For almost two decades now, economic growth in the UK has been sluggish, and what growth there has been has wildly varied between different places. Confused and inconsistent policy has allowed a combination of centralism and stagnation to constrain the growth of quality jobs and investment in Britain’s underperforming regions and nations.
Tackling this disparity has not been regarded as a core element of the country’s economic strategy, and work at the margins has not solved this wicked problem.
Even former Prime Minister Boris Johnson’s Levelling Up project – and its messy patchwork of competitive funding pots – was much bigger on rhetoric than on meaningful action. At the same time policy churn, a chaotic and overloaded centre and weakened local institutions have eroded the state’s ability to do regional policy well. What is more, evaluation and evidence have not been prioritised, preventing the opportunity to learn from the past and embrace innovation.
This is bad news for the economy, for our national resilience and ultimately for our politics. Underperforming regions and nations constrain the potential for growth in the country as a whole, they leave us overly reliant on a handful of places, and they result in sharp imbalances in living standards that ultimately damage people’s trust in government and wear away at the social fabric.
The Labour government elected last year seems determined to reverse this trend, with its belief in active government and its overriding mission to increase living standards in every region and nation of the country. If it is to deliver that mission – and learn from past attempts – the UK government will need to be more consistent and reliable in using the levers it has to truly break down the barriers that hold back regional growth.
This means intervening to spread the investment that creates jobs and growth more evenly and acting to hardwire regional growth into decisions across government. These are the next steps needed to get more of government facing in the same direction as positive new strategies and investments.
Much better cooperation with devolved and regional government is essential if this is to be done well. Government will also need to become more consistent in dealing with complexity that has too often been wished away.
That should involve stepping back from the operational more often and developing the best strategic support to drive visible change, felt in the places where people live.
If the status quo on public investment and decision making is untouched by new strategies and institutions designed to drive regional growth, the reward promised will not be felt.
The stakes are high: delivering on the regional aspects of the government’s economic growth mission will play a major role in determining who feels better off and – in the government’s words – more able to put down firm roots, closer to home.
One of the most significant interventions the government made in this space during its first year in office was the publication in June of its Modern Industrial Strategy1. This document saw the government argue that it was making ‘positive choices’ to intervene in support of eight sectors with the highest growth potential (the ‘IS-8’) so as to deliver on its broader mission. The Industrial Strategy also recognises that this new, ‘more muscular’ approach comes at a time of global instability and rapid economic change. Three of the IS-8 sectors in particular – energy, defence and tech – are driving transitions that will test the state’s ability to deliver and shape how risk and reward are shared.
In the Industrial Strategy – and its allied sectoral plans – the UK government is signalling a more coherent, intentional approach to tackling the country’s economic growth and regional disparity challenges. New institutions such as the National Wealth Fund – which is instructed to support regional growth – reinforce this opportunity.
What is less clear is how the state itself will change to rise to these enduring, complex challenges. Specifically, what will change to ensure the new direction set does not reinforce existing disparities?
In this report we aim to provide the UK government (and, where relevant, the devolved and regional governments of the UK) with a practical toolkit that connects the Industrial Strategy to the government’s commitment to improving living standards in every part of the UK.2
These tools – and the principles that underpin them – should serve as a thread to keep all levels of government focused on the complex job of translating new policy and external opportunities into better prospects for local economies. If the problem of regional disparity is treated as peripheral, government risks expending enormous resources and energy on a project that will not reach enough of its intended recipients.
Drawing on literature, international examples and interviews, this report argues for the adoption of five tools for growth that can contribute to a more reliable, capable and purposeful state state that sustains focus on this wicked problem.
As things stand, the most growth-friendly public investment in the UK is too concentrated in London and the South East. Per head spend on the ‘essential mix’ that supports growth, including infrastructure and innovation, is 19% higher in the Greater South East compared with the rest of England.3 This preventable imbalance is longstanding and contradicts the logic of the new Industrial Strategy and the wider commitment to a ‘decade of national renewal’. The levers to achieve that are not within the gift of the UK government alone and better collaboration across all levels of government are required to support investment that can deliver successful outcomes across the country.
The new Industrial Strategy Council should work together with the Council of Nations and Regions towards a shared objective of reducing Britain’s growth-friendly investment gap, delivered through better coordination of new strategies and investments at national, devolved and regional levels.
This starts with a better shared understanding of the situation, how it is evolving and the extent to which it is constraining wider government objectives. The Industrial Strategy Council and should be tasked with creating a Renewal Investment Tracker, showing how growth-friendly public investment is being shared across the country, illustrating the scale of the disparity and how it is changing over time.
This tracker could be consolidated at UK government level and hosted on the gov.uk website, but the data to inform it would be drawn from all levels of government and so – while respecting mandates – it would involve taking a shared approach to achieve a collective picture. With that picture available, it would become easier to then direct action and resources towards addressing systemic disparity where it exists.
The object is not to set rigid targets under a false illusion that a shift in such a tracker will suddenly unlock exponential growth in places politicians care about. This simple input tracker will not deliver that – but it should help sustain a focus on the path of investment that forms the essential mix all places need to thrive.
The rationale for the tracker is fundamentally about making all parts of government face the same direction at once when it comes to spreading prosperity. A sustained focus on driving up investment in the fundamentals for regional growth would spell a positive break with the past from a more reliable government.
A determination to rebalance growth-friendly investment must be attached to a new level of focus on understanding what is possible, where and how. Learning the lessons of the past and hardwiring evidence into decisions on regional policy (at all levels of government) could guard against poor value for money outcomes and policy chop and change.
Evaluations should be mandated across economic development programmes with an enhanced evidence base benefiting from cooperation between the nations and regions. This new service would send a signal that the UK Government is willing to step back from micro-managing and invest more in its strategic capabilities. More time spent building up and interpreting evidence that supports effective regional policy would mark a refreshing break with the mess and confusion of the past.
Where possible, the government should remove competitive processes that inhibit collaboration and innovation. Technology, defence and energy sectors share the frustration that competitive funding pots too often lead to the wrong solutions being pre-defined by government.
Open innovation processes allow government departments to work with industry across the UK on a problem to identify a broader range of solutions that could be more effective, better value for money and better geared for growth.
The new Strategic Defence Review4 is advancing this approach, and wider economic development support should follow suit and embrace the opportunities offered by recent procurement legislation.
The government should connect expanded access to finance with new regional institutions that have mandates with specific objectives around SMEs, start-ups and supply chains in line with the Modern Industrial Strategy. New ‘gap funder’ banks should explicitly seek to co-invest with venture capital to drive up investment in more regions. The aim should be to turn the UK’s enormous financial strength into visible, proud local institutions that are close enough to read the region and big enough to act at scale for SMEs. With expert board and executive teams – and a dedicated regional purpose – development banks could also connect energy, defence and tech opportunities to underserved local economies.
The London School of Economics’ (LSE’s) data-driven framework provides a model that connects comparative advantage and innovation strength with place and job prospects for investment decisions. Their model for clean energy industries and technologies should be applied to wider sectors.
This tool can support a consistent steer allowing ministers to link new opportunities with a just transition and a defence industrial strategy that truly ‘spreads prosperity’.
The tools outlined here draw from proven models, international examples and evidence of what works. They offer practical ways to break the cycle of policy churn and short-termism that has characterised previous attempts at regional policy.
A more reliable, capable and purposeful state is essential if the government is to succeed where others have failed in making regional growth a reality rather than a promise.
