You hear the phrase ‘levelling up’ virtually all the time within British politics, and for good reasons. Not only do analyses consistently suggest that Britain is one of the most geographically unequal countries in Europe – with rich, Southern cities like London absorbing a massively greater share of investment than the deindustrialised North – but the average level of prosperity is not so good either. Economic conditions of the past decade have dealt a serious blow to British living standards, all thanks to a hellish combination of stagnating productivity, low growth and inflation. To give an idea, a Centre for Cities report identified that the average Brit would be as much as £10,200 richer today had income growth remained in line with pre-2010 levels.
Prime Minister Rishi Sunak thinks he knows the answer to all of this: pour £13 billion into Northern infrastructure and businesses, in an effort to produce jobs and vitality, and problem solved. Sadly, it is not so simple.
First, a chronic lack of enterprise plagues the North of England. The most business-dense part of the country, London, has twice as many enterprises per capita as the least business-dense part: the North-East. Figuring out how to stimulate business activity therefore should form an integral part of any levelling up strategy. But will the Prime Minister’s vision accomplish this? The experience of other countries suggests, probably not.
All we need to do is cast our eyes on Italy. After the Second World War, to combat enormous regional inequalities, Italy pursued very similar policies, transferring vast resources from the rich North to the poor South, amounting to about 1% of the nation’s GDP, every year from 1951 to 1992. By 2020, regional inequality had in fact widened, not fallen – as it turns out, shielding firms from competition through subsidies as well as guzzling money into inefficient infrastructure projects is no recipe for prosperity. Exemplary of that is Italy’s HS2-esque 440 kilometre freeway connecting Laino Borgo and Reggio Calabria, both in the South of Italy, hailed at the time of construction as a solution to economic stagnation. In the long run, the freeway has had no discernible impact on local growth.
What is more, proponents of levelling up have consistently neglected the bureaucratic monstrosity that is the British planning system, which has inhibited the construction of around 4.3 million homes since 1955. What is needed to truly level up the UK is to deregulate the planning system and permit a construction boom. This will perform two vital functions for levelling up.
To begin with, it will undo enormous economic constraints on our urban economies. By sustaining such expensive homes, the planning system makes moving into the cities much harder. As workers cannot afford to reside in locations where they would be best able to fill job vacancies and enhance productivity, the economy suffers. The effect of this can be catastrophic. Economists Chang-Tai Hseih and Enrico Moretti found that, from 1964 to 2009, immobility of labour alone constrained aggregate economic growth in the US by an astounding 36%. The North has struggled to adjust economically following the collapse of manufacturing and a country-wide economic shift towards services. Policies for meaningful deregulation should include devolving zoning regulations to local governments to allow more regulatory flexibility, rules stating that buildings complying with codes must be granted planning permission – expanding the existing system of Permitted Development Rights – and reducing the total area of protected greenbelt land.
Second, affordable housing should also have a profound socio-economic effect on the most disadvantaged in our society. The poverty rates in the North are well over 20% for most counties. But, when housing costs are removed, those rates fall by an average of 3.8%. Child poverty tells an even more depressing story – once housing costs are included, we find that, between 2014 and 2019, the Northern regions of England led the country in rising poverty levels among children, with the North East seeing as much as a 10% increase. The pandemic and subsequent cost of living crisis will have made the situation even worse. By reversing exorbitant housing costs through planning deregulation, we could make great strides towards alleviating some of the most pressing socio-economic issues within the UK, and in the North in particular. If that is not the point of levelling up, I do not know what is.
It is popular for pundits and politicians to prescribe government spending as a means of closing the vast gap between the English North and South; this characterises the current Government’s approach, but it fails to recognise the deep and abiding economic distortions produced by our planning system that are clearly holding back England’s most deprived areas.
Eben Macdonald is a first year PPE student at Durham University.
Views expressed in this article are those of the author, and not those of Bright Blue.
