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23 Sep 2022

Economy

After getting Brexit ‘done’, levelling-up became the ‘defining mission’ of the Johnson government, albeit a mission difficult to define precisely. In the absence of a clear set of policy targets and tools, and with a repeatedly delayed white paper, the term came to mean different things to different ministers.

To some it was big infrastructure spend, to others it meant skills, town regeneration, addressing regional productivity differences, and/or a general sense of ‘opportunity’.

Eventually a 300-page tome of a levelling up white paper emerged under levelling up minister Michael Gove that offered something for ‘Red Wall’ Tory MPs to get their teeth into, given that they saw the issue as key to getting re-elected.

But during the long running Tory leadership debate levelling up hardly got a mention. When it did crop up it came after gaffes by the candidates leading to questions over whether levelling up was still on the agenda.

For example, Liz Truss proposed – but then very quickly dropped – an idea to pay public sector workers differently across regions, after this was viewed as ‘levelling down’, leaving Tees Valley mayor Ben Houchen ‘actually speechless’ at the suggestion.

Similarly, Rishi Sunak put his foot in it when a video emerged of him boasting to party members in Tunbridge Wells that as Chancellor he had made sure ‘areas like this are getting the funding they deserved’, after Labour had ‘shoved all the funding into deprived urban areas’, raising questions about the government’s real commitment to levelling up.

Truss did – when pushed – throw out chunks of levelling up ‘red meat’ to nervous Northern Tory MPs. She committed to actions like building the Northern Powerhouse Rail (a major infrastructure investment to boost connectivity of Northern cities). She also suggested revising the Treasury’s ‘Green Book’ (used for evaluating whether government projects offer value for money) to direct money into ‘neglected’ places.

More broadly, Truss did restate the importance of ensuring that all parts of the country have opportunities, but at the same time failed to spell out what a levelling up strategy would look like.

Now that Truss has been installed as PM, where does that leave levelling up? There was no mention of it in her first speech as PM – Iain Duncan Smith stated that it was because the term is ‘meaningless’, which doesn’t bode well for the levelling up agenda.

A Levelling Up Secretary still sits in Cabinet – in the form of Simon Clarke who replaced Greg Clark (the latter having quietly pushed through two devo deals, which give additional powers to metropolitan areas, during his short caretaker tenure). But it isn’t clear if Michael Gove’s Levelling up white paper will remain quite so central to policy.

There were some pretty hostile media attacks on Gove during the campaign alleging that his department wasted money, which could be seen as a softening up exercise to squeeze levelling up spending in due course.

That wouldn’t be surprising as the cost-of-living crisis will dominate Truss’s tenure – to start with at least. The energy price guarantee comes with an eye watering price tag – many think it could cost as much as £150bn a year. The scale of the crisis and the size of the response means that there will be little time or resources to put into levelling up.

And there is a wider question mark over whether Truss’s economic perspective is anyway compatible with levelling up. While ‘Trussonomics’ is not clearly defined, in broad terms it is associated with the ideas of economists like Patrick Minford and an overriding belief in a small state and low taxes.

Indeed, a central pillar of Truss’s campaign was around cutting taxes (which will be difficult to achieve when the UK economy faces multiple challenges such as sterling weakness, inflationary pressure, rising interest rates, Brexit headwinds and an economy heading into – if not already in – recession). The large-scale tax cuts in the Chancellor’s ‘mini-budget’ confirm the Truss government’s ideological direction of travel.

But that small state and tax cuts may well be incompatible with the scale of state intervention needed to ‘do’ levelling up. Defending the white paper, former levelling up secretary Michael Gove argued that levelling up is:

an argument with what one might call trickle-down economics. There has been a traditional economic view…  that the market will find its own way. But actually all our experience is that that is not the case… If you leave the free-play market forces entirely to themselves, then what you see is inequality growing and particularly geographical inequality growing as well.’

That interventionist perspective sits uneasily with Truss’s plans to cut personal taxes like National Insurance, which would benefit the well off most (and which Truss seems very relaxed about).

How much space there will be to do things like levelling up in large part depends both on the overall picture of macroeconomic policy and whether economic growth picks up. ‘Trussonomics’ seems in part about rebalancing economic policy; tightening monetary policy and loosening fiscal policy while trying to kick start growth (although the means to do the latter has not been spelled out). These different elements may or may not be compatible with levelling up. Looser fiscal policy could create space for levelling up spending, while tighter monetary policy may hit private sector investment in left behind regions.

Moreover, Truss has talked about not seeing the economy so much through the ‘lens of redistribution’. That appears to imply a preference to grow the overall economy, hoping that a rising tide lifts all boats, rather than developing policies to support left-behind places.

There are some actions that the new government could take to indicate its commitment to levelling up, such as seeing the Levelling Up and Regeneration Bill through Parliament and into law. What happens on the Bill could give us an early indication of the government’s seriousness on levelling up.

At this point in time, however, levelling up doesn’t appear to be a priority for Prime Minister Truss.

By Professor David Bailey, Senior Fellow, UK in a Changing Europe.

UK in a Changing Europe will be publishing a major report on public perceptions of levelling up and regional inequality in October. 

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