As long as the agenda is set in London, ‘levelling up’ will never succeed

B ritain is one of the most geographically unequal rich countries in the world. In the decade prior to 2018, while wealth in London increased by 150%, it grew by only 20% in the Midlands and the north of England. Weekly full-time earnings in the capital can be more than double those in poorer areas. These vast economic disparities are not new, but rather longstanding features of the UK’s economy. And despite the government’s recent promises to “level up” the country with a £4.8bn fund, no government over the past 80 years has made significant headway with truly addressing these problems. Without reflecting on history, ministers are bound to repeat the same mistakes.

Efforts to redress the balance of the UK’s economy first began in the 1930s, when mass unemployment led workers to drift increasingly southwards. The Barlow commission in 1940 highlighted the concentration of economic growth in the south-east; at the time, five out of six factories employing more than 25 people were located in Greater London. Unemployment and population drift abated during the second world war, and the commission’s proposals were put on hold until the war ended. During the period from the end of the war to the mid-1960s, both Labour and Conservative governments were committed to balanced industrial development. But the problems identified in the Barlow commission persisted. As Bill Rodgers, the undersecretary of state for economic affairs, said in 1964: “We are still coming to terms with the same problems that faced us … 25 years ago.”

Throughout the 1980s and 90s, Conservative governments took a different approach to addressing the UK’s lopsided economy. Against a backdrop of deindustrialisation, privatisation and the deregulation of the financial sector, the Conservatives favoured remedial action to address land and property markets. Urban development corporations, the flagship policy of Margaret Thatcher’s environment secretary Michael Heseltine, were established to reclaim and assemble derelict land, while regeneration policies took the hard edge off urban decay and inequalities. Yet neither comprehensively tackled the underlying causes of Britain’s economic imbalances.

By the end of the 90s, the effects of deindustrialisation were still being felt across swathes of the country. While retail and service sector jobs experienced significant growth, the increase in the size and power of the financial sector continued to drain wealth and economic power away from regional England. New Labour attempted to tackle these problems by giving more direct power and resources to regions. Tony Blair’s government established the National Strategy for Neighbourhood Renewal, alongside regional government offices and regional development agencies (RDAs) across nine English regions. These had budgets of around £2bn a year for 12 years (a total that is significantly greater than the current government’s levelling-up fund), and they made some strides in bridging the economic gap between London, the south-east and the rest of England.

But this proved to be a false dawn. Plans for building a truly regional government through directly elected regional assemblies collapsed. Without regional democratic power, RDAs were hastily abolished by the coalition government, which deemed them wasteful and anti “free market”. They were replaced with business-friendly local enterprise partnerships (LEPs), the nebulous “Northern Powerhouse” and a limp process of devolution, heralded by George Osborne, as a “devolution revolution”.

The problem with all of these policies is that none has ever broken up the power of Whitehall. Devolution has been “ad hoc, incremental and piecemeal”, operating within the confines of austerity. In other words, what has been devolved is not the power to address regional imbalances, but the responsibility to deliver central government priorities according to an economic and financial agenda set by Whitehall.

Solving the country’s vast regional inequalities will require more than top-down tinkering. Significant constitutional change is needed – and English federalism must be on the table. We need to end any hint of the “pork barrel” distribution of resources according to short-term political gain, and instead redistribute wealth according to firm, democratically transparent local needs assessments that steer resources to the poorest areas. We also need funding for universal public services and new fiscal powers for local areas – including business rates reform, council tax reform, a local land value tax and even a hotel or tourist tax.

Fundamentally, addressing these problems would mean tackling the economic model that drives geographic inequality. Currently, investment flows into parts of the country where returns are highest: London, the south-east and regional city centres. These investments represent safe bets that accrue financial returns. Wealth within these places is often extracted by remote businesses and distant shareholders. The winners of this model, such as London, keep on winning – while the regions and the north lose out.

To solve this imbalance, we need to take greater control of investments, making sure they really benefit local communities and aren’t disproportionately concentrated in particular areas. One way of achieving this is through public investment banks, which would ensure investment decisions were driven by long-term economic planning and environmental goals, rather than short-term capital gains from property and land speculation. Another way is through community wealth building, which uses policies such as insourcing and employee ownership to keep wealth flowing in an area and prevent it from being siphoned into the ether of the global economy.

Governments can have poor institutional memories and are constrained by electoral cycles. There is a tendency among politicians to forget what has worked in the past and what has not. Truly “levelling up” the country’s distorted economy will mean learning from past mistakes, breaking with approaches that merely tinker around the edges and confronting the uneven distribution of wealth and power in the UK.

• Neil McInroy is the chief executive of the Centre for Local Economic Strategies