Is the Government overestimating its ability to “double down on levelling up”? Professor Philip McCann – one of the UK’s foremost economic geographers – certainly thinks so.
“I ended up writing a book which was 570 pages to try to explain the nature of the UK regional economic problem”, McCann told our latest UKRI Ask the Expert event, “that was as short as I could do it”. Britain is waking up to its regional inequalities, he says, but politicians still fail to conceive the problem in the right way, and our top-down system of government is ill-equipped to deliver the solutions needed.
Defining – and recognising – the nature of the Britain’s economic problem is the first step. The UK has some of the most severe regional inequalities in the industrialised world. In 2019, McCann calculated that across 28 indicators only Slovakia and Ireland rank worse than the UK for regional inequalities across 30 OECD countries. The IFS has reached similar conclusions. Britain is the fourth most unequal country in the OECD when the richest 20% of small (TL3) regions are compared to the poorest 20%; only Hungary, Columbia and Turkey rank higher, but inequalities are at least falling in these countries, whilst rising in the UK.
Productivity disparities between UK regions have been growing since before the 2008 crisis, whilst ONS data show London and the South East remain by far the most productive regions with the highest earnings. Wealth inequalities have also grown, with IFS research indicating that median property wealth increased by nearly 180% in London and 50% in the South East between 2006-2018, but less than 20% in the Midlands and North of England. And – perhaps most importantly in the context of the Coronavirus crisis – those regions with weaker economic characteristics typically display lower levels of resilience during economic shocks.
The difficulty is that whilst politicians have begun to explain these inequalities, the narratives deployed to explain them are too often insufficient. The problem has been framed as one of cities vs. towns, North vs South, rural vs urban. Yet Philip McCann argues that none are quite right.
“This is a core-periphery problem”, he says. In short, the UK has an over-productive core in London and the South East; the capital alone accounted for 38% of national GDP growth 2000-2016. These areas are typified by, for example, strong productivity growth, higher GDP per capita, and a greater proportion of R&D and transport spending. Meanwhile, the periphery demonstrates weak productivity performance, as the map below indicates. McCann calls this Britain’s “national-regional economic problem”, with a larger proportion of regions and people in the unproductive periphery than the over-productive core.
None of this is to deny the significance of intraregional inequalities. London displays the highest rates of poverty in the country, for example, whilst there are notable pockets of deprivation in the South East. Similarly, London’s economy appears to have been particularly vulnerable to the impact of COVID-19, as SMF research has shown. Recognising these types of inconsistencies within the narrative is not a flaw in McCann’s argument. Rather, it is a vital part of accounting for the complexity and scale of Britain’s spatial disparities.
How to remedy these inequalities? Quick-fix place-based solutions should be treated with caution. The IFS and UK2070 Commission have warned policies could take decades to produce results. McCann arguably goes further. “You can’t solve this with coming up with clever ideas in central government and Whitehall”, he says, “because you are part of the problem”. We might see the recent £4bn Levelling Up Fund – which requires local areas to bid and get central government approval for up to £20m of funding for projects delivered within this parliament – as symptomatic of this tendency.
In McCann’s view, levelling up boils down to this: even if the full scale of Britain’s national-regional economic problem is recognised, the UK’s governance structures are incapable of delivering the solution(s). Overcentralisation means a concentration of knowledge and decision-making at the top of government and increases the degrees of separation between places. This means the state isn’t nimble enough to identify and address issues affecting particular localities, like skills mismatches or low levels of innovation.
This, according to McCann, is fatal in such a heterogenous economy like the UK’s, with those “at the coalface” largely shut out of the national policymaking process. Countries such as Japan have come to terms with this, undergoing programmes of state decentralisation for several decades now. Britain, meanwhile, has been becoming more centralised. Many critics, including former Conservative Party leader William Hague and former Labour minister-turned devolution expert John Denham, say the pandemic has revealed the kinds of cracks in our governance structures that McCann points to.
“The way the UK is run will be decisive”, as the UK2070 Commission put it in its final report last year, warning that central government tends to “throttle attempts to devolve power”. McCann calls this a governance trap, with state-centrism restricting attempts to deliver fundamental solutions aimed at increasing productivity in the periphery. He proposes an independent cross-party commission as a solution, bringing together local representatives and experts from across the UK, tasked with working up a future devolution settlement. Failing to act, McCann warns, will not only limit the prospects of levelling-up, but sow the seeds of further social and political discontent over the coming decade.
This blog is based on a recent SMF Ask the Expert event, held in partnership with UK Research and Innovation, discussing Britain’s interregional inequalities, featuring co-Director of the Economic and Social Research Council’s Productivity Insights Network, Prof Philip McCann.
