong value for money or costbenefit arguments being made for the current distribution of spending. The current pattern seems to simply reflect historical patterns of spending which hugely favour London.
The economic impact of culture funding is not emphasised enough.
The formal process has often historically been overruled, with a bias towards funding projects in London. The process is not transparent.
Too much project appraisal is static, not dynamic, and favours richer areas by using current prices. For macroeconomic and welfare reasons we might want to weight growth enhancing spending towards poorer areas, but wider economic welfare
analysis is rarely carried out in practice.
Some areas are in a stronger position to generate more and better bids.
UK spending on R&D is heavily focused on early stage research in a small number of research intensive universities. In practice this means funding is concentrated in the richest regions. It may also mean less economic impact than more industrially focused spending would.
Business spending on R&D is more evenly spread across the country than government spending. However, some regions combine both low public
and private R&D investment so are stuck at low levels of innovation.
London had around 21% of those on waiting lists for social housing in England in 2019. London also has more social housing: 22.6% of homes, compared to just 17.1% in the rest of England. Yet without any assessment of value for money, over half the affordable housing budget is devolved to London.
Money that might fund one social property in London might fund more than one in a cheaper region, but funding rules exclude such areas. Funds for housing infrastructure are very heavily skewed towards the south of England. In both affordable housing and housing infrastructure programmes there is little consideration of the second-round effects of such spending on growth. In some cases data on the distribution of spending per head is not even published.
Unlike the other fields discussed here, it is not the case that there are strong value for money or costbenefit arguments being made for the current distribution of spending. The current pattern seems to simply reflect historical patterns of spending which hugely favour London.
The economic impact of culture funding is not emphasised enough.
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