Arguing for more balance in how money is allocated across the country does nothing to tackle the varied challenges different places face in improving their economies.
Much of the criticism that is levelled at the Treasury’s Green Book starts from a position that public sector investment is unfairly allocated across the country, with critics arguing that it skews money towards the Greater South East. Centre for Cities latest report shows that the Green Book doesn’t do this. But even setting this to one side, there’s a bigger conceptual problem with the argument, and it’s this: having more equal levels of spend across different siloes would widen economic divides.
Those arguing that there is systemic underinvestment in the north of England usually use transport infrastructure spend to illustrate their point. The figures are certainly eye catching. But even putting the very large health warnings around the data to one side, there’s a more fundamental problem with the analysis, which is the assumption that more investment in transport infrastructure will lead to more growth.
To see why this is a problem, consider spending on flood defences. Now no one argues that central Manchester, say, should get the same amount of money for flood defences as the Somerset Levels. And the reason for this is clear – the two places have very different topography. Spending more money in Manchester city centre on flood defences and reducing it in the Somerset Levels would make no difference to the former and likely hurt the latter.
A similar approach should be used for economic development spending. We should not start with the principle that everywhere should get the same on transport, skills and housing, say, but instead start with the following question: What are the fundamental challenges a place faces, and what should be done to address these barriers? In some places the answer will be transport infrastructure investment. But in many places it won’t.
To see why this is a problem, consider spending on flood defences. Now no one argues that central Manchester, say, should get the same amount of money for flood defences as the Somerset Levels. And the reason for this is clear – the two places have very different topography. Spending more money in Manchester city centre on flood defences and reducing it in the Somerset Levels would make no difference to the former and likely hurt the latter.
A similar approach should be used for economic development spending. We should not start with the principle that everywhere should get the same on transport, skills and housing, say, but instead start with the following question: What are the fundamental challenges a place faces, and what should be done to address these barriers? In some places the answer will be transport infrastructure investment. But in many places it won’t.
For example, transport infrastructure in the North East of England is on the whole good given the demand to use it. Spending more money on transport infrastructure while not asking questions about skills spending is unlikely to do much to improve the fortunes of the economies in that part of the country. More investment in transport infrastructure in London, on the other hand, is pretty important – its challenge is dealing with congestion.
Given this, we should expect see differences in transport infrastructure spending across the country, as we should with skills and flood defence spending. Crudely, we should see more transport infrastructure spending per head in London. And we should also see more skills spending per head in the North.
These points stand even before considering not individual siloes of funding, but public spending overall. On this basis spending is skewed away from the Greater South East: London, the South East and East are the only three regions of the UK to have a net surplus.
While starting from the wrong place, that this argument occurs is understandable. The root of this debate stems from the awarding of monies in siloes in the first place. Places get drawn in to arguments about levels of siloed spend because that is how it is given to them. If instead a single pot of money was given to local areas, and they then have the power to decide how this money is spent (on transport, skills, or whatever other specific challenges they face), then the argument disappears. Indeed, this is what happens in the devolved nations, and there are no arguments about biases and the role of the Green Book there. Instead of demanding totemic actions like the rewriting of the Green Book, northern leaders should be arguing for single pots of funding.
Improving the economic performance of different parts of the country requires an understanding of the barriers holding back these economies. Blindly arguing for more balanced spending on specific siloes of funding without understanding these barriers will do very little to improve their future performance. While it now looks likely that the Chancellor’s ‘levelling-up’ Spending Review will not go ahead this year, when it does this principle needs to be a core principle of any attempts to level up.
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