Four serious fault lines will face the new Communities Secretary as he seeks to deliver on the Prime Minister’s top priority, writes the former deputy head of Nottingham City Council and former vice chairman of the East Midlands Development Agency.
Michael Gove has been hailed as Mr. Fixit and as such has been given the responsibility for the upgrade. It is also expected to show significant progress by the next election. The optimism behind this expectation betrays the main flaws in the government’s level-to-top strategy.
But let’s start with the positives. The government has recognized and prioritized the real problem in the UK, the regional imbalance: it is trying to do something, repackaging and inventing new sources of funding – the cities fund, the leveling fund, the prosperity fund. shared; it tries to develop new policies – the relocation of the civil service, the free ports, the regional investment bank, the revision of the Green Paper and the emphasis on the role of green energy production in the regeneration of post-industrial areas.
However, there are four serious flaws, most of which seem to have escaped the government’s attention.
A timid commitment
The first is the sheer magnitude of the task. This is not a two to three year project but a 20 to 30 year project and the funding required is in the order of billions of pounds, not millions of pounds. To expect such a reallocation of resources would be unreasonable, even in the medium term. But even initially, the promised regional funds fall short of the existing funding streams they replace.
The local growth fund (£ 1.5bn per year) ended in March and will be replaced by the annual leveling fund of £ 1.3bn over four years, with just £ 600m spent in 2021. European funds (mainly ERDF and ESF) to the value of £ 1.56 billion per year will cease and be replaced by the Shared Prosperity Fund, which the government says will be of equal value. However, it may take several years to reach this level of spending and only £ 220million has been committed in 2021. Future spending commitments are vague or nonexistent, so we have to wait and see. However, given the noise coming from the Treasury, they are unlikely to live up to expectations.
However, to appreciate the magnitude and complexity of the task, we must compare the timidity of this commitment with 2,000 billion euros over 20 years that have been invested in East Germany with effect, or the billions allocated on 35 years at the Italian Mezzogiorno to little effect.
National post-Covid growth
The second fault line is a lack of knowledge of the dynamics of regional development. You can’t level up expecting everywhere to develop simultaneously. Certain areas must be retained. In addition, there is the issue of concentration. With limited resources, you need to choose your targets carefully. But there are already competing demands that could deflect the policy.
The start of HS2 in the south risks worsening the imbalance of the first years
There is mainly the post-Covid imperative for overall national growth which currently, due to regional economic balance, can be best achieved by supporting high growth areas. This is anchored in the government’s 80:20 rule, which sees 80% of housing finance directed to areas with the highest affordability pressure, its fintech [financial technology] strategy, whose key hub will be London, or in the proposed arc of Oxford Cambridge, which risk widening the gap by further stimulating high-growth areas.
Success here could even suck growth from other more disadvantaged areas. For example, starting HS2 in the south risks worsening the imbalance in the early years and, if truncated in Birmingham, will end up negatively impacting disadvantaged regions. Additional tension is the ‘me too’ phenomenon of the pockets of poverty in the south demanding, and rightly so, the same support as the Red Wall areas. Then there is the phenomenon of powerful ministers who take action for their not-so-deprived constituencies (echoes of southern Italy here). This means that the limited resources made available will be of little value and may be subject to counterproductive forces created by the government itself.
“It’s about education, then skills”
The third and perhaps most important flaw in the approach is the failure to understand the basic factors that stimulate regeneration. The government has fallen into the classic trap of assuming that the key lies primarily in the physical projects – city funds, HS2, free ports, small package infrastructure projects backed by the leveling fund. Yet it is commonly accepted that in a modern economy any long-term policy must be based on human capital or, as Michael Heseltine stated in evidence before the Commons Business Innovation & Skills Committee in October 2016, “it s ‘it is education, then skills’. .
The role of skills remains an afterthought with only a genuflection towards investing in skills
Yet education funding regimes, and especially the early years, fall short of the challenge. Indeed, with the new funding mechanism which is likely to be based more on capitation than deprivation, and the disappearance of early childhood initiatives, the trend of education is going in the opposite direction. Meanwhile, the role of skills remains an afterthought with only a genuflection towards investing in skills and leaving the highly neglected, still grossly underfunded higher education sector.
Remove purchasing power from disadvantaged communities
The final fault line is completely self-inflicted. The government over the past 10 years has unveiled the benefits that the Blair-Brown government has conferred on disadvantaged areas, whether in funding education or more specifically in spending by local governments or the most disadvantaged areas, mainly in the North and the Midlands, saw the greatest losses in purchasing power compared to the more affluent areas mainly in the South (with the exception of London). Add to that the 80:20 rule for housing assistance and the imbalance in regional transport infrastructure and you have two compensatory policies. This will be compounded by three factors confirmed last month – the lingering expectation that adult care will be further subsidized by city tax, the end of the £ 20 universal credit hike and the increase in national insurance.
All of this risks depriving disadvantaged local communities of far greater purchasing power than any compensatory payment resulting from a leveling-up initiative. Yet the level of aggregate economic demand in a region is probably the main medium-term stimulus for private sector investment needed to support growth.
Suddenly, Michael Gove was he thrown what is called in rugby union a “hospital pass”, a challenge both daunting and complex, which the government has probably not still understood the risks? If he wants to make inroads, he may first have to reconsider his opinion on the value of experts.
For Graham Chapman’s full review of leveling, including policy proposals, see https://www.sigoma.gov.uk/levelling-up
Graham Chapman (Lab), former deputy head of Nottingham City Council; Former Vice President, East Midlands Development Agency