Britain’s new Prime Minister Liz Truss has pledged to continue the government’s “levelling up” agenda, a set of ambitious policy proposals designed to transform the UK’s famously unequal economic geography. Three decades of EU cohesion policies, created for the continent with similar goals in mind, suggest that while funding is important, strong regional infrastructure is vital to tackle place-based inequality. This will be a challenge for the UK, which has one of the most centralized political systems in Europe. 

Striking a chord

Levelling up – a manifesto pledge to substantially reduce geographical economic inequality in the UK – took a back seat in this year’s Conservative party’s leadership contest, which was instead dominated by the cost-of-living crisis and competing visions of which policies would best serve to alleviate it in the short term.

This is unsurprising, given that after 12 years of center-right rule, the current combination of high taxes and low growth presents a frustrating contradiction to fundamental Conservative beliefs, which extoll the virtues of a small state, light-touch regulation and low taxes to enable a thriving economy and individual success.

Yet both Liz Truss and Rishi Sunak, the two final candidates in the race to succeed Boris Johnson, were asked during the campaign to affirm their commitment to tackling regional inequalities in the UK with new dedication and vigor, often followed by polite (and sometimes less than polite) invitations to spell out the detail.

The winner and new Prime Minister, Liz Truss, routinely obliged, stating, for instance, “What I want to do is make sure that everybody, regardless of where they live or where they come from, has the same opportunities across our country.” More specifically, she has said “I strongly believe that levelling up means broadening economic growth from beyond London and the South East and supercharging the North.”

Rishi Sunak, her defeated rival, who could nevertheless continue to play an important role in British politics, has equally blessed this ambition with “an unequivocal massive yes.” Both have been less forthcoming on the minutiae of the policy, at least in the context of the leadership hustings. But what is clear is that the theme seems to have struck a chord and is unlikely to go away.

“Stagnation nation”

That “levelling up” should resonate amongst the British public is borne out by the facts, best summed up in a recent assessment of the UK’s performance on economic productivity that makes for somber reading.

“Having almost caught up with the economies of France and Germany from the 1990s to the mid-2000s,” the Resolution Foundation reports, “the UK’s productivity gap with them has almost tripled since 2008 from 6 percent to 16 percent – equivalent to an extra £3,700 in lost output per person.”

As for the societal effects of this predicament, income inequality in the UK was higher than in any other large European country in 2018, with a particular impact on those at the bottom of the income ladder: “Low-income households in the UK are now 22 percent poorer than their counterparts in France, and 21 percent poorer than low-income households in Germany.”

The UK’s lackluster productivity has not only lagged behind other advanced economies since the global financial crisis of 2008 but also exacerbated the already considerable disparities in prosperity between UK regions and nations. According to the Resolution Foundation, in 2019, “income per person in the richest local authority – Kensington and Chelsea (£52,500) – was 4.5 times that of the poorest – Nottingham (£11,700).”

Disparities in productivity across UK regions are even more striking than those in income, especially compared with European counterparts. “[Gaps] between the leading city and potential high-performing others are greater in the UK than in peer countries such as France (…) London is 41 percent more productive than Manchester whereas Paris is 26 percent more productive than Lyon.”

In short, a failure to tap into the economic potential of the whole country has resulted in significant disparities in both productivity and income, resulting in immense variations in living standards, ascribing to the UK an outlier status on regional inequality when measured against other advanced economies in Europe.

The missing link

“Getting Brexit Done” and “Levelling Up the UK” were the two central election promises of the outgoing Johnson government. But the links between the two hardly featured in public discourse, with assessments of how they hang together confined to expert circles.

But hang together, they do. The EU spends more than a third of its budget on its Treaty-enshrined commitment to reduce regional economic disparities – i.e., levelling up – both between and within member states across the continent.

This commitment originally stems from a desire to counteract the risks of liberalization that came with the creation of the single market, risks that were exacerbated by the energy crises of the early 70s and two successive waves of EU enlargement. Against this background, EU cohesion policy developed a deeper political vision over the decades.

The vision, regularly re-affirmed at the EU level, was to counteract dangerous territorial imbalances, by ensuring that “all EU citizens, independently of where they live… have an equal chance of benefiting from the opportunities created by the unification of markets and of avoiding the risks [that arise from such unification].”

In the words of the Commission official long responsible for its implementation, “The idea is that the EU needs on the one hand sectoral and macro-economic policies and on the other hand a territorial development policy.” The term “cohesion” entered the Treaties in the late 1980s  through the Single European Act.

Standing to gain

The UK received around €11bn between 2014 and 2020, the last funding period of its EU membership, and stood to receive a further €13bn for the next seven years, had it remained an EU member – a rise that reflects both growing regional inequality in the UK (by one estimate, new UK regions were likely to have been qualified for the highest level of support) as well as of the EU’s renewed dedication in pushing for more regional cohesion on the continent.

Since its inception in the mid-1970s, the UK has received €76bn in funds from Brussels’s cohesion policies, which amount to €115bn in total when the requirement of matching domestic funding is included. The UK was indeed a net beneficiary throughout much of the 1980s until its support package decreased slightly after the 2004 wave of EU enlargement.

While the success of EU cohesion policy is notoriously difficult to assess, evaluations of the economic impact of EU cohesion funding in the UK are largely positive. Analysis from the University of Liverpool Management School points to “important achievements and genuine additionality” despite the influx of EU money equating to an almost insignificant amount of GDP. For instance, one evaluation of the 2007-2013 funding period pointed to the creation of 152,000 jobs and an increase of 0.1 percent of UK GDP.

Of equal importance to creating new jobs, according to the University of Liverpool, is the central role of cohesion funds in “driv[ing] local economic trajectories” in specific regions, such as in Liverpool, where EU funds have notably “mitigate[ed] the significant socio-economic decline that has taken place since the 1960s”. This comes in addition to prominent local regeneration projects, such as the King’s Waterfront, which comprises the Liverpool Echo Arena and BT convention centre, funded to the tune of £7 million from EU structural funds.

Well-defined…

So what can be made of the set of proposals designed to replace this form of regional support from the EU? Published in February this year, the UK government’s White Paper “Levelling Up the United Kingdom” in essence argues that geographical economic inequality can be countered by ensuring a more even spread of opportunity and investment across the UK.

The proposals – some of which will be enacted in legislation – are prefaced by a wide-ranging analysis of the roots and causes of inequality in the UK (“talent is spread equally across the UK while opportunity is not”) and why previous measures had failed (“short-term, lacked scale and coordination, hamstrung by a lack of data and effective oversight”).

It acknowledges that the UK has “larger geographical differences than many other developed countries on multiple measures, including productivity, pay, educational achievement and health.” And interestingly, “disparities are often larger within towns, counties or regions than between them. They are hyper-local and pockets of affluence and deprivation may exist in the same district.”

What also shines through the White Paper is a take on cohesion that goes beyond economic aspects, such as infrastructure and skills. Instead, there is a strong focus on intangibles, such as a need to “renovate the social and cultural fabric” of parts of the UK that have not shared its prosperity.

The proposals flag the power of innovation and ideas and they go to pains to stress the significance of social and institutional – in addition to financial capital as a prerequisite for the envisaged “virtuous circle of agglomeration.” Livability, then, is deemed as important as productivity.

The proposals have won some praise amongst UK think tanks for their ambition and comprehensiveness and for the government’s state-of-the-art approach to measuring success, which centers around the achievement of 12 clearly defined “missions.”

Incidentally, this approach is reminiscent of the EU’s Horizon programme, which adapted the concept of “missions” to steer its €100bn flagship Research and Development. The term has been borrowed from NASA’s Apollo program, which succeeded through focus and dedication in landing a man on the moon.

… but hard to deliver

Yet, unlike NASA in the 1960s, the levelling-up agenda is faced with a limited budget. As of now, the proposals will receive no new funding, with resources to be drawn from within the existing spending review, prompting accusations on the part of the Labour opposition that the government is not only “cobbling together recycled policies” but also “fiddling the figures.”

A closer look at these figures reveals the scope of the challenge. The UK, according to the Institute for Government, has seen local government spending decline by 15 percent since 2009. But the pain is not evenly spread. While the North East and North West of the country saw declines of 24 percent and 22 percent respectively, the South East, the UK’s most prosperous region, saw a decline of only 12 percent.

Against this background, meeting the objectives in the field of public transport, for instance, where the White Paper aims to bring local transport connectivity across the country “significantly closer to the standard of London” by 2030, will require staggering amounts of funding.

According to the IPPR, another think tank, from 2009-2019, the North of England received £349 per person, while London received £864 from the central government. Filling the gap, according to rough estimates, would cost £8bn over a decade. And improving transport is only one sub-section of 12 levelling-up missions overall. The Institute for Fiscal Studies points out additional difficulties in seriously costing the project, not least because the policy overhauls required across the board will also come with a price.

How vs. how much

The UK government plans to replace EU structural funds with a new UK Shared Prosperity Fund (UKSPF), which, according to the last spending review, will build up to around £1.5bn a year and “at least match current receipts from EU structural funds.”

More qualitative assessments of the impact of EU cohesion policies, however, point to significant effects of the previous EU-inspired scheme that, in terms of long-term impact, could be more important than funding.

At the heart of the EU’s cohesion policy are so-called Regional Operational Programmes agreed upon between Brussels and member states. These are managed on a seven-year funding cycle, require domestic co-funding and, crucially, require all strategic programming to be based on the “partnership principle,” meaning all levels of government, from EU to local, work together.

Against this background, the University of Liverpool points out that “[This] policy framework, often referred to as a system of multi-level governance, arguably provides sub-national authorities with increased opportunities to influence economic development policy at the European and national levels.”

According to this academic research, “the practices of managing funding [have become] embedded in domestic policy activities and governance structures” in the UK, leading to the question whether such partnership structures “will continue to be integral in any future domestic regional policy interventions.”

The end of the UK’s participation in the EU’s cohesion policy does not only mean potential changes to the amounts of regional funding (the UKSPF was launched in April but has yet to deliver).

More importantly, according to the University of Liverpool, it represents “the effective dismantling of a well-developed governance system of regional policy, built upon several key elements, including strategic partnership working, multi-level governance relations and transparent, long-term budget allocations.”

This reading is shared by former Labour Member of Parliament for Liverpool Riverside and former Leader of Lancashire County Council, Dame Louise Ellman. She points to the significance of regional structures successfully created in Liverpool, not the least for the purpose of administering EU cohesion funds: “Creating a structure that brought local government together with the private and voluntary sectors was essential in devising and delivering a successful regional strategy.”

The elephant in the region

The experience of three decades of EU cohesion policies in the UK highlights the need for an appropriate institutional set-up to make policies designed to tackle regional disparities work – in other words, a strong, political, regional infrastructure.

The White Paper acknowledges this, admitting that in the past, “local leaders also lacked the powers and accountabilities to design and deliver effective policies for tackling local problems.” Such an admission of the merits of devolution is significant, given the highly centralized nature of UK politics.

The White Paper indeed sets out a new devolution framework for England, aiming for regional structures to be “extended, deepened and simplified.” Above all, every part of England is set to get “London-style” mayors and powers if they so choose. The proposals have been welcomed by the Local Government Association, which is keen to “take forward a devolution deal.”

Yet, at the regional level, skepticism remains. The Heseltine Institute at Liverpool University, in an assessment of the government’s proposals, points out carefully that “while the commitment towards enhancing and stabilizing devolved structures across England is welcome, more work is required to ensure local and combined authorities have the tools and resources to develop local economies and establish the foundations for prosperity.”

And this is easier said than done. The UK has a long history when it comes to the search for appropriate regional structures that goes back more than 30 years. John Major’s reforms in the 90s, which established “Government Offices for the Regions” were followed by Tony Blair’s “Regional Development Agencies” as well as a number of Regional Assemblies.

Yet plans to strengthen these by devolving further powers from the Westminster Parliament were met with a resounding no in a 2005 referendum held in the North East of the UK, ending the “march of regionalism” in the English regions, according to one assessment. David Cameron’s approach of “Northern Powerhouses,” another initiative to reposition the UK’s economy away from London and the South East, was in turn stifled by his successor Theresa May.

Levelling up, then, is the latest ambitious attempt in this direction. While much of the debate centres on adequate funding as a prerequisite for success, experience from three decades of UK engagement with EU cohesion policies suggests that good governance and administrative capacity – in other words, strong regional political infrastructure and local government involvement – are at least as important when it comes to combatting regional inequalities that stifle people’s lives.

This long-standing, thorny and deeply political issue will have to be resolved if the new Prime Minister and her team genuinely seek to strengthen the foundations that offer everyone, no matter where they live, a chance to thrive.

About the author

Jake Benford works on Bertelsmann Stiftung’s Europe Programme, currently focussing on innovation and technology. He previously developed the foundation’s work on impact investing.

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