04What needs to change

In order to help achieve these goals, efforts to level up should focus on six areas: skills, devolution, public services, local transport. city centres and research and development. As Figure 6 summarises, these policies should not be applied equally across all geographies.

1. Improve basic and intermediate skills

Why is this important?

Skills are a strong predictor of employment outcomes across the country, be that in cities or towns. Figure 7 shows that those places that have larger shares of people with few or no formal qualifications have a higher share of people either unemployed or claiming long-term benefits.²⁰ They are also a strong predictor of economic performance – a place offering low numbers of high-skilled workers is much less likely to attract or grow a high-skilled business and pay higher wages.²¹

Much policy debate in recent decades has centred around higher education but too little less attention has been given to basic skills for adults. This should change because:

• individuals are less likely to invest in basic skills, so requiring the state to correct this ‘market failure’;
• the UK performs poorly on basic skills relative to other developed countries;
• lower-skilled people tend to be less mobile, with half working in the place they were born, compared to 30 per cent of graduates; and
• this is a particular issue outside the Greater South East.²²

The Government has made a series of announcements around basic and intermediate skills provision in recent months, which is welcome. This should be seen against a backdrop of funding for further education having been cut in half in real terms since 2010 (the IFS estimates that recent policy announcements will only reverse these cuts by one third.)²³ This will be insufficient to tackle the size of the skills challenge many places face.

This policy focus, in part, will be to correct past underachievement in the school system. In principle basic skills should be obtained at secondary education. But this is not the case, particularly in some areas. For example, while four-fifths of pupils performed well in Maths and English in Three Rivers, Hart and Trafford local authorities, only two-fifths did so in Knowsley in 2019.²⁴ So further steps should be taken to improve educational attainment at primary and secondary school where it lags.

Policy:

The Government has made a bold commitment to increase spending on R&D to bring it in line with other countries. Improving skills outcomes should be seen in the same light – the reasons for governments to intervene are similar as for R&D, and the UK is also not a leader in skills spending.²⁵ Given this, the Government should commit to increasing money spent on skills, increasing it from the 5 per cent of GDP that is currently the case to 7 per cent that is spent in Sweden. It should use this extra spending to do the following:

Post-16 education

• The Government should back its recent announcements around skills with an increased funding for further education beyond current plans at the Spending Review. It should do this by introducing a Singapore-style voucher system, assigning a number of credits to every individual over 25 to improve their skills. Under this system, every individual without level 2 qualifications (equivalent to good GCSEs) would be assigned a certain amount of money per year for training, with the financial incentive gradually diminishing the more qualified a person is/becomes. Greater funding should be attached to students in areas of the country where the lack of basic skills is greatest.
• It should give greater certainty over funding to further education colleges by setting multi-year budgets rather than year-on-year ones (something the Government is currently reviewing).
• To help drive up demand for courses, where possible they should be delivered more flexibly (e.g. through more evening or weekend courses), coupled with money to run local campaigns to encourage people to learn a new skill.
• It should consider proposals from the Centre for Vocational Education Research to introduce a human capital tax credit to match the well established R&D tax credit system.

Schools

• The Government should expand the opportunity areas programme, which aims to improve school performance in struggling areas, beyond the initial 12 areas that have been designated.
• It should also improve take up of extra-curricular activities to encourage the development of softer skills by making them free to access in areas with poor school performance. Evidence suggests that the costs of attending such activities is one of the main barriers to uptake.²⁶

Geography:

All parts of the country, with special focus on struggling areas.

2. Devolve power to reformed local government

Why is this important?

Much of the policy that will help deliver levelling up, such as local transport, planning and the delivery of public services, is likely to be better delivered at the geography that a local economy operates over rather than from Whitehall. But local government currently has few levers to pull, and those that it does have at its disposal are scattered across numerous local authorities that carve up many local economies (for example, see Box 5). As well as better matching powers to the geography over which they operate, more powers at a more local level should also serve to empower local people and make local politicians more accountable.

Policy:

The Government should continue its devolution journey by devolving more power to local government. It should do this by:

• Reorganising local government to build institutional capacity and remove overlap and duplication. Centre for Cities recommends in England that the number of local authorities should be reduced from 348 to 69, with every part of the country covered by a directly-elected mayor.²⁷
• Levelling up reformed local government and existing Mayoral Combined Authorities in England to the powers London has had for the last 20 years. This should come with funding to develop institutional capacity that London has had a head start on building. And it should designate ‘protected’ devolved powers for local government that cannot easily be removed by Westminster, in line with the Scottish devolution settlement for policies such as housing and transport.
• Underpinning this by reforming local government funding. Central government must remove the financial straitjacket it forces on local government, which gives local authorities little flexibility about how they chooses to spend budgets to address the varied challenges they face. To do this, it should give a local government full control over business rates and council tax, allow it to set budgets over a four-year period, rather than the current one-year horizon, and complete flexibility over how it spends money raised from sales, fees and charges.

Geography:

As this is an issue for the devolved nations, the UK Government can only enact these changes in England. But the devolved nations should follow suit. While some powers should be held at the nation level, the nations are not practising the devolution they preach by simply hoarding the powers they have received from Whitehall in their own national parliaments.

3. Improve public services provision

Why is this important?

The quality of public services – or ‘social infrastructure’ – impacts on people’s day-to-day lives. Improving things like parks and childcare services has the potential to improve quality of life of many people across a broad geography, in contrast to more totemic policies such as freeports or towns funds, where only a handful of places ‘win’.²⁸

The limited data that is available on public services does not suggest that access to public services systematically varies across the country.²⁹ While people living in rural areas are further from amenities such as libraries or doctors’ surgeries than urban dwellers, it is not clear that more deprived areas have worse access.

Two things are clear though. The first is that outcomes for people across the country do vary. The second is that it is day-to-day spending in deprived urban authorities in the north of England that has seen the largest cuts in funding of any area of government since 2010.³⁰ If the former is to change then both the funding and delivery of services in the latter will need to change.

Many of the policies associated with levelling up to date have centred on pots of cash for lucky winners in a government bidding competition. These pots have been announced at the same time as the Government’s spending projections in Budget 2021 suggesting that austerity for local government will be prolonged and no solution to the social care crisis having been offered (social care is taking up an increasing share of ever decreasing local authority budgets, and so further squeezing spending on other areas).

Policy:

The forthcoming Spending Review should end austerity for local service provision, especially local government spending. It should commit to year on year real-terms increases over the cycle of the next Spending Review.

Geography:

All parts of the country, with the existing method of allocation increasing spending most in areas where need is highest.

4. Strengthen local transport

Why is this important?

A local transport system links workers to jobs. Improving transport widens the catchment that businesses can choose from, increases the number and choice of jobs available to a worker, and allows better matching of workers with particular skill sets to jobs that reflect this skill set. This improves the attractiveness of a place to do business, as it deepens the pool of available workers, and as a place to live because of the greater choice of jobs. A good system also offers better access to public services and other amenities.

Improving a transport system can be done in one of two ways. The first is to improve the management of the existing system to make it work more efficiently, through better co-ordination of different modes of transport, for example. The second is to invest in new infrastructure.

The fragmented nature of local transport systems in most places outside London means that all places would likely benefit from better management of the system. But transport infrastructure investment should be more targeted. Previous work by Centre for Cities shows that while there is a clamour for transport infrastructure investment across the country, the data suggests that it is only in big cities where the network may be holding back growth.³¹ The underdeveloped network in big cities is likely to explain at least part of their productivity underperformance, with the difficulty in getting around reducing the size of the labour pool and access to job opportunities.³²

Policy:

• Mayoral Combined Authorities that have not done so already should improve the running of the local transport system by franchising of the bus network in their areas, and the Government should provide all assistance where necessary to make this happen. London has long benefited from local control of buses. Greater Manchester will franchise its services from 2023. Other areas should ensure that they benefit from this too.
• The Government should extend these powers to other areas too, rather than requiring them to seek the consent of the Secretary of State. As part of this places should be given longer to developing their franchising plans than the Bus Strategy currently allows.³³
• In contrast to improving how services are delivered, the Government should invest in new transport infrastructure where the current system is under pressure. Data shows this to be in the big cities.³¹ The existing Transforming Cities Fund is a step in the right direction to address these issues but further investment beyond these allocations will be required if there is to be an expansion of a public transport system in cities such as Bristol and Leeds in particular.
• The National Infrastructure Commission identified £31 billion additional investment for new transport infrastructure in priority cities outside London up to 2040. The Government should take up this recommendation, and the investment should be primarily focused on cities such as Manchester and Birmingham. The £31 billion should be available to these cities providing they meet two conditions:
  1. Cities themselves contribute a share of the costs locally so that risks are shared between local and national government; and
  2. This local contribution includes revenues from a city centre congestion charge. If these cities are serious about improving their transport networks, they need to also take politically tough decisions locally to do so.

Geography:

Franchising powers for all parts of England, new infrastructure investment in big cities.

5. Make city centres more attractive places to do business

Why is this important?

High-skilled jobs have been increasingly clustering in city centres in recent years because of the benefits they offer – they are where agglomeration is most clearly seen. But many city centres outside the Greater South East have struggled to attract these businesses in sufficient numbers, which has meant that these cities and wider subregions have struggled too.³⁵

Given the UK economy’s likely continued specialisation in more knowledge-based activities, and the importance of face-to-face interaction for these industries, city centres are likely to play an ever-increasing role in the performance of the UK economy in the coming years. This means making city centres outside the Greater South East more attractive places to do business is likely to be an important part of raising productivity performance.

Policy:

The Government should create at £5 billion City Centre Productivity Fund to improve the economies of city centres, funded from the existing National Productivity Infrastructure Fund. A fund is appropriate here, in contrast to the introduction of other one-off funds by the Government to date, because of the size of the capital spending required.

To access the money, local authorities would need to put together an application for funding which demonstrates how their interventions will improve their city centres as a place to do business. They should put forward a strategy for what they intend to do over a multiyear period. Ideally this would be presented in a number of phases, with the money from the fund focusing on Phase I, while future phases may be supported by other interventions once Phase I is complete.

The nature of the interventions will vary from place to place but are likely to be some combination of: the demolition or conversion of dated commercial space, the creation of new office space, public realm and public transport. The local authority should demonstrate how these interventions are integrated, rather than a series of freestanding interventions that do not pull together as a single strategy.

Geography:

City centres and large town centres.

6. Support innovation in the biggest cities

Why is this important?

Innovation is the driver of long-term economic growth. The poor productivity performance of many cities and large towns outside the Greater South East suggests that levels of innovation in these places and the use of new innovations developed elsewhere are not very high.

Policy:

Increasing innovation spending in places that have more fundamental challenges is unlikely to have much impact on innovative activity. Instead the Government should focus its increased R&D spend in the places where it is most likely to have an impact – those places that have a degree of innovation happening in them already that further public support may boost. ³⁶  Because of their scale, large cities are the most obvious candidates for this.

Mechanically, this will have a local impact through the types of jobs it creates. What is less clear is whether an area directly benefits from the innovations that such jobs produce, or whether they will be applied elsewhere. Given this, the Government should be cautious about the local economic impact it expects to see from this increased spend.

Geography:

Big cities with some existing innovation activity.

Boosting the demand side

All the policies above are supply-side interventions. The Government can also influence the demand side by explicitly setting out a strategy to boost demand in certain areas and providing certainty of public sector commitment and support. An example of this is through the retrofitting of homes. The problem with the Green Homes Grant is that is was short term and offered no certainty and a shortage of suppliers resulted. Certainty around the net zero, R&D and other policy areas the Government deems important is likely to encourage private sector investment.