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The Budget must strengthen our regional economies to drive national growth

(Alamy)

Marcus Johns

Marcus Johns

3 min read

As the Chancellor puts the finishing touches to his Budget, he should look abroad for the key to building national prosperity: growing regional economies. They are the building blocks for prosperity. Other countries, especially in Europe, know this well. It has escaped us in the United Kingdom.

This Budget matters. Little time remains before the next general election to keep promises on levelling up. Too many places feel left behind in a UK riven with uneven development. We are the most regionally unequal advanced economy. Differences include incomes, opportunity, transport and life expectancy. Hindered by this, most regions cannot fulfil their economic potential. This explains our national underperformance. The whole country is being left behind as productivity, pay, and living standards fall behind our peers like France and Germany.

IPPR North’s recent State of the North report highlights that local government in England lacks powers, resources, and capacity to effectively support local economies, which collectively underpin the national economy.

Too many places feel left behind in a UK riven with uneven development

One example is how central government (mis)manages economic development through centralised command and control. Consider the Levelling Up Fund: Local authorities must compete for funds, despite being hamstrung by huge and ongoing cuts to their capacity. They are not treated fairly; rules were changed after councils submitted bids in the last phase. Local places are fighting unfair competitions over the kind of basic economic investment required in any advanced economy.

Low investment characterises our regions, especially in economic foundations like transport, housing and R&D. For example, the North received £515 per person less in transport spending than London in the last decade— amounting to £86bn. Meanwhile, transport investments that could support economic prosperity, like Northern Powerhouse Rail or HS2, are scaled back.

Divide-and rule-competitions, underinvestment, uncertainty, and broken promises do not promote regional growth.

A better path exists. We can learn from places around the world which offer lessons for success.

Germany was once split into two, with significant divides in living standards between them. Places like Leipzig in former East Germany declined, yet substantial investment and a national commitment to reduce regional disparities in living standards reversed this. Crucially, regional voices have been empowered in these efforts, including in shaping national policy. Significant devolved funding committed over 15 years allowed regional governments to deliver long-term plans for improvement. This contrasts with the UK’s short-term competitions.

In Leipzig, empowered leaders built on the city’s strengths, involving citizens and experts in renewing the local economy with new industrial clusters, investment and transport infrastructure. This changed Leipzig’s fortunes: It has achieved some of Europe’s fastest growth. Today, long-term job creation is 16 percentage points higher there than the North of England and average household income in former East Germany has overtaken the North.

Collaboration matters too. In Bilbao, public and private sector partnerships have driven cultural regeneration. Assets like land were pooled and co-ordinated to support this. Bilbao is now a hub of trade and business travel that contributes to the Spanish economy. While in Lulea, Sweden, national investment in decarbonisation and local infrastructure development aligned to drive a booming net zero economy and increasing investment into the town.

Standing up on Wednesday, the Chancellor can show that he has learnt from these examples, that empowering local leaders and decentralising long-term funding is the way to drive our regional economies, and in turn, national prosperity. He can choose to set the tone for a new relationship between central and local government in which he will show leadership by setting a new national mission to revive regional economies and equalise living standards for a more prosperous national economy.

Doing so is a better way to grow local and regional economies, delivering long-term, robust, and more resilient national growth.

 

Marcus Johns is a research fellow at IPPR North.

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