Post-Brexit UK will need all its growth engines firing

The hinterland remains in revolt. This has actually been a style of much of the political commentary on the election of Donald Trump and the elect Brexit in 2016. In the UK, the concept has actually been even more sealed by the success of the Tories in winning seats long faithful to Labour in the 2019 basic election — turning the “red wall” blue. Rather unexpectedly, what financial geographer Andrés Rodríguez-Pose calls the “places that don’t matter” do: they have actually been at the leading edge of these populist disobediences.

The UK federal government has actually guaranteed a “levelling up” of these locations, as a method to entrench the shift in political commitments. The concern, nevertheless, is whether the nation has a distinct issue, with clear options. The response, alas, is no. It has neither. It may show far simpler to level the economy down, by ruining London. The indifference to the fate of London’s service markets in the Brexit offer recommends the federal government may even like to do so, though the offer’s influence on EU-destined exports of makes is most likely to offset this.

The UK has relatively high regional inequality in output per head GVA per head (£’000)

The beginning point needs to be with an effort to comprehend the issue. This ends up being complicated, on a minimum of 2 measurements: location versus individuals; and performance versus intake. On the previous dyad, the concern is whether one should care more about locations or individuals who presently live there? On the latter, the concern is whether we should care more about what individuals do or how they live?

The difference in between performance and earnings is vital. A paper released by the National Institute of Economic and Social Research study in 2015 argued that the “UK today is one of the most geographically unbalanced countries in the industrialised world”. Regional inequality in output per head is remarkably big in the UK, with London far above the rest. This shows the advantages of heap and the expenses of deindustrialisation, strengthened by over-centralised governance.

Per capita, indexed to UK = 100

Yet, maybe remarkably, as the Resolution Structure and others have actually explained, the circulation of genuine home non reusable earnings, incomes and work is far less regionally unequal than that of output per head. Furthermore, while local inequality in output per head and per employee has actually tended to increase because 2000, that in incomes and work fell, a minimum of pre-Covid-19.

This is due, in part, to the combination of higher minimum wages with higher employment — a real success. Moreover, housing costs are very regionally unequal. Thus, according to the Resolution Foundation, the local variation in real median household disposable incomes, after housing costs, was at its lowest since the 1970s, pre-pandemic. The UK also has actually fairly average regional inequality in household incomes among OECD members.

Suppose, quite reasonably, we care more about people than places and consumption than output. We would conclude there is no big problem of regional inequality as such. The problem is poverty, which is an important issue everywhere, including London, with its high cost of housing and low real incomes for those dependent on minimum earnings or state benefits.

The solution to poverty is for the government to provide resources needed for good education, health services, local government services and welfare support, everywhere. It was a mistake to slash money for local authorities, especially in poorer areas, and to cut spending on investment and welfare, in the austerity programmes imposed by the government after the financial crisis.

Public capital spending (£ per person), annual average between 2014−15 and 2018−19 (in 2020/21 prices

Yet this does not mean regional inequality in productivity should be ignored, for three reasons. First, redistributing money from wealthy regions to poorer ones, in order to equalise consumption, is a burden on the former and one that the post-Brexit UK may be less able to afford. Second, the concentration of highly educated people in a relatively small part of the country divides it culturally, in a really unfortunate way.

Finally, and most importantly, as the Niesr paper persuasively argues, a large economy cannot fly fast on just one local engine. The paper’s most important finding is that the UK has just one huge high-productivity city and many low-productivity ones. Despite their size, these cities are no more productive than the regions around them.

Policy must therefore focus on developing what the late urbanist Jane Jacobs called “city-regions”. These must be granted the autonomy and resources required to create their own development paths. The aim must be to help the UK’s city-areas develop themselves, but London must be allowed to develop, too. The nation will require all its development engines in the years ahead.

martin.wolf@ft.com

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Jobber Wiki author Frank Long contributed to this report.