Getting serious about levelling up

LONDON — Earlier this month, British Prime Minister Boris Johnson gave a speech in Coventry about what seems to have become his signature policy initiative: “Levelling up” the local and regional economies that have increasingly fallen behind that of London and the United Kingdom’s southeast.

Having previously chaired the independent commission that gave rise to Prime Minister David Cameron’s Northern Powerhouse plan, I remain heavily focused on the same goal. The original commission had looked into the disjointed pattern of urban growth across the UK. After we released our recommendations, I was invited by Cameron and then-Chancellor George Osborne to serve as the Northern Powerhouse minister in the Treasury; and since leaving government in 2016, I have been a vice chair of the independent Northern Powerhouse Partnership.

Moreover, I recently became the chair of Northern Gritstone, a new private “patient capital” firm that will invest in start-ups emerging from northern English universities, primarily (but not limited to) those of Leeds, Manchester and Sheffield. While these institutions regularly rank among the top 200 in the world, they are located in low-productivity areas that suffer from a scarcity of fast-growing, high-earning businesses. That means there are ample opportunities for investment.

In his speech, Johnson alluded to a forthcoming white paper on his government’s plans for levelling up. If and when that document comes, one hopes that it will offer a clear definition of success and a coherent strategy for achieving it. As Johnson noted in his speech, the gap between the UK’s most and least prosperous areas has been growing. “It is an astonishing fact,” he observed, “that 31 years after German unification, the per capita GDP of the North East of our country, Yorkshire, the East Midlands, Wales and Northern Ireland is now lower than in what was formerly East Germany”.

Though Johnson can reel off many powerful examples to illustrate the UK’s shocking inequalities, his proposals for solving the problem are less impressive. Based on what we have seen, it is hardly surprising that so many commentators are skeptical.

Obviously, nobody opposes the basic idea of “levelling up” the UK economy. The question is how it will be done, and how progress will be measured. Is Johnson’s government focusing merely on per capita GDP, with victory to be declared when people in the northeast are earning as much on average as people in London?

This would not do, because, as Johnson notes, large parts of Greater London have also fallen dramatically behind the capital’s more successful areas. If levelling up is to be achieved without levelling down anyone else, boosting per capita GDP across Greater London would create an even larger gap between London and the northeast.

Further complicating matters is the issue of living standards. There are massive differences in house prices depending on where one looks. Residents of the southeast, notably of places like Cambridge, may pay so much for housing that their real disposable incomes are below those of others who earn less elsewhere.

Instead of targeting only per capita GDP, perhaps the government could focus on life expectancy. Some of Johnson’s most vivid anecdotes highlight the shocking geographical differences in how long people typically live. But it is unclear how, precisely, this public policy would target this metric.

In any case, given that the same party that controlled the previous two governments, including the one that introduced the Northern Powerhouse plan, is still in power, allow me to share what I think the forthcoming white paper should spell out. First, the government needs to explain how it will measure progress and success. In my view, a better choice than per capita GDP would be regional productivity, because this both correlates strongly with per capita GDP and captures a range of other desirable social objectives.

I would also like to see the Johnson government link its goals to those of its predecessors and offer a foundation upon which future governments can build. In one of Johnson’s earliest speeches as prime minister, he announced a plan to introduce a “Northern Powerhouse Growth Board”. But this ambition has apparently vanished; in fact, the words “northern powerhouse” did not appear even once in his latest speech.

Similarly, while Johnson and his ministers have previously spoken with gusto about introducing Northern Powerhouse Rail, that project was not mentioned, either, even when the speech touched directly on infrastructure and trains. That omission would seem to confirm rumors that the government is abandoning the NPR project, just as it did the growth board.

Johnson also appears suddenly to be favoring small towns rather than big urban areas. This might be politically expedient, but it will not necessarily help to improve national performance. If levelling up the UK economy is the objective, the government will need to bring all regions’ productivity up to the same level as London’s. Here, it could consult the recommendations of the 2013-14 RSA City Growth Commission, which examined urban areas with at least 500,000 inhabitants.

A final crucial factor is education. Johnson listed many failures in this domain, and it is the area that most economists would put first in a strategy to achieve sustained productivity growth and socioeconomic fairness. But the government’s ambitions seem to be limited to advocating academies, government-funded independent schools and recruitment of better teachers. It is blatantly obvious to everyone who works in, or relies on, the education sector that much more is needed to help left-behind areas.

Let us hope that the coming white paper offers a proper policy framework, with targets for which the government can be held to account. To level up the UK economy, Johnson must first level up rhetoric and substance.

Jim O’Neill, a former chairman of Goldman Sachs Asset Management and a former UK treasury minister, is chair of Chatham House and a member of the Pan-European Commission on Health and Sustainable Development. Copyright: Project Syndicate, 2021. 

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