How should Labour respond to the government's levelling up paper?

How should Labour respond to the government’s Levelling-up White Paper? The answer is with seriousness. While there is much to criticise in the White Paper, it represents a more lucid analysis of geographical inequalities and a more coherent policy response than anything offered so far by Labour. The White Paper speaks to the fact that the UK contains some of the widest inequalities in the OECD. People living in the richest places in England have rates of life expectancy which are among the highest in the OECD, while those living in the poorest places have amongst the lowest. Yet so called ‘left-behind’ places have turned their back on Labour in recent elections. Addressing these inequalities therefore is a political necessity for Labour. It is also a moral imperative. A test of any emerging Labour programme should be what difference they make in left-behind places.

Regional inequalities are longstanding but, since the 1990s, global market forces and national policy have concentrated wealth and political power in London and in the other metropolitan cities and major university towns, amongst the asset rich elite and the professional middle class. They have taken the lion’s share of the (best) jobs and accumulated political and economic power. They monopolise the wealth in a socially immobile and deeply unequal society, albeit a multi-ethnic and economically insecure working class provides the essential services. In contrast, in the urban hinterlands, rural areas, and ex-industrial and seaside towns, the loss of work through deindustrialisation, new technology and off-shoring have destroyed the collective and political power of the working class and impoverished whole communities. Here society is less unequal, more homogenous, and poorer.

Currently, a powerful orthodoxy suggests that cities offer productivity and growth premiums because they generate agglomeration economies through their scale, density and diversity. Thus, London acts as the dynamo that powers the UK economy, through its financial, digital and knowledge-intensive business services. Meanwhile the recent growth of Manchester, based on the expansion of services and property development, has been presented as the standard for other city-regions. The push to create ‘metro-mayors’ is based upon matching political decision-making with ‘functional urban areas’.

The implications of this strategy for former mill towns, mining villages, coastal and rural settlements are ambiguous at best. Widening inequalities between and within places are the accepted consequence of this city centric development model. Crucially, this model neglects middle- and low-paid workers in the low-productivity, non-traded sectors, and disregards the civic infrastructure required to develop research and innovation across the whole economy not just the tech sector. The pursuit of major inward investments and the development of knowledge-intensive business services or advanced manufacturing are unlikely to create inclusive growth in left-behind places.

There is little evidence that London’s growth benefits other regions. Instead, fortuitously capturing the benefits of globalisation through its specialisation in financial and other services, it attracts multinational companies, foreign investment and international migrants. London has ‘de-coupled’ itself from the UK economy. Cities in northern England have grown slower than counterparts in southern England and Scotland, meaning they contribute comparatively to the development of surrounding towns. Even in success stories such as Manchester, much of the growth has been in low productivity, low wage sectors and has come at the expense of widening intra-city inequality.

Policy-makers’ continued faith in ‘city centrism’ as the route to economic development is challenged by research suggesting that large cities are not always the most dynamic engines of growth. In the UK, the productivity growth of southern service-based cities has been modest. Some smaller and medium-sized cities have outperformed larger cities. The pull of larger cities has been reduced by worsening ‘agglomeration costs’, such as pollution, congestion, and housing shortages, in some cases exacerbated by the pandemic. Recently, labour shortages have added to the problems. Well-connected regions with rural areas and a network of smaller, well-connected cities, can provide agglomeration benefits – like extended labour markets – while limiting such costs. The task of policy should be to release untapped potential in lagging regions by empowering local stakeholders to maximise their existing skills, talent and capabilities, tailoring their mix of policies to local conditions.

Labour needs to make the case for a political-economic agenda that focuses on what is sometimes called ‘the foundational economy’ – sectors that are immobile and relatively protected from competition, but which provide the social and material infrastructure of civilised life, including utilities, housing, health, care and education. Low-paid and precarious forms of work in mundane sectors of the economy like these exist everywhere, but are disproportionately important in left-behind places. By focusing on rebuilding what Rachel Reeves has called the everyday economy, Labour could offer a programme that resists the old binaries (urban v rural, country v city, London versus the rest, etc) by framing solutions that can be applied in all types of places but which have the greatest impact in the poorest places – strategies that invest in local civic infrastructure and asset-based forms of community development, that aim to build community wealth and anchor jobs locally.

Read the last editorial ‘Why Labour must be the party of the national economy’ and the complete series here.