The UK ranks at or near the top of the international league table
on most economic measures of inequality between regions. The
government has pledged to tackle these inequalities by ‘levelling
up’ left-behind areas.
There is a danger that the end of the Brexit transition period
this year could make this harder. While it is not possible to say
which areas will be hardest hit without knowing the shape of any
eventual deal, it is already clear that areas dependent on
manufacturing, and with higher concentrations of less-educated
workers, such as the North of England, South Wales and the West
Midlands, will be highly exposed to any economic disruption
related to Brexit.
By contrast, there is no systematic relationship between the
areas that are most left behind on measures such as pay,
employment, education and disability and the areas that have
experienced the worst short-term economic impacts from the
COVID-19 pandemic. This means that the most natural areas to
‘level up’ are not, in general, the same places that the Prime
Minister might wish to target when ‘building back better’
post-COVID.
These are among the findings of new research from the Institute
for Fiscal Studies, available today as a pre-released chapter of
the 2020 IFS Green Budget (produced in association with Citi and
with funding from the Nuffield Foundation).
The report also finds that:
-
There is no one definition of being ‘left behind’, but
the government will need to put forward its own definition in
order to prioritise funding. Our index, which combines
pay, employment, formal education and incapacity benefits,
picks out many of the areas that are often used as examples,
including large towns and cities outside of London and the
South East, former industrial regions (including much of the
Red Wall), and coastal and isolated rural areas.
- While the local authorities facing the worst short-term
economic effects from COVID are generally not those that were
already ‘left behind’, there are exceptions. A number of
hospitality- and tourism-dependent coastal communities
(such as Blackpool, Great Yarmouth and the Isle of Wight),
and the centres of some Northern and Scottish
cities (such as Liverpool, Newcastle, Glasgow and
Dundee), face the ‘double whammy’ of being both
left behind and vulnerable to the immediate economic
fallout from the pandemic.
-
Some areas of public spending – transport and R&D,
for example – are heavily concentrated in London and the South
East. For example, transport investment spending per
head in London over the past five years was 2.8 times higher
than the average for the rest of the UK. Closing some
of these gaps between regions could be beneficial and
contribute to ‘levelling up’. But this does not mean that the
Chancellor should take a literal approach to equalising
spending across regions.
-
The Chancellor should avoid focusing all his attention
on investment spending; spending on day-to-day services, such
as schools and further education, may be as, if not more,
effective. He should pay particular attention to the
important role for local governments in ‘levelling up’, and
back this up with adequate funding.
-
There are currently at least eight place-based spending
schemes in England with different objectives and areas of
focus. Decisions over the future of several of these
are required in the near future, including on a replacement for
EU structural funding and Local Growth Deals, for which current
funding shortly comes to an end. Rather than reinventing the
wheel, the government could seek to build on these existing
schemes, and develop a broader strategy around how they fit
together.
Alex Davenport, a Research Economist at IFS and an author of the
research, said:
‘The challenges faced by disadvantaged coastal communities like
Blackpool and Margate are very different to those faced by
isolated towns like Merthyr Tydfil, which are in turn different
to those faced by large post-industrial cities like Glasgow. The
government needs to set out what it intends to achieve through
“levelling up”, where it wants to target support, and how. This
already complex and difficult task will only be made more
complicated by Brexit and the COVID-19 crisis.’
Ben Zaranko, a Research Economist at IFS and an author of
the research, said:
‘This year’s Spending Review would be a natural place to start
fleshing out some of the detail of the government’s much-vaunted
“levelling-up” agenda. Closing some of the gaps in spending on
transport and research & development between regions might be
beneficial. But for many areas, greater funding for things like
schools, further education and local government could be more
effective.’
Mark Franks, Director of Welfare at the Nuffield
Foundation, said,
"Successive governments have struggled to translate aspirations
to alter the distribution of growth and prosperity across the UK
into economic or social reality. The impact of Brexit and Covid
only adds to the difficulty and complexity of this task by
exacerbating some existing inequalities and bringing new ones to
the fore. This means it is vital that the levelling-up agenda is
supported by the development of a clear strategy and the use of
robust evidence, and the IFS Green Budget makes a vital
contribution in those respects."
