State intervention can boost our economy but only the private sector can rebalance it

The government’s long awaited levelling up white paper was met with a lukewarm reception last week. One of the main complaints was that there was not enough – or in fact any – new money for the regions.

Many localities have become stuck with low levels of productivity and, as a consequence, low levels of income for many of their residents.  

In principle, market forces – incentives and the price mechanism – can be used to get them out of the trap. But in this particular context market forces operate only slowly, at almost glacial speed. Many areas of the country have had cheap land and cheap labour for decades, yet we hardly see businesses flocking to them. If they had done so, there would be no need for a levelling up policy altogether.

The upshot is that state intervention can provide a vital boost to kickstart these areas. This kind of growth can ultimately be delivered only by the private sector; the public one, though, is a crucial enabler. 

The problem with the advocacy of yet more public spending is the £500bn debt which the government has accumulated over the past two years. At some point, the financial markets will decide enough is enough. Additional large tranches of government debt will then require much higher interest rates before they are accepted.

Exactly when this point will be is essentially a matter of judgement rather than scientific analysis. But we know for certain that we are £500bn nearer the point than we were two years ago.

Within these financial constraints, the white paper sets out an innovative framework for addressing the decade-long issue of levelling up.

A key aspect is that there is a clear statement of the “missions” expected to be fulfilled by 2030. This is much more than a set of metrics with which to judge success: it gives a vision, an aspiration as to what can be achieved. Successful companies know that setting a vision is a vital ingredient of success. Without it, companies lack focus – exactly like most of the regional policies which have been tried over the past five or six decades.

The white paper also takes a much broader perspective on levelling up than the usual. Six drivers of success are identified, each of which is an aspect of “capital”: physical, human, intangible, financial, social, and institutional. Crucially, these need to work in combination, as “the sum of these factors is then greater than the individual parts”.

Devolving powers further to the localities is another very welcome aspect of the policy. Local politicians may still get it wrong, but their perspective is more likely to succeed than a one-size-fits-all approach imposed by Whitehall.

This is particularly important in ensuring there is levelling up within regions, where the disparities are just as wide as they are between the regions themselves and the global city of London.

Finally, there is welcome reinforcement of success, with three Innovation Accelerators, industry-academic clusters based on the model of partnerships in America around Silicon Valley and Boston. The areas concerned – Greater Manchester, West Midlands and Glasgow – have each made promising starts towards this aim.

Overall, the widespread criticism of the white paper is misplaced. Yes, more money would have made it better. Yet it sets out an analytical framework and vision on which success can be built.

As published in City AM Wednesday 9th February 2022
Paul Ormerod
Image: maxpixel

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ALEX O’BYRNE

Associate

e: aobyrne@volterra.co.uk
t: +44 020 8878 6333

Alex O’Byrne, Associate at Volterra, is an experienced economic consultant specialising in economic, health and social impact, economic strategy, project appraisal and socio-economic planning matters.

Alex has led the socio-economic and health assessments of some of the most high profile developments across the UK, including Battersea Power Station, Olympia London, London Resort, MSG Sphere and Westfield. He has significant experience inputting to EIAs and s106 discussions as well as drafting economic statements, employment and skills strategies and affordable workspace strategies.

Alex is also experienced at economic appraisal for infrastructure. He was project manager of the economic appraisal for the City Centre to Mangere Light Rail in Auckland. He also led the economic and financial appraisals of the third tranche of the Transport Access Program for Transport for New South Wales, in which Alex developed and employed innovative methodological approaches to better capture benefits for individuals with reduced mobility.

He is interested in the limitations of current appraisal methodologies and ways of improving economic and health analysis to ensure it is accessible to as many people as possible. To this end, Alex recognises the importance of transparent and simple to understand analysis and ensuring all work is supported by a robust narrative.

Alex holds a BSc (Hons) in Economics from the University of Manchester and he was a member of the first cohort of the Mayor’s Infrastructure Young Professionals Panel.

ELLIE EVANS

Senior Partner

e: eevans@volterra.co.uk
t: +44 020 8878 6333

Ellie is a partner at Volterra, specialising in the economic impact of developments and proposals, and manages many of the company’s projects on economic impact, regeneration, transport and development.

With thirteen years experience at Volterra delivering high quality projects to clients across the public and private sector, Ellie has expertise in developing methods of estimating economic impact where complex issues exist with regards to deadweight, displacement and additionality.

Ellie has significant experience in estimating the economic impact across all types of property development including residential, leisure, office and mixed use schemes.

Project management of recent high profile schemes include the luxury hotel London Peninsula, Battersea Power Station and the Nova scheme at London Victoria. Ellie has also led studies across the country estimating the economic and regeneration impact of proposed transport investments, including studies on HS2 and Crossrail.

Ellie holds a degree in Mathematics and Economics from the University of Cambridge.