Missions Aspirational

You have to feel for Michael Gove. Rarely has a document been freighted with as much expectation as the levelling up white paper, which has been promised in one form or another since 2019. But even as the Department for Levelling Up, Housing and Communities was being given its new remit the spending shutters came down, ruling out new money – at least on the scale needed to radically alter hundreds of years of economic development.

Without new money the white paper sets direction rather than powering engines, though it does offer a few enticing hints of change. It promises, for example, to push devolution further and to bring some clarity and consistency to England’s idiosyncratic patchwork quilt of local government, and it celebrates the role of local policy-making. It even suggests that mayoral combined authorities and the Greater London Authority might bid for “sweeping further powers”, though it stops short of any significant transfer of fiscal powers.

And it does at least tell us what the government thinks “levelling up” is. At the core of the paper are 12 targets for 2030, heroically rebranded as “missions”. Advocates of mission-thinking as a way of galvanising action often point to John F Kennedy’s commitment to put a man on the moon by the end of the 1960s. Note that JFK didn’t make 11 other commitments at the same time. But most of these targets are laudable, even if the lack of detail on delivery makes them feel rather “aspirational”.

It is notable that most of them focus broadly on national improvements in social and economic conditions – job numbers, productivity and pay, violent crime, wellbeing, pride in place, school standards, adult training and home ownership – rather than explicitly on closing the gap between “LondonAndTheSouthEast” and other regions, which can of course be achieved by levelling up or by levelling down. Essentially the missions argue that all should rise together, though several qualify this by specifying that the worst-performing places should see the sharpest improvements.

Some targets are more explicit in their focus on narrowing gaps. Public transport across the country is to be “significantly closer to the standards of London” by 2030, which is a slightly ambivalent pledge given the cutbacks being considered by Transport for London in the absence of a long-term funding deal. It also does prompt a raised eyebrow – can other cities, let alone less densely populated towns, really support services like London’s?

The focus on narrowing the gap in healthy life expectancies also stands out, though the detail remains to be filled out in a separate white paper on health disparities later this year. In the meantime, the question of what geographies you use to judge success will be vital. As previously remarked here, the difference between places within the same borough can be every bit as stark as those between different regions.

There is a little more meat in the two economic missions. One pledges to improve pay, employment and productivity in every area of the UK – which should be good news for London, where productivity growth has stalled in recent years. The other proposes rebalancing public expenditure on research and development (R&D) outside the Greater South East. This could be one of the strongest measures in the white paper. Public spending on R&D is heavily focused on the “golden triangle” of London, Oxford and Cambridge, and there is a good argument that this concentration is failing on the grounds of economic efficiency as well as fairness.

Rebalancing investment to where it can make a real difference both directly and through attracting private investment rather than insisting it is spread evenly throughout the country, could make a real difference. The promise of £100 million for three new “innovation accelerators” in Greater Manchester, the West Midlands and Glasgow suggests that the need for focus is understood. Any switch of resources from London to other parts of the UK is likely to feel harsh, but a rebalancing of R&D spending is worth contemplating as a way of building up the knowledge economy in other cities.

Much less helpful is the white paper’s restatement of the government’s plan to divert funding for housing away from the areas of lowest housing affordability – that is, London and the South East. Doing so seems to fly in the face of its protestations that “levelling up is not about making every part of the UK the same, or pitting one part of the country against another. Nor does it mean dampening down the success of more prosperous areas”.

Less money for affordable housing in London is not likely to be good for London or the UK. London’s housing crisis is likely to worsen, with one of two results or a mix of them. Either the capital’s economy will suffer, with consequences for the rest of the country, or living in London will become more exclusive, further detaching the capital from the rest of the country. Investing to lever growth into other cities is a worthwhile endeavour. Removing support for infrastructure in places that most need it seems short-sighted and even spiteful.

Originally published by OnLondon.

Level 22

While we wait for the forever-delayed Levelling Up White Paper, a “levelling up mindset” is starting to take hold across Whitehall. Just before Christmas newspaper reports suggested that the latest Department for Work and Pensions review would explore whether pensions could be paid earlier in areas with lower life expectancy.

It is an intriguing idea. There are big differences in life expectancy across England. Between 2017 and 2019, a man born in Richmond-upon-Thames could expect to live in good health for nearly 72 years – almost 20 years longer than a man born in Blackburn. A woman born in Wokingham would have a similar advantage over one born in Nottingham.

But it’s a bit odd too. Faced with these yawning inequalities and the worrying fall in healthy life expectancy since 2014-16, you might think that addressing the causes of ill health and early mortality would be the focus of policy, not making sure everyone gets a comparable return on their national insurance contributions.

Allowing people to take their pension earlier in some parts of the country could also have strange consequences. Is a workforce that has been shrunk through early retirement really what economically disadvantaged places need? Would a wave of pension-seekers moving to northern seaside towns really act as a catalyst for revival?

But there is a bigger problem too. Health inequalities can be just as sharp within as between regions or even local authorities: data at “middle super output area” (MSOA) level show that in Kensington & Chelsea there is a 25-year gap in healthy male life expectancy between North Kensington and the area around Sloane Square. If we really want to target earlier retirement dates at those areas where people are likely to have least time to enjoy their pensions, should we not be looking at individual wards and MSOAs rather than large geographical areas?

Of course we won’t be doing that: such a system would be fiendishly complicated and deeply unfair to poorer people living in wealthier neighbourhoods. But it does highlight one problem with the levelling up debate. Health and other aspects of inequality are often presented in terms of geographies because we have good data collected on a geographic basis. But geography is not necessarily the primary issue, as anyone who has seen the wealth of the Vale of York or the poverty in north Westminster will attest.

This is not to say geography is irrelevant: the 2020 Marmot Review of health equity argued that, while life expectancy in richer places was pretty similar across the country, poorer places in London had better life expectancy than poorer places in the north. The review suggested that a mixture of economic and policy factors (particularly the impact of austerity) had hit northern areas particularly hard and had therefore widened the gap since 2010.

But the Marmot analysis is still comparing places – which in London contain a diverse mix of people, and may have become more mixed in recent years – rather than classes of people. Londoners on the poverty line may be only a block away from an artisanal coffee shop, but that may not help their health or other life chances.

There is research indicating links between income and health (for example, people in the poorest 10 per cent of households are ten times more likely to report poor health than people in the richest households), but it is more scanty. Most research on health inequality (and other forms) continues to use place as a proxy for a whole suite of characteristics that may offer or deprive particular people of opportunity.

My hope for 2022 is that we develop a more nuanced discussion of “levelling up”. I think this means southerners acknowledging that there are regional imbalances that do need addressing. I’d suggest that two of these are the need for investment in strategic transport schemes (rather than the apologetic bodge-job of the Integrated Rail Plan) and in research and development. But it also means that we shouldn’t make the mistake of assuming that every inequality is primarily regional in character when that may simply be a result of the basis on which we collect and publish statistics.

Originally published by OnLondon.

Level 21

There is an argument to be made for regional levelling-up, even in the pages of On London. Poverty and ill-health may be spread throughout the country, but the productivity gap between London and other UK regions and cities is wide and has been growing. In 2018, London’s workers generated an average of £46 per hour worked compared to an average for £32 for England’s other city regions. And that gap is wider than in most other European countries.

This productivity gap results in significant fiscal transfers from London to the rest of the UK – nearly £4,000 per head each year. Building higher productivity in other UK regions should, in the long-term, help rebalance tax and spending across the country, as well as improving the lives of citizens. As the Prime Minister said in his levelling-up speech this morning, making every UK region as productive as London would make a huge difference.

And there are ways of stimulating productivity outside the capital. One is to invest more in research and development (R&D) in universities outside the golden triangle of London, Oxford and Cambridge, as was recently recommended in a report for NESTA. Another would be to accelerate development of Northern Powerhouse Rail, connecting the major cities of northern England and complementing the north-south connections of HS2.

But there are at least two problems with this approach. One is cost. However much the PM asserts that “this is not a zero-sum” game, commitments cost money. Northern Powerhouse Rail would cost around £40 billion and levelling-up R&D spending would require about £4 billion extra each year. Both projects could generate significant returns in terms of productivity and tax revenues, but over the less electorally-helpful longer term.

That connects to the second problem, which is that both of these projects would directly benefit larger cities, helping to create and connect hubs of economic activity and growth in places such as Manchester, Leeds, Newcastle and Birmingham, which already have strong research universities. But few of these places vote Conservative in large numbers (the West Midlands is an exception, which may explain the choice of Coventry as the PM’s speech venue), nor is building their HE-led knowledge economy guaranteed to secure more votes.

The “red wall” votes that the PM is keen to shore up are from smaller towns, outlying areas, places that feel more left behind. It is true that if investment in cities was successful indirect benefits would spread much wider. Just as towns like Brighton and Basingstoke benefit from their proximity to London, smaller towns and cities clustered around the norther cities would gain.

There would be jobs directly created to support new city enterprises, commuters and hybrid workers spending more money locally, and new opportunities opened up so that, as the PM said, people wouldn’t have to move away from where they grew up (though speaking as someone who grew up in villages and small towns, I can tell the PM that getting away was my priority, not a terrible burden).

But I’m not sure the government is ready to make the case that urban investment helps everyone. The urban-dominated ‘Northern Powerhouse’ didn’t get a mention, nor did investment in R&D, nor did major rail infrastructure. Instead we had a breathless litany of initiatives – Football pitches! New roads! Cycle Lanes! Hydrogen! Will Jennings and colleagues recently described this as “governing as political spectacle”, committing to projects that make a quick, visible and maybe superficial difference, rather than a longer-lasting and systemic one. We’re back to Tony Blair calling, in a leaked memo, for “eye-catching initiatives with which I can be personally associated.”

It was positive that the speech turned to devolution and local leadership towards the end, though galling to hear the PM complain about how centralised the UK is, given how Sadiq Khan has been treated in recent months. It sounds like the forever-delayed Devolution White Paper may yet inform the Levelling Up White Paper expected in the autumn – though talk was of county-level devolution deals where local leadership aligned with government objectives, rather than a new settlement between the centre and localities.

Levelling-up itself remains elusive. There were nods to closing the productivity gap in the PM’s speech, but too much was given over to a generic but worthy list of ways to make places and people’s lives better across the country. These are important, but while they may mitigate regional imbalances, they don’t really address them. We’ll have to wait for the White Paper to see how the PM’s levelling up plans balance the serious and strategic, with the superficial and electoral.

First published by OnLondon, 15 July 2021.

‘Levelling-up fund’ is thin and cynical

Five days after the 2021 Budget, are we any clearer what “levelling up” means?

One thing is clear. It doesn’t mean investing to tackle London’s problems, even after the damage done to the capital by the pandemic. Only two of London’s boroughs (Newham and Barking & Dagenham) are included in the priority tier of local authorities eligible for the new £4.8 billion Levelling Up Fund. The three prioritising ‘place characteristics’ set out in the Fund’s Prospectus could have been designed to exclude the capital:

  • Need for economic recovery and growth;
  • Need for improved transport connectivity; and
  • Need for regeneration.

It’s not yet clear how these are quantified and compared (or precisely what “regeneration” means), but the first two work well enough to rule out London, which is distinguished by a persistent mixture of dynamism and deprivation alongside an enviable transport network. Boroughs like Westminster and Tower Hamlets have intense poverty among their residents, but also have three times the economic output per head of the UK as a whole, and twice that of other big cities like Manchester, Belfast and Edinburgh.

So this is not a fund for London, or for investing in the needs of people rather than place. And there is a case to be made for that: even London’s most fervent advocates would recognise that there are places in the UK that urgently need investment in connectivity and economic activity. You could even see a precursor in Michael Heseltine’s City Challenge programme of the early 1990s: selecting and investing heavily in a few urban centres, following a bidding process, which would in turn power up new enterprise and opportunity around them.

But that doesn’t seem to be how this Fund will be applied. The prospectus invites local authorities to submit one bid each for up to £20 million (£50 million in exceptional cases for big transport projects). Twenty million is a substantial sum, but hardly transformative – and significantly less than was allocated to City Challenge bidders 30 years ago, when 20 cities received £37.5 million each (around £72 million in today’s money). Assuming £2 billion is handed out in the first round, this would enable 100 bids to be funded. It looks as if spreading the jam wide and thin is the priority.

This may also explain the variety of places in the priority tier. It includes most major city centres (apart from London and also struggling smaller cities like Sheffield, Plymouth and Portsmouth). But it also comprises “Red Wall” marginals and prosperous suburbs and rural areas such as Richmondshire (I suspect to the Chancellor’s embarrassment), Lewes and Trafford.

Poverty is not confined to the inner cities, but not every smaller town and rural area is struggling either. Some lack economic powerhouses and transport hubs, but nevertheless have prosperous populations of commuters and retired people. You can see the government’s problem here: it is hard to distinguish struggling from successful smaller towns without giving a higher weighting to deprivation measures, and  doing that would have pushed the focus back towards London and the other big cities.

The language of the prospectus seems to fudge things further. It makes a very tentative and non-economic case for infrastructure investment:

“Investing in infrastructure has the potential to improve lives by giving people pride in their local communities; bringing more places across the UK closer to opportunity; and demonstrating that government can visibly deliver against the diverse needs of all places and all geographies.”

Elsewhere, the prospectus talks about funding projects that “bring pride to a local area”, about “infrastructure that has a visible impact on people and their communities”. It starts to sound as if the purpose of the fund is performative. It aims to give the appearance of activity and impact in the next three years, redeeming the electoral promise made to “Red Wall’ constituencies, rather than seeking any lasting change, let alone the type of economic rebalancing that has evaded ministers for decades.

Either I’m being deeply cynical or the Levelling Up Fund is. There’s no sense of strategy, of how “levelling up” might be achieved, or even of what it is. A bold government could focus a critical mass of investment on the places and projects that could maximise prosperity and opportunity, or it could hand funding over to local politicians to allocate in line with local priorities. Instead, we have the continuation of centralised munificence, infrastructure investment by supplication.

The Mayor of London and borough leaders have expressed anger at how the Levelling Up Fund has ignored London’s needs. If I was leader of a northern city, I might be angrier still.

[First published in OnLondon, 7 March 2021]

Property taxes need reform, but changes must be fair to Londoners

Britain’s domestic property taxes are in a terrible state. Council Tax bands are still based on house valuations made in 1991, and the 30 years since then have seen huge variations in house price growth between different places and properties. Stamp Duty is a tax raised on people when they move house, which has the effect of gluing up the property market and of encouraging people to stay for longer in homes that are too big or too small for them. What can be done to change this unsatisfactory situation? And what might the implications be for London of any major reforms that might be tried?

One idea that has been gaining currency in the run-up to the budget is flat rate property taxes, with home-owners paying a set proportion of their property’s value each year. Research by WPI Economics suggests that a tax of 0.48% of values could generate enough revenue to replace both Stamp Duty and Council Tax. And the Fairer Share campaign suggests that such a tax would leave 76% of UK households better off.

Property value taxes have a lot to recommend them (as do more ambitious proposals, such as land value taxes, and more modest reforms, such as new Council Tax bands). They are a lot more progressive than other taxes: Council Tax for the most expensive properties is only three times the rate it is for the cheapest properties, whereas property prices can vary by a factor of more than 100.

There would be issues with implementation: for example, transitional measures would be needed to avoid “cash-poor” owners of larger houses being hit by such a dramatic hike in taxes that they might be forced to sell in a hurry. But there’s a bigger problem for London. Levying property value taxes nationally at a flat rate would represent a massive shift of the tax burden onto London from the rest of the UK. The Fairer Share website suggests that communities outside London would pay £6.5 billion less in property taxes. As their proposal is intended to be fiscally neutral overall, that means London would pay £6.5 billion more.

Such a shift may have populist appeal at a time of “levelling up” (though maybe not for the many Conservative MPs in London and the south east whose constituents would suffer), but it ignores the fact that Londoners are as much victims as beneficiaries of high house prices. Incomes in London are higher than in the rest of the country, but they are much closer to the average once housing costs are taken into account. And low-paid Londoners, who earn little more than counterparts elsewhere, are already particularly squeezed: London has the highest rates of child poverty in England.

Adding £100 a month to Londoners’ tax bills (in line with the “capped” Fairer Share proposals) would drag incomes in the capital below the national average, even before other costs of living were taken into account. On top of that, Londoners will be struggling in the wake of a pandemic that has hit the capital hardest: in December 2020 London had seen the steepest rise in benefit claims of all the UK’s nations and regions, and had the second highest rate of claimants (after the West Midlands).

There is still a case for tax reform, and the budget would be a good opportunity to announce a careful review. But, as the London Finance Commission (set up by Boris Johnson and reconvened by Sadiq Khan) argued, this should take place on a regional basis, not through nationalising local taxes. The overall fiscal flows between different parts of the country could be preserved (perhaps with a review every few years to take account of how different regions have prospered), while different regions could set property taxes that reflected the specifics of their housing market – with different Council Tax tiers, flat rate taxes, or exemptions and discounts applied to reflect local economic circumstances.

And this is not to argue against London paying a fair share to the rest of the UK. London’s taxpayers made a net contribution (taxes minus public spending) of nearly £40 billion in 2019. And that’s fair: London has more productive businesses, high-spending tourists and rich residents – or at least it did in pre-pandemic times. But squeezing the capital further, as the UK struggles to recover, would look extractive, blinkered and self-defeating rather than fair. 

[First published in OnLondon, 28 February 2021]