Is Britain levelling up?

Burnley, an hour’s drive north of Manchester, was once a thriving textiles hub. An imposing town hall recalls its Victorian success. But Burnley’s population is lower today than it was in 1900; wages are a quarter below the national average. The government has designated the area a priority for “levelling up”, its programme to close the wealth divide between the south-east of England and other regions.

In 2021 Burnley received £20m ($25m) from the first set of levelling-up grants, money intended to finance local regeneration projects. The funds were for refurbishing a derelict mill for university buildings, tidying up the road from the town centre to the football stadium and building a train-station footbridge. The first two projects are due to wrap up soon.

The redeveloped sites look handsome. The town centre feels prosperous. But beautification is not an economic-development strategy, as Burnley’s local council leader, Afrasiab Anwar, admits. “I don’t think it’s real levelling up, but we do the best we can with what we’re given,” he says.

Levelling up was one of the central themes of the 2019 general election. The Conservatives thumped to victory under Boris Johnson by promising to get Brexit done and to close the stubborn inequalities between Britain’s regions. Boosters hoped that levelling up would redraw the political map, by yanking worse-off areas away from Labour for good, and rev up growth. Almost five years and three prime ministers later, how has it gone?

If anything, the economic disparities between regions have widened. Output, employment and productivity growth over the course of this parliament will have all been higher in London than any other part of England, according to forecasts by the National Institute of Economic and Social Research, a think-tank (see chart 1). The Midlands have fared especially poorly; the energy-price shock after Russia’s invasion of Ukraine hit its manufacturing sector hard. Attention has also ebbed away from levelling up in Parliament, in boardrooms and with the public. Tory hopes of a political realignment have faded: seats in the north of England that flipped to them in 2019 are likely to revert to Labour.

Reversing decades-old economic trends was never going to happen in a single parliament, even without a pandemic. But even so, the reality has fallen well short of the rhetoric, for several reasons. The first is the piddling amount of cash doled out. Huge transfers are already built into the structure of the British state: London and the south-east pay 37% of tax revenue, but are the recipients of just 28% of state spending. The levelling-up funds contained just £10.6bn ($13.2bn, 0.4% of GDP), spread over around five years. Annually, that costs less than lopping a third of a penny off income tax.

The second problem has been the government’s way of administering funds. One reason a country like Germany does well at dispersing growth is its robust federal structure; Britain, in contrast, is heavily centralised. The Tories have done some useful things in this regard. Their biggest long-term contribution to levelling up may prove to be the introduction of regional mayors. The government has sensibly given some of them greater flexibility over how they spend money they get from Westminster; Andy Burnham, the mayor of Greater Manchester, has gained control of the local bus network.

But Britain’s levelling-up department insisted on dispensing cash through a series of bidding beauty contests, for which councils paid consultants hefty fees to design persuasive slide decks. Mr Anwar, the council leader in Burnley, calls it “bidding bingo”. The government now says the overemphasis on bidding was an error; newer funds, like a £1.5bn long-term plan for towns, give local areas more control.

The parliamentary public-accounts committee has meanwhile called delays on levelling-up projects “astonishing”. Of the 71 projects from the first levelling-up fund due to have finished spending in the 2023-24 fiscal year, 60 have so far said they are running late. These schemes were advertised as “shovel-ready” but have struggled to secure planning permission and navigate shortages of workers and materials.

A third issue is that the government’s plan has been scattershot. Britain’s big regional problem is the underperformance of its second-tier cities. It is just about the only rich economy where, London aside, more densely populated areas aren’t any more productive than less densely populated ones. Most Britons live in or around a big city. Britain’s most successful industries are high-value tradable services like consulting and education, which thrive in cities. All of which explains the government’s (wildly unrealistic) goal of a globally competitive city in every region.

But emphasising cities is politically tricky. It requires accepting that the same policies cannot both boost growth and revive the worst-off areas, many of which are in smaller towns. So the government has tried to have it both ways, spreading small pots of funding widely and reducing the chances of making a big difference.

Transport is the obvious example. A paper by Anna Stansbury of the Massachusetts Institute for Technology and her co-authors fingers poor transport infrastructure as a big constraint to growth outside London. European cities tend to have effective public transport; American cities tend to have good roads. British cities frequently have neither (see chart 2). Connections between cities are also needed, particularly in the north of England. But Rishi Sunak’s biggest infrastructure decision was to truncate the High Speed 2 rail project just north of Birmingham.

The Labour Party says it will ditch the term “levelling up” if it takes office. But if it knits Britain’s second-tier cities together more effectively and gives regions more autonomy, a potent political idea might take on more economic substance. ■