The UK’s failure to tap the productive potential of its regions and nations goes a long way towards explaining its flagging international economic performance. Its economy is among the most geographically imbalanced in the rich world. The economic might of its second cities lags behind those in peer nations. Its leading light, London, has also slowed since the financial crisis. It is not for want of trying: successive governments have tried and failed to boost British towns and cities. But the longer the UK wavers without a strategy for national growth, the further it will fall in the global economic pecking order.
Learning from prior efforts is vital. The UK’s regional development policy has long been plagued by inaction, inconsistency and a lack of focus. A 2017 industrial strategy, 2021 “plan for growth”, and 2022 “growth plan” have all come and gone. Boris Johnson’s “levelling-up” agenda has not taken off. The country now lacks a growth strategy that it desperately needs. To get it right Britain must focus on its existing specialisms, slash growth barriers — such as limited funding, regulation and poor connectivity — and develop institutions to execute and monitor long-run UK-wide development.
Building on existing competitive strengths is crucial. Backing clusters which are emerging throughout the UK — particularly in growth sectors like clean tech, AI and life sciences — can bring global trade and investment to the regions and stimulate the development of towns and cities. The government must also better support the country’s world-class universities, which can act as hubs for regional growth by driving job creation and research and development activity.
To support these strengths, Britain must lift barriers to growth. Funding is essential. Given the knock-on benefits of spending on R&D and infrastructure, the government must boost public investment, which has proportionally been among the lowest in the OECD over the past two decades. It should also evaluate the development of long-term economic investment funds, for example by consolidating existing pots or by drawing on public sector pension schemes and income from public assets. Raising private sector finance streams via initiatives to encourage pension and insurance funds to invest in long-term assets remains important.
At the same time Britain must address its toxic inability to build. Its strained housing supply limits the movement of people across the country. Onerous planning regulations need to be reformed and local authorities need more incentives and responsibility to develop land. Tax reform could play a part. Stamp duty, a tax on property transactions, limits mobility. A tax based on property value makes more sense. Better yet, a land value tax would incentivise development. Improving infrastructure is a priority too. Road and rail links between northern cities are poor, as is urban transport: average commuting times are among Europe’s longest.
The right institutional set-up is important. The UK is highly centralised, with Westminster driving policy and funding plans. Further devolution of decision-making to local authorities, alongside more tax retention and revenue-raising powers, would help to ensure policy is more responsive and accountable to local needs. An independent body to monitor and advise on regional and supply-side policies might be beneficial. It would help embed long-termism into the growth agenda beyond the electoral cycle.
Next week’s Budget is an opportunity to begin addressing these issues. As this, and future, governments look to mend the UK’s growth woes, they must not overlook the vital importance of unlocking the latent talent, investment and innovation in all its regions and nations.
This is the third in a series of editorials on boosting UK economic growth. Previous leaders examined skills and workers, and investment.
Source: Economy - ft.com
