Leveling up to tackle the UK’s economic malaise

Liz Truss was forced into an ignominious U-turn this week over her plan to cut public-sector salaries outside the UK’s prosperous south-east — the first big mis-step of her campaign to succeed Boris Johnson as prime minister. Yet the backlash to her proposals, including from Tory MPs, was at least a sign that the party has not entirely forgotten the stated mission to “level up” the UK economy. Truss and her rival Rishi Sunak have both devoted surprisingly little time to discussing this agenda. But Truss’s plan looked like “levelling down” poorer regions — when doing the opposite is key not only to the government’s re-election hopes, but to making the UK economy work better.

Both budding premiers have voiced support for leveling up, but with different emphases and limited detail. Truss has pledged to level up “in a Conservative way”, promising low-tax, low regulation investment zones. Sunak has echoed similar support for investment incentives, alongside his earlier freeports initiative, while pressing on with various Johnson-era programs.

With Britain’s tax burden set to rise to its highest since the late 1940s, the leadership contest’s focus on tax cuts is little surprise. Yet the UK has moved towards being a higher-tax country in part because it has also become a low-growth one. This stems from its lackluster productivity, or output per hour, which has stagnated and lagged behind other advanced economies since the financial crisis. Huge disparities in prosperity between UK regions and nations reflect a failure to draw upon the whole country’s productive potential to drive up growth. Both Tory candidates should put forward more detailed solutions for what is a significant driver of the UK’s recent economic malaise.

Building on existing strengths should be a big focus. Supporting clusters — especially in growth sectors such as clean tech, AI, and life sciences — that are sprouting across the country can bring global clout to the regions, attract finance and stimulate the development of the second-tier towns and cities, which do not compete well internationally. UK regions are also well-blessed with world-class universities that have the potential to become hubs for driving research and development, job growth and diffusing innovations into the economy.

Leveling up should also be about addressing what the UK lacks. Investment has dragged across the country, but rural, coastal, and former industrialized regions have been hardest hit. Both Sunak and Truss have supported tax incentives for investment in some form. These have a role in catalyzing growth in struggling areas. But this needs to be matched by government support for boosting skills, housing and infrastructure linking big cities in the North and the Midlands — the dearth of which only encourages the drain of talent and enterprise to the south.

The right institutional set-up is important if all this is to happen. The government’s February white paper on devolution rightly emphasized devolution as vital to ensuring local politics can respond to local needs. But this needs to be matched by more resources and revenue-raising powers if regional weaknesses are to be addressed.

Yet greater speed and leadership is needed, too, from the central government in bringing big infrastructure projects, from rail links to power grids to nuclear power stations, to the investment stage. Here, the leveling-up agenda can dovetail with net zero and energy security targets. After the Bank of England’s stark warning of an impending slump, Tory candidates should note that speeding up the flow of “shovel-ready” projects will not only provide stimulus for the long run, but for an economy facing a near-term recession.

This is the second in a series of editorials on the Conservative leadership candidates’ stance on key policy issues

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