‘There is further to go until we have delivered economic growth [that] is felt in every part of Britain” – Chancellor Rachel Reeves
Just over a week ago the Chancellor addressed the government’s first ever regional investment summit in Birmingham. The pre-Budget noise has set in early but there is good reason to focus again on the regional growth story; not least because more resources, reforms and institutions are being committed to that end.
In last week’s speech, the Chancellor reflected the twin and complex challenge of securing growth, and for that to be growth that is felt in all parts of the country. A long-term, tricky problem.
When discussed in the abstract – and at a time of massive uncertainty – a commitment to enabling regional growth will regularly face the charge that Britain’s overall growth potential would be traded away as a result. Britain as a whole, so the argument goes, would be worse off if you try to engineer growth in some places at the expense of others – and ironically it would be the poorest parts that would feel the greatest impact. It follows that doubling down on those stronger areas is the only way to raise GDP and the revenues that flows from it. Stronger local and corporate tax bases then effectively subsidise higher welfare costs elsewhere via fiscal transfers. While the argument features on few podiums, it is the zero sum – and static – analysis that contributes to our economic divides.
Overcoming these questions is part of the internal challenge the government will face in securing ‘growth that is felt in every part of Britain’. This dilemma also informed the development of my recent report for The Future Governance Forum (FGF) on connecting regional growth with the Modern Industrial Strategy.
How then, can the government pursue a pro-regional growth agenda with confidence and consistency?
More places, more action
The good news is that last week the Chancellor highlighted investment wins right across the country that reflected the rapidly changing environment. The defence, energy and technology industries in particular, need to invest at scale across the UK to meet the imperatives of capacity, competition and resilience. Much of this will happen without government intervention but a smart and strategic government looking to pull every lever it can for growth can catalyse those investments and boost their impact
It’s positive that new long-term reforms, strategies and new institutions offer a more coherent framework that point in this direction.
Planning reforms and a new approach to regulation visibly assert the government’s judgement that it has become too difficult to build the essentials for the economy’s future.
Last week’s messages spelled out the ambition behind the National Wealth Fund, the Modern Industrial Strategy, Pension investment reforms and a larger British Business Bank, among other longer-term interventions.
Where the UK Treasury stopped the then Department for Levelling Up signing off on its own spending in 2023, the new tools for intervention on regional growth are much more clearly owned by the Chancellor and her department.
This matters because there is a clear correlation between the role played by the Treasury and the longevity of a regional economic agenda. The Northern Powerhouse – and the allied reforms that created modern Mayoralties – for instance have already outlasted the Levelling Up interventions because they were owned, and backed by the Chancellor of the day.
This should mean that the current government feels a greater obligation to deliver on the new measures designed to drive up regional growth. Allowing this to be regarded as a peripheral task as has previously been the case would mean that those significant resources misfire.
Instead, actors right across government should be under no illusions that this is a priority for both No.10 and HMT, and so the risk of ignoring the instruction to go for regional growth becomes much greater than was the case for Levelling Up.
Making it stick
Our report sets out five tools which are designed to support a sustained project that is relentless about connecting new budgets, institutions and reforms with stronger local economies. The purpose is to ensure that the state keeps at it, and faces in the same direction on regional economic progress, even when events distract.
Regional growth that is ‘felt’ – in the government’s own words – will mean places where the experience of renewal becomes more likely than an enduring sense of decline.
The deeply practical report seeks to name and support that task. This begins with a recommendation to create a Renewal Investment Tracker that captures and highlights whether our most growth-friendly public spending is backing up the goal of winning regional growth.
Across infrastructure, skills, R&D, housing and transport, public expenditure is 19% greater, on a per-head basis, in the Greater South East compared with the rest of England.
These ‘growth friendly’ categories of spend are essential ingredients for stronger local economies and will need to be targeted towards the job of building the local growth that will renew the economy in the direction set by the government. Happily, that new direction will already be shifting this figure to an extent, but the clock is ticking and past efforts have slipped from view too quickly. Path dependency (where past events or decisions determine future judgements) and stubborn habits within the system will be mitigating this and undermining the broader direction.
The concentration of R&D investment is perhaps the most concerning example of path dependency in these areas of spend. A Harvard study on UK disparity referenced in our report pulls up the perverse reality that private sector R&D investment is much more geographically spread compared with that of the public sector. Other successful economies, with weaker higher education sectors, spread their public R&D investment more towards less productive regions that do not boast the research strengths available here in the UK. Rather than a call to import the political economy of other nations, this contrast is cited because it highlights how Britain is underutilising a specific, globally significant strength, in the form of our university sector.
A Renewal Investment Tracker, published annually by the Council of Nations and Regions, could demonstrate that the path of public investment will maximise the opportunities wider reforms will unblock so that investments in sectors like defence, energy and technology are built on firmer foundations. It should also focus the minds of all UK Ministers, Mayors and First Ministers by offering a more sustained collective effort to turn new investment into more ambitious local outcomes.
The wider tools set out in the report offer further thoughts about ensuring good value for money and purposeful delivery, such as a new Evidence and Evaluation Service for Local Growth and the creation of regional business development banks in England to support SMEs.
Rather than calling for new funding or new devolution, these recommendations focus on the initial task of making big, new and meaty reforms stick.
It is now more than a decade since George Osborne commissioned Michael Heseltine’s ‘No Stone Unturned’ report on regional growth . A number of the practical actions called for in that report have been enacted by this Labour Government. Keeping at the job – turning over the stones – is a must if growth is to be felt in place of decline over the next decade.
