Why institutional reform is key to levelling up

A Labour alternative to the Tories’ Levelling Up has to combine a clear narrative with new policy ideas. The narrative that is emerging starts with a reckoning – that the disparities of power and wealth between and within the different areas of the country are deep-seated, and that successive governments have failed to address the roots of the problem. The twin task is to transform an economy stuck in a vicious circle of low growth, low investment, low productivity and stagnating wages and living standards, combined with a political system that is over-centralised and short-termist. That is why Labour should engage with the Levelling Up programme. It is an ambitious agenda, based on a serious analysis, and sets out substantive long-term ‘missions’.

But the Conservatives are hamstrung by the old orthodoxy of trickle-down wealth and pushing down responsibilities to city-regions and metro-mayors while failing to decentralise power or resources. Money made in London and the South-East will not flow down every provincial gulley, just like thriving city-regions and metropolitan mayoralties will not by themselves lift up former mill towns, ex-mining villages, or coastal and rural areas. Underpinning Tory Levelling Up is a fusion of Treasury domination with a city-centric development model that has left the country more divided and less prosperous.

There is a large, institutional-sized hole at the heart of this Conservative government, which prefers to dismantle institutions such as the Industrial Strategy Council instead of building a civic ecology that can nurture national renewal. Labour has a unique opportunity to set out a vision for national reconstruction focused on people and places that have been neglected for decades – small cities, urban hinterlands, rural settlements, and ex-industrial and seaside towns that have not benefited from globalisation or from the City of London. They are the very places where Labour is largely absent.

Drawing on its proud history of nation- and institution-building, the Labour Party should combine a long-term programme of national renewal with specific policies and institutional reform focused on the everyday economy and the peripheral places. Of course cities matter and agglomeration effects can help foster growth, but city centrism intensifies intra-city inequalities and fails to build strong foundations for the national economy as a whole. Whereas the Tories defend the asset rich professional-managerial class based on tech and finance in the City of London, Labour should champion low- and middle-paid workers in non-traded sectors and civic institutions to support research and innovation across the entire economy.

Institutional reform may sound dry and technocratic. But the current institutional system entrenches the deep disparities in political power between the core areas and the peripheral places. The UK state that underwrites the market is over-centralised in Westminster/Whitehall, micro-managing millions of decisions while not doing its proper job; it has weak, ineffective institutions and endless policy churn; it operates in institutional and policy silos; and it suffers from short-termism and poor policy coordination.

The UK’s poor performance is largely the result of institutions and policies that are too centralised in spatial, geographic terms and simultaneously too fragmented in functional, sectoral terms. Britain’s institutional system stands in the way of moving to a high-wage, high-skill and high-productivity economy capable of sustaining greater growth and better living standards coupled with stronger communities.

A Labour alternative to the Tories’ failure to ‘level up’ and ‘build back better’ has to rebalance economic and political power in favour of people and the places they call home, anchored in interpersonal relationships and three types of institutions: (1) institutions that spread economic wealth; (2) institutions that decentralise political power; and (3) institutions that support community self-government.

For forty years, Britain has seen a growing concentration of asset ownership and a declining labour share in national income – how much money is going to workers as opposed to company executives or shareholders. Labour should promote institutions that distribute and endow assets much more widely across society. Owning a home is a top priority as it affords greater economic security and social stability. Policy ideas for Labour include:

• the building of many more affordable homes on brownfield land by smashing the oligopoly in the construction sector and establishing local housebuilding companies;

• the introduction of land value taxes, thereby reducing the reliance on council taxes;

• giving local government and communities greater control over land use, including powers to force those who own land with planning permission to ‘use it or lose it’;

• creating community land trusts in every community that wants one, enabling more community ownership of affordable housing

• giving local people a say over the design of new-build housing (‘right to beauty’), using local materials and building in vernacular styles

Other examples of asset distribution include (i) creating of a lifelong learning endowment for retraining and upskilling; (ii) greater employee co-ownership in both the private and the public sector (by creating mutuals); (iii) establishing regional and sectoral banks constrained to lend within particular places and productive sectors; (iv) expanding the remit and lending facility of the UK Infrastructure Bank (UKIB) located in Leeds by enabling it to finance energy-efficient, socially affordable housing, providing assistance to SMEs and helping with export finance. Labour should transform the UKIB into a National Development Bank which does not pick “winners” but rather helps to unlock greater private investment.

The second part of Labour’s programme should be to decentralise decision-making, funding and tax-raising powers to the lowest local level capable of building a more accountable polity. Some examples of institutional and policy reforms include:

• rebuilding local government finances by establishing central grants over 5-10 years or introducing hotel/tourist taxes;

• establishing new local bodies such as municipal energy mutuals, water boards, or municipal pensions schemes with new corporate governance arrangements (one-third workers, one-third funders/managers, one-third users/citizens)

• devolving skills by giving local government, trade unions and business associations a say over how to design and deliver training in mixed HE/FE colleges;

To protect people from the pressures of state and market power, Labour needs a programme of strengthening civic institutions such as:

• civic assemblies to consult local citizens regularly on pressing problems and communal solutions;

• community wealth funds to help take over local assets such as pubs or football clubs

• giving housing associations greater powers for bulk purchase of energy;

The building of a common life involves being embedded in social relations and civic institutions. Weak or absent institutions leave economic and political power unconstrained – Britain’s contemporary condition. Labour’s alternative has to be anchored in economic, political and civic institutions that make people partners in power.

Read the last editorial 'To level up tackle monopoly power' and the complete series here. To read Labour’s Covenant click here.