Things might actually get better: Trends, discontinuities and the future for ‘Levelling Up’
Posted on: 15 February 2024 by Ian Wray in Blog
While the immediate economic outlook is certainly gloomy, the medium-term outlook is better.
The OBR predicts 2% growth by 2028 and a small jump in growth could lead to a big increase in tax revenues. Inflation is falling quite sharply (although world events including the Middle East could reverse this). But markets expect a fall in interest rates by 2025, which would be positive for the economy, for housing markets and for government borrowing costs[1]. At the same time disruption caused by Brexit and changing trade relationships and rules should be settling down.
Potential discontinuities
Automation/AI and net zero
Effective installation of automation and AI could sharply increase UK productivity in services and manufacturing alike, undermining the competitive threat from low wage economies.
Currently net zero is seen largely as a moral commitment to contribute to world CO2 emissions. Increasingly it may be seen as an element in national security and autarky, in relation to housing and infrastructure resilience to climatic change as well as energy security (through better insulation and increased UK wind and tidal power production). This may sharply increase support for the net zero agenda. A strong commitment to net zero may increase the UK’s attraction as a residential base for young people.
The attractive North?
Estimates from Eurostat signal the EU could see its population shrink by 6 per cent, or 27.3 million people, by 2100[2]. Birth rates are falling in the UK, whilst older workers are leaving the labour market, partly due to long term sickness. The consequent labour shortages will impact strongly on the richest parts of Britain, places like London and the ‘golden triangle’, where it is already very difficult for young families to afford to buy a house. Housing construction has fallen to low levels, so housing costs may continue to rise, making living in London and the golden triangle, indeed most parts of the south, increasingly expensive and untenable for those without an existing equity stake in the housing market.
But the picture is more positive in the more resilient parts of the North, particularly in the ‘south of the north’ – including Manchester, Leeds, Cheshire and Merseyside. Here the cultural, educational and environmental revival of city centres beyond London has created attractive residential locations for younger skilled workers, in cities with less congestion than London, lower pollution and the opportunity to buy a home of one’s own (increasingly impossible in London and the golden triangle). City centre and inner-city dwellers can live without a car and are likely to use trains, trams and muscle power more.
With the abandonment of HS2 it is increasingly unlikely that northern cities will be linked by new very high-speed rail networks. But cities like Manchester, Leeds, Sheffield and Liverpool are very close and relatively modest investment in existing rail networks could bring their labour markets much closer together, generating agglomeration economies and increasingly attractive opportunities, especially for city centre livers and dual income families.
Changing working lives
How will working from home pan out? It was greatly accelerated by the pandemic (and would be solidified by any further pandemic) and enables living much further from the place of work, if not tied to a daily commute. The technologies will continue to improve. It might lead to less frequent longer distance travel, perhaps a trip to the office once or twice a week or even every two weeks, rather than every day[3]. But younger people may still want a cultured and busy city life rather than semi-retirement to the far countryside.
Surprisingly the UK’s deindustrialisation seems to have ended. Its manufacturing productivity growth has hugely outstripped the other G7 economies since the 2007 financial crisis. The UK is the world’s eighth biggest manufacturer. Employment has been stable since 2008[4]. London depends almost entirely on the service sector, especially the City. The provinces still have big stakes in manufacturing, including several of the towns often written off as ‘places left behind’.
Authoritarianism and skilled migration
Civil unrest and a reaction to increasing inequality and lower living standards could lead to an authoritarian government response, especially if an increasingly right-wing Conservative party makes an electoral comeback. Government might yet become more determined and more dirigiste – and there have certainly been examples of that recently[5]. Unlike other European countries the UK does not currently have a right-wing populist political party: it remains to be seen if we can sustain this substantial advantage.
Political turmoil and violence may increase in the US making parts of the country an increasingly unattractive place to live and raise a family. The rise of Trump is as much a symptom as cause of these problems, which are rooted in inequality, drug taking, alcoholism, and gun violence[6].
We have already seen significant inward migration of skilled and determined Hong Kong Chinese escaping the autocratic rule of Xi Jinping[7]. Over 144,000 have moved to the UK. London, Reading and Manchester are the main destinations, alongside Warrington and Liverpool. Significant numbers of Ukrainians have arrived as refuges. If Ukraine’s regulations forbidding out migration of younger men are eased in the future the stream of skilled migrants could turn into a torrent.
Consequences
Past investment in big cities outside London may pay off. In addition, there could be substantial disruption to existing or ‘traditional’ trends in spatial development. Taken together these may work in favour of a rebalancing agenda, but they will need effective policy support. Four themes are suggested for the future of the ‘levelling up’ agenda under a new government.
First is reinventing industry: UK manufacturing remains a vital part of our economic base. An overemphasis on London and its finance sector has generated an imbalanced economy with too much emphasis on elite wealth, not enough on democratic wealth. Manufacturing matters for the provinces and especially for the worst hit towns, some of which have retained an important base in advanced manufacturing. This demands a long-term strategy for manufacturing beyond the golden triangle and for the energy sector.
Second comes reinventing places: more than four decades of consistent investment in our big provincial cities has transformed their prospects. Places like Liverpool, once seen as hopeless, now have a firm future and a new confidence, especially in their city centres. Big cities may become increasingly attractive to younger skilled individuals and their families and potentially a new wave of highly qualified migrants. We should stick by policy for the big cities. But in addition, we need consistent policy for the smaller towns and cities which have been left stranded, including old manufacturing towns and former mining towns. They need parallel action on several fronts – economic, social, health, crime, transport, energy insulation, the green environment and housing – and that demands consistent funding and new executive and policy capacity.
Third comes unifying labour markets: the UK is a small country and with potentially seamless, fast, high quality public transport and few places need be isolated from the big cities. This demands a regional or sub regional plan for transport, for rail, tram bus and ‘muscle power’ creating systems which can tie together the discrete labour markets of separate city regions which are sometimes only 30 miles apart, building agglomeration economies and economic opportunities.
Fourth comes assembling strategic plans: these must lay the framework for the future. We know that resources are currently restricted, but in the medium term the current investment constraints are likely to be lifted. The immediate emphasis will therefore be on building executive institutions and creating plans. After years of financial austerity, local government and the forward planning system is emaciated. It needs to be brought back to good health with agreed plans at the county/city region level, for the regions, and for national infrastructure planning and the natural environment. A key issue here is whether in England the task can be left entirely to local government and Whitehall, without any regional tier or proactive involvement of central government in the cities and regions. Currently nothing exists.
[1] The Economist Bagehot 16 December 2023
[3] Ian Wray, Creativity, the city and the future, Built Environment, Vol 47, No 3
[4] The Economist, Food for thought: British manufacturing is doing well, 21 October 2023
[5] Ian Wray November 2020, The essential state: pandemic, norms and values, and the new authoritarianism Planning Theory and Practice Vol 20 Issue 4
https://journals.sagepub.com/doi/abs/10.1177/1473095220969626
[6] Anne Case and Angus Deaton, Deaths of Despair and the Future of Capitalism, Princeton University Press 2021
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