Levelling-up agenda at risk from Brexit and Covid-19 recovery work, IFS warns

Think tank says drive to fix regional inequalities will compete with “Build Back Better” coronavirus recovery and end of transition period
Hard to focus: prime minister Boris Johnson and chancellor Rishi Sunak Photo: PA

By Jim Dunton

02 Oct 2020

Prime minister Boris Johnson’s much-vaunted levelling-up agenda to rebalance regional inequalities faces a double challenge from coronavirus recovery work and the impact of Brexit, the Institute for Fiscal Studies has warned.

New research from the think tank has found work to help “left behind” areas of the country is likely to put some places in direct competition with towns and cities lobbying for help with the economic effects of Covid-19 and whatever the post-Brexit trade situation turns out to be.

The IFS said there was “no systematic relationship” between the areas most in need of levelling-up assistance because of education, employment and pay, and the areas that had experienced the worst short-term economic impact from the coronavirus pandemic.

It added that without knowing the shape of any eventual Brexit deal, it was hard to say which areas would be most affected by the end of the transition period in three months' time. But the institute noted that regions dependent on manufacturing and with higher concentrations of less-well-educated workers would be “highly exposed” to economic disruption from Brexit.

However, the research – which forms part of the IFS’s Green Budget, due to be published on 13 October – said there were some places that faced a “double whammy” of being already economically disadvantaged and having their business hit by Covid-19.

It identified hospitality and tourism-dependent coastal communities, such as Blackpool, Great Yarmouth and the Isle of Wight, and the centres of cities such as Liverpool, Newcastle, Glasgow and Dundee as being both “left behind” and hit by the immediate economic fallout from the pandemic.

Report co-author Alex Davenport said the government had yet to properly define its measure of places that were “left behind” and in need of levelling up. He said chancellor Rishi Sunak should be cautious not to focus exclusively on investment spending.

‘The challenges faced by disadvantaged coastal communities like Blackpool and Margate are very different to those faced by isolated towns like Merthyr Tydfil, which are in turn different to those faced by large post-industrial cities like Glasgow,” Davenport said.

“The government needs to set out what it intends to achieve through levelling up, where it wants to target support, and how. This already complex and difficult task will only be made more complicated by Brexit and the Covid-19 crisis.”

Davenport said there were currently at least eight place-based spending schemes in England with different objectives and areas of focus, with decisions over the future of several required soon, including on a replacement for EU structural funding and Local Growth Deals.

He said that rather than reinventing the wheel, the government could seek to build on these existing schemes and develop a broader strategy around how they fit together.

IFS research economist Ben Zaranko, another author of the report, said this year’s Spending Review would be a natural place for the government to start “fleshing out” its levelling-up plans. He added that Sunak should also recognise that spending on day-to-day services could be as effective as investment – sometimes more so.

“Closing some of the gaps in spending on transport and research and development between regions might be beneficial,” he said. “But for many areas, greater funding for things like schools, further education and local government could be more effective.”

Zaranko said local government had an important role in levelling up that should be backed up with adequate funding.

Kerslake seeks “New Deal” for levelling up

Earlier this week, former civil service head Lord Bob Kerslake said Covid-19 had increased the urgency for a “comprehensive large-scale plan” to put the country on a more equal economic footing.

Last year, Kerslake’s 2070 Commission proposed the creation of a £10bn a year fund to underpin economic development over the long term.

This week he called for “the rhetoric of levelling” up to be translated into a £375bn 25-year New Deal strategy for a “just recovery” from the economic effects of the coronavirus pandemic.

Among the individual proposals are the creation of at least four new global centres of science and technology to be delivered outside the UK’s current “Golden Triangle”, and 1,000 miles of new, upgraded and electrified main railway lines, as well as services to remoter communities.

Kerslake said while Covid-19 may change the path to delivery of the government’s levelling-up agenda, the pandemic had not changed its urgency and importance.

“The temptation of the government will be to rein in their ambitions and spending,” he said.

“This would be a serious error. To have any meaningful impact, what is needed now is a New Deal for levelling up.”

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