Analysis

Transforming the UK economy requires a transformed regional policy

by Professor Ronald Martin FBA

31 Oct 2024

Photograph showcasing famous buildings in London

When it comes to prosperity in regions, cities and towns, the UK economy is one of the worst performers among any of the OECD (Organization for Economic Cooperation and Development) countries. The new government faces an unenviable myriad of economic challenges: improving the rate of growth, productivity, our strained public services and transitioning to net zero. But reducing geographical inequalities, previously packaged under the now unfashionable term 'levelling up', will also be key to transforming and reviving the UK economy.

Regional inequalities are nothing new in the UK, nor is the disparity between the more prosperous and buoyant London and the South East, and the lagging regions and cities in much of northern Britain. A new policy history report by the British Academy in fact shows that persistent and entrenched disparities across the country date back more than a century, along with government policies aimed at reducing and alleviating them. But, after almost 100 years of regional policies of one sort or another, geographical inequalities today are more severe than at any other time since the Second World War. In 1921, for example, GDP per capita in London was 37 per cent above the national average, while in North East England it was 27 per cent below. A century later, in 2021, London had increased its GDP per capita to 76 per cent above the UK’s average, with the North East’s falling further behind to 37 per cent below the national figure.

So why, despite nearly a hundred years of regional policies, have geographical socio-economic inequalities not narrowed? Our report identifies some major and recurring weaknesses that have repeatedly hampered their impact and effectiveness.

Policymakers have failed to recognise the scale of the UK’s regional inequalities, to address the over-centralisation of economic, financial and political power in London, and to give adequate resources devoted to regional policy. The proliferation and churn of policies and institutions over many decades has entrenched these failings. And crucially, regional policy has not consistently considered how broader, national policies also affect regional areas. Regional policy has always been viewed by governments as a marginal ‘add-on’ to mainstream economic policy and management, rather than as an integral means of achieving significant national progress.

Only limited progress has been made via, for example, the government’s 2022 Green Book guidance issued by HM Treasury on how to appraise policies, programmes and projects in assessing the geographically uneven impacts of what are ostensibly ‘national’ fiscal and other spending measures. In fact, these measures can often make regional inequalities worse. The long-standing overconcentration and centralisation of economic, financial and political power and decision-making in London has hindered a more spatially balanced economy. The financial crisis of 2007-2008 brought into sharp focus how the UK economy overly depends on London’s finance industry and in turn, neglects other industries and places.

Since then, successive governments have trialled several attempts to rebalance the national economy. From the promotion of a ‘northern powerhouse’ of northern cities, the introduction of City Deals, the much-curtailed High Speed Rail 2 project, devolution of some powers to new mayoral combined authorities, and most recently the 2022 Levelling Up White Paper and the 2023 Levelling Up and Regeneration Act; all have fallen short of what was promised. The specific aims and targets of ‘levelling up’ the economic geography of the UK have been left somewhat vague, and the financial resources committed to the task are once again wholly inadequate.

With the election of a new Labour government, the future of progress in regional policy is somewhat uncertain. Labour has, rightly, identified reviving the UK’s economic growth as a central priority. That aim will not be achieved without harnessing the productive potential of all parts of the country: after all, 75 per cent of the UK’s GDP is produced outside London. Equally, Labour’s new industrial strategy contains nothing remotely resembling a regional strategy. Implementing one would set out both the need, and the measures required, to ensure that every part of the UK contributes to these missions, and that no regions are left behind.

The UK stands at a critical juncture in our economic development. All of the challenges and opportunities we face are national imperatives, but simultaneously regional ones. Regional policy has a dual function: to help those regions, cities, towns and areas that have been left behind economically and socially, but also, in so doing, to help achieve national economic and social goals. We need wider and deeper devolution to the regions and city-regions and full support, funding, and coherence of purpose from the national political centre. The weaknesses of past regional policy remain unaddressed, but a lesson from history can help the UK secure a fairer, more economically advanced future.

Contact the press office

For further information contact the Press Office on [email protected]  / 07500 010 432.

Sign up to our email newsletters