“Woefully Inadequate” UK Regional Policies Have Worsened Inequalities – We Must Learn From Past Mistakes

7 min read09 June

Why has Britain never managed to spread its growth outside of London? Professor Ron Martin explains what holds us back, and what needs to be done

The UK has long had a problem of regional inequality, most starkly between a prosperous and dynamic London region and less buoyant areas in the North and peripheral regions. These disparities widened in the 1920s and 1930s, a period marked by intense economic upheaval and transformation, which prompted the first regional policies.

Yet after almost 100 years of various regional policies, today’s geographical inequalities are more severe than in the inter-war decades. In 1921, for example, GDP per capita in London was 37 per cent above the UK average, while in northeast England it was 27 per cent below. A century later, in 2021, London had increased its GDP per capita to 86 per cent above the UK’s average, while in the north east it was still 23 per cent below. So why, despite nearly a hundred years of regional policies, have geographical socio-economic inequalities not narrowed but increased?

A recent British Academy report on the history of regional development policy over the last 100 years revealed a number of recurring factors that have repeatedly undermined the effectiveness of UK regional policy. Regional policy has invariably been treated as a marginal “‘add-on’” to mainstream macro-economic policy and management, rather than as integral to and necessary for the success of the latter. And crucially, governments have rarely considered how broader, national policies can have counter-regional effects and actually increase regional inequalities. Only limited progress has been made in HM Treasury’s green book in assessing the geographically uneven impacts of ostensibly “non-spatial’ policies.

Excessive churn, instability and incoherence creates an unattractive policy landscape for long-term investment

At the same time, the resources devoted to the problem of regional economic inequality have been woefully inadequate given the scale of the task. Further, the impact of regional policy has been undermined by the incessant churn of measures and institutions as successive governments have repeatedly abandoned or changed one set of policies for another.

In recent times, for example, the Regional Development Agencies established by the Labour government in 1999 were abolished by the Conservative-Liberal Democrat government in 2010, to be replaced by a new system of Local Enterprise Partnerships. These, in turn, have since been abolished.

Since the financial crisis of 2008-09, consecutive governments have trialled several new forms of regional policy, including the promotion of a “‘northern powerhouse”’ of northern cities, High Speed 2, the introduction of selective City Deals, the devolution of certain powers to new mayoral combined authorities, and the Levelling Up White Paper and Regeneration Act.

The new Labour government has denounced the levelling up programme as a "gimmick", favouring instead the rolling out of combined authority devolution more widely across the country as well as creating a number of new Investment Zones and Digital Data Centres. At the same time, it is supporting several major economic developments within the already prosperous London-Oxford-Cambridge ‘Golden Triangle’, including the Cambridge-Oxford Arc, a third runway at Heathrow Airport, the Lower Thames Crossing, and a new Universal Studios theme park in Bedfordshire. Whether all this will promote greater spatial economic balance is debateable.

Of course, policies have to change as economic conditions and circumstances change and new opportunities for investment arise. But excessive churn, instability and incoherence create an unattractive policy landscape for long-term investment by businesses or strategic long-run planning by local government authorities. The repeated shifts in regional policy highlight a deeper flaw in past approaches: the absence of a clear and widely agreed-upon spatial vision for the national political economy – a shared understanding of how the country's economic activity should be distributed geographically. Without such a guiding vision, terms like "spatial rebalancing" or "levelling up" lose their meaning.

In fact, there has long been a view that giving special treatment to economically vulnerable cities and regions across the UK could divert key resources away from the London region, widely argued to be the UK’s growth engine. The London region has long exercised an overwhelming, self-serving influence on national economic policy and governance. Indeed, the UK is one of the most centralised of the advanced countries in terms of the concentration of economic, financial and political power in its capital city, and this has repeatedly militated against any real political commitment to securing a more spatially balanced economy.

There are important lessons to be learned from past regional policy mistakes, and addressing them has never been more urgent, given the challenges and opportunities currently facing the national economy. The UK’s political economy stands at a transformational moment in its development. A succession of major shocks – the global financial crisis, Brexit, the Covid pandemic, the energy crisis, and now the threat of a destabilised global trading system has exposed the differential economic vulnerability of the country’s towns, cities and regions.

Moreover, the AI revolution and the transition to a net-zero carbon economy together represent major challenges but also transformational opportunities for economic revitalisation and prosperous growth. There is a pressing need to improve the UK’s resilience and adaptability, and regional policy will play a critical role in transforming these challenges into opportunities.

The growth potential of the UK’s regions, towns and cities must be brought centre-stage into macro-policy making, to support and achieve national economic goals and to ensure that no region is left behind in the ongoing transition. After all, some 62 per cent of the UK’s GDP is created outside London and the surrounding southeast. While reviving London’s economic growth is obviously vital, so too is the need to raise the growth rate of the other regions. In this regard, what do the three pillars of the current government’s agenda for national economic growth imply for the regions?

The growth potential of the UK’s regions, towns and cities must be brought centre-stage into macro-policymaking

According to the industrial strategy green paper, the current government aims to “unleash the full potential of our cities and regions” by focusing efforts on “places with the greatest potential for our growth sectors: city regions, high-potential clusters, and strategic industrial sites”. More details await in the imminent white paper, but it will be critical that the focus on “places with the greatest potential” does not end up promoting a few select cities and regions while ignoring the many areas that desperately need their potential to be nurtured and developed.

The reform of planning rules is certainly overdue and could unlock growth across the UK – but it risks favouring the London-Oxford-Cambridge ‘Golden Triangle’, where there is considerable demand for more housing and as well as land constraints on economic development. The English Devolution White Paper promises new mayoral combined authorities across England “the tools they need to grow their sectoral clusters and improve the local business environment through ambitious local growth plans”. However, devolution, while necessary, is not of itself sufficient to secure a spatially balanced economy. That will require close coordination between central and local authorities, with central policies that support regional and local growth everywhere, and local devolved growth strategies that are aligned with central macroeconomic objectives.

We must learn from the mistakes of the past. A bold commitment to a fully polycentric economy is needed, based on a nationwide system of major centres of economic, fiscal and developmental power. We need a system that finally de-centres the economy away from the monopolistic grip of London, giving equal priority to building sustainable growth in every region of the UK.