Achieving levelling up is about more than just 'fixing the Green Book'
Alongside the Spending Review last week, the Treasury published the long-awaited Green Book review. The Green Book, which sets out the national guidance for economic appraisals for public investment and policy decisions, has been blamed for making the North-South divide worse and hampering the Government’s “levelling up” agenda. Although our recent report concluded that the Green Book does not do this, what did the Treasury find and what does it mean for levelling up?
The Treasury’s Review concluded that “the core methodology was not by itself found to skew outcomes”. This chimes with our assessment of how Benefit Cost Ratios (BCRs) play out across geography – there is simply no evidence that they are biased towards London or more prosperous parts of the country.
In fact, the continued use of the Green Book by local government is essential. Local needs will be different in different places, and Green Book analysis helps local leaders identify those local needs and the best solutions. The Green Book itself does not make decisions, but it is a tool which helps policymakers understand the impact of their decisions, and ensure that limited resources are used to help as many people as possible.
However, the Review goes on to say that “current appraisal practice risks undermining the Government’s ambition to “level up” poorer regions and to achieve other strategic objectives unless there is a step change improvement”. It identifies in central and local government a lack of capacity which prevents the Green Book from being used to its full potential, as well as undeveloped or muddled thinking around economic strategy and the objectives.
These are also issues which our report spotted. The problem is not a bias in how the Green Book calculates costs and benefits, but that only in some parts of the country does the state have the resources to use it to the full, such as Greater Manchester or the Greater London Authority.
In the rest of the country, this lack of resources when developing induces an overreliance on getting consultants to produce a single number which estimate the costs and benefits of schemes (the BCR). This arises because too many local institutions are too weak to use the Green Book to help develop complete economic strategies which can set out certain objectives, or deliver the investment to meet them on time and on budget.
The Treasury has therefore set out some changes to the Green Book which will fix some of these issues. There will be greater emphasis on the role of strategy when developing the business case for an intervention, and more support for local government in developing the strategic element from Whitehall. There is also new guidance which sets out that it is acceptable to distinguish between the benefits to the local economy and the national economy in a business case, alongside guidance on the scope for “transformational” arguments.
However, there is only so much that rewriting the Green Book can do. Even though levelling up as a strategic objective has been noted within the Review, it is still undefined. It is the job of the Government, not the Green Book, to define levelling up.
Achieving levelling up first requires the Government to define and set an objective, much like the 2050 net zero carbon objective the Green Book Review uses as a case study. Otherwise, we cannot judge the success or the failure of local and national institutions in their delivery of the Government’s agenda.
In our Green Book report, we propose that levelling up should be defined as closing one-third of the output gap in the eight biggest cities outside of London over the next decade. The economic underperformance of our largest labour markets outside the capital is an unusually severe problem in the UK, and is a crucial factor behind both the national productivity puzzle and geographic inequality across the country.
We estimate that achieving levelling up as defined in this way would permanently increase national output by £16bn a year, and suggest £100bn over a decade as the kind of funding required to meet this goal. While the extension of the Transforming Cities Fund and increased spending on skills is welcome, it is understandable that there was not a large package of funding this time around. However, there will need to be a big boost in the Spring Budget if the Government is to start tackling one of its key objectives.
The promised Devolution White Paper also needs to be published, and include the changes we set out in our Levelling up local government in England report – stronger, single-tier councils with boundaries matching economic geography and headed by mayors, alongside more self-reliant and accountable metro mayors for the biggest cities.
In the long run, more capable local government which takes on more responsibility for using public money wisely and stewardship of local economies is essential to achieve any definition of levelling up. Local government needs to be rewarded for taking politically costly and evidence-based decisions which improve local growth. This can only be done with greater fiscal devolution, with local government having more control over local taxation and local spending.
Fiscal devolution would be a big job at any moment in time, not least during a Spending Review in the middle of a pandemic. But now that the Green Book has been significantly improved, political debate must now turn to the questions at the heart of levelling up debate – ensuring that local government has the resources to deliver both services and levelling up, and is held responsible for how it uses those resources.
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