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Levelling up regional imbalances

marianne sensier

 

With transport infrastructure investment still skewed towards London we need a long-term strategic view of the UK economy, says Marianne Sensier. She is a Research Fellow.

There remain wide regional economic disparities in the UK between productivity per head in London and other English regions, and it is a gap that continues to grow.

In this context, infrastructure spending is seen as a significant contributory factor to this regional imbalance, yet the UK has been committing less on infrastructure than other leading western economies for some decades.

At the same time the methodology for appraising transport schemes – the HM Treasury’s Green Book – continues to favour London as it includes the wider benefits of agglomeration impacts, dependent development and more productive jobs. In other words, investment in the future is determined by past success.

This could change, however, if decisions about significant investments explicitly incorporate a strategic view about economic development for the whole of the UK, as the economic theory underpinning Cost Benefit Analysis implies should be the case. Rather than only investing in already highly productive places, this would enable public infrastructure investment to reflect the government’s strategic view about potential productivity gains.

Research

This is the central message of a paper I recently co-authored with Professor Diane Coyle, formerly of The University of Manchester and now at The University of Cambridge, in which we compare transport infrastructure projects that have used the Green Book.

In it we argue that this methodology has reinforced existing success in wealthy, highly productive parts of the UK, and argue that future infrastructure developments need to be based on a strategic view about economic development for the whole of the UK to help level up the regions.

In particular we compare the benefit-cost ratios (BCRs) for projects in the North with those in the South and find that those in the South usually get funding even with lower BCRs.

Schemes serving London with relatively low BCRs have routinely been approved, whereas outside London there is a more mixed picture and some projects with far higher BCRs in the English regions have not gone ahead. The Northern Rail upgrade and schemes that were cancelled in 2017 by the Department of Transport were, according to the National Audit Office, due to the BCRs being revised down as costs increased with central government delays and procurement failures.

Levelling up

To correct the bias we need a long-term strategic view for the UK economy. Greater productivity in all places will improve national productivity with better social outcomes and lower inequalities between, and within, regions.

Unsurprisingly, in this context, our paper has caught the eye of Whitehall in recent months in the wake of Boris Johnson’s general election victory and his pledge to raise the level of economic performance in all parts of the country outside of London. If the government really wants to help people in those northern ‘red wall’ seats it took from Labour, then levelling up should mean the redistribution of infrastructure projects.

So what projects should it choose? Given that one factor that has increased regional disparities is the loss of rail connectivity following cuts to the UK rail network in the 1960s, one might imagine that HS2 – the planned high speed rail line connecting London, Birmingham and the north – perfectly fits the bill.

But would HS2, which was recently given the go-ahead by the government, really be transformational?

I would argue that investment in rail services and infrastructure across the North would have a much more transformational impact. In this context there are a whole host of smaller rail projects already planned for the North (such as station and line improvements) which, collectively, would vastly improve the woeful experience that many passengers face on a daily basis.

Inward investment

The broader message behind our research is that if the government seed investment into infrastructure projects then businesses may relocate and invest in those areas, thereby creating jobs and boosting productivity in those regions.

However the challenge, given that regional economic disparities continue to grow, is considerable. Indeed, some regions of the UK have not fully recovered from deindustrialisation in the 1980s, never mind the global financial crisis of a decade ago.

For instance, in a recent paper with Professor Fiona Devine, Head of Alliance MBS, we analysed the economic resilience of UK regions since the financial crisis and found that productivity in Yorkshire and Humberside has not recovered its pre-recession peak level, and employment has not recovered in Scotland.