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Event - Challenges for levelling up

04 Feb 2022

Slides from the event:

An initial IFS response to the Government's Levelling Up White Paper  

02 Feb 2022

Levelling Up Secretary Michael Gove today published the Government’s ‘Levelling Up White Paper’. This is said to be a “blueprint for spreading opportunity more equally across the country”. 

Authors: Christine Farquharson, Paul Johnson, David Phillips, Imran Tahir,  Xiaowei Xu, Ben Zaranko

Summary of response from IFS researchers:   

  • Today’s White Paper marks a welcome first step, laying out the government’s thinking with a broad set of targets and much-needed detail on what levelling up is actually intended to achieve over the longer-term. 
  • The government’s twelve “missions” look sensible, if a little reminiscent of previous attempts to narrow geographic disparities, and in places perhaps overly ambitious. 
  • It is right to identify that “System change is not about a string of shiny, but ultimately short-lived, new policy initiatives. It is about root and branch reform of government and governance of the UK.” That is a measure of the scale of the ambition. 
  • There is a welcome focus on education, skills, health and transport connectivity. The White Paper also includes a range of metrics by which we can judge progress and success.  
  • The main challenge is that the funding and plan for how to actually deliver this progress is in relatively short supply. Indeed, many of the policy levers that lie directly within government control – tax policy, funding for councils, schools and public health – barely seem to get a look-in. The hope is clearly that new institutions and ‘system change’ can deliver over the longer term. 
  • The key question is whether the government can commit the funding, policy focus and reforms needed to deliver on its ‘national missions’. Otherwise, there is a risk that the government has chosen its destination with no sense of how it plans to get there. 

IFS director Paul Johnson said:

“This white paper recognises the scale of the levelling up challenge. That lack of quick fixes, the long term perspective, and clarity about objectives are all very welcome, as is the recognition that real progress will require a change in governance in Whitehall and beyond.

This is all just a very first step though. The targets are largely in the right areas, but many look extremely ambitious - that is to say highly unlikely to be met, even with the best policies and much resource. There is little detail on how most of them will be met, and less detail on available funding. There is something for everyone, and hence little sense of prioritisation: ambition and resource will be spread very thin. 

Meeting the core ambition of simultaneously improving education and skill levels and availability of high paying jobs in poorer regions will prove extremely challenging. Without that, levelling up will not happen. It will require the level of focus that has gone into this white paper being developed and maintained over decades.”

New research for the IFS Deaton Review of Inequalities, funded by the Nuffield Foundation, suggests that the aim of creating a ‘globally competitive city’ in every part of the UK is ambitious:

  • Labour productivity, as measured by GVA per hour, is far higher in London and a handful of nearby areas (Basingstoke, Slough and Heathrow, Swindon, Reading) than in the rest of the country.
  • Preston, the most productive city in the North West, is nearly 30% less productive than London. The most productive city in the North East, Sunderland, is 20% less productive than London. 

The aim of increasing pay and productivity in every part of the UK will be especially challenging given stagnation since 2008:

  • Labour productivity increased by just 0.5% a year on average since 2008.
  • Real average earnings had only just recovered to their pre-2008 levels before the pandemic hit.

The Inequality: IFS Deaton Review chapter on spatial inequalities is now available to read here.

Meeting education targets will be a tough challenge for the whole country - including London 

The White Paper sets out an ambition to have 90% of pupils leaving primary school meeting expectations in reading, writing and maths by 2030. A serious attempt to tackle the long-standing challenge of under-achievement in primary school is certainly welcome. But the scale of the challenge here is enormous, and will require even top-performing areas to improve more quickly than historical trends. And learning loss from the pandemic means that, rather than making progress over the last few years, we’ve very likely gone backwards.

  • Overall, in 2019 65% of pupils leaving primary school met expectations in reading, writing and maths. On a regional basis, pupils in London performed best (with 71% meeting expectations at the end of primary school), while those in Yorkshire and the East Midlands have the most ground to make up
  • But the gaps between most local areas are dwarfed by the gap between pupils’ current performance and the government’s ambition. In 2019, just 21 of 151 English local authorities had more than 70% of their primary school leavers meeting expectations. Just two – Richmond upon Thames and the City of London – broke 80%. 
  • Unfortunately, it is not at all clear that the Levelling Up White Paper delivers plans and funding to match the scale of this challenge. Without a significant injection of new funding, the fact remains that school spending per pupil will remain below its 2009-10 high point until 2024-25
  • Increasing the number of adults doing high-quality skills training is critical. The government's aim of getting an additional 200,000 people to complete high-quality skills training represents a 10% increase on learner numbers in 2019. However, between 2010 and 2019 the number of learners taking skills-based courses declined by 42%, so even if this uplift is achieved it will leave  learner numbers well below previous levels. 
  • This is not necessarily a bad thing: as experience has shown, the quality of the training people receive matters as much - or more - than total learner numbers. The government’s mission emphasises the need for “high-quality” training; this focus can’t be lost if learners across the country are to receive the standard of training that they need to improve their skills and productivity.

On health, too, the scale of ambition is enormous

The focus on health is very welcome, not least because health inequalities are an ultimate consequence of a whole host of other social and economic inequalities

There is huge variation in health outcomes across the country. In 2017-19, male life expectancy at birth in Glasgow City was 11 years lower than in Westminster (74 compared to 85), and the pandemic has further widened geographical disparities in health

However, the target of raising overall healthy life expectancy by five years by 2035 is extremely ambitious given recent trends:

  • Life expectancy at birth has stagnated in recent years. In England, male life expectancy at birth rose by just 1.5 years between 2009 and 2019, whilst female life expectancy at birth rose by just 1.1 years.
  • Healthy life expectancy - the target outcome - has not improved at all over the last decade, and has in fact fallen since around 2015. Healthy life expectancy at birth fell by 0.5 years for women between 2009-11 and 2017-19, from 64 to 63.5. For men, healthy life expectancy at birth was 63.2 in 2017-19, just 0.2 years higher than in 2009-11.

The inclusion of wellbeing as a separate target also presents challenges:

  • The places with low self-reported wellbeing are not those with low average wages or productivity. Average self-reported life satisfaction in London is among the lowest in the country. This is true even controlling for the fact that young people, who tend to have lower wellbeing, are disproportionately concentrated in London.
  • Measures of self-reported wellbeing are not particularly responsive to contemporaneous living standards. It will be difficult for government to influence measures of wellbeing by 2030.

There is little in the way of new funding, and limited attention paid to the role of tax and spending decisions

Some obvious policy levers for levelling up (such as those relating to tax policy and funding for councils, public health and schools) are firmly within the government’s control, but barely feature in the White Paper. 

Departments and public services will be expected to deliver on these ambitious ‘missions’ from within the budgets set at the Spending Review last autumn, with no new funding announced specifically to meet the challenges identified in the White Paper. There are three key issues here. 

  • First, the spending plans set out by the Chancellor in October were moderately generous by historic standards, but perhaps measure up less favourably against the scale of the ambition outlined in the White Paper. By 2025, many departments’ budgets will still be well below where they were in 2010, and face being asked to do more with considerably less. 
  • Second, the Treasury sets departmental spending plans in cash terms. In the face of higher inflation, the same cash budget is worth less in ‘real’ terms: the same pot of money can purchase fewer things and employ fewer staff. All else being equal, the surge in inflation since cash budgets were set in October will make it harder for departments and public service leaders to deliver on these new national ‘missions’. 

Third, deliberate policy choices since 2010 have made achieving some of the ‘missions’ in the White Paper more difficult to achieve. Between 2009-10 and 2019-20, local government spending (on non-education services) in England fell by £10.1 billion (17.3%), with bigger cuts in poorer areas. Schools’ funding was cut, and schools in more deprived areas faced bigger cuts than those in more prosperous areas. Now, the government wants to oversee a dramatic improvement in schools performance and for councils to help unleash local economic growth. To deliver on its new ambitions, the government may first have to unpick some of the choices made over the past 12 years.


Response to government's Levelling Up White Paper

Article in Public Finance magazine, by Ben Zaranko - 04/02/22

We should interpret this week’s Levelling Up White Paper not as a complete blueprint but as a welcome first step. It is a serious piece of policy work, into which a huge amount of civil service time, thinking and effort has clearly been invested. To deliver on the government’s core levelling up ambitions, this level of focus will need to be backed up by funding and sustained over decades.

Find out more >>>


 


IFS pre-release 'stress test' for the Levelling Up White Paper

01 Feb 2022


Authors

Paul Johnson, Robert Joyce, David Phillips, Xiaowei Xu

This work also draws on work by Henry Overman contributed as part of the The IFS Deaton Review of Inequalities, available to read here.

 

Levelling Up White Paper: A long term plan for jobs, education and skills essential to success

It is widely expected that Levelling Up Secretary Michael Gove will publish the Government’s ‘Levelling Up White Paper’. This is said to be a “blueprint for spreading opportunity more equally across the country”.

New IFS research shows that regional inequalities have been very persistent. Making a difference will take persistent focus over a long time, with no pretence that genuine or big change can be achieved quickly.

IFS director Paul Johnson said:

“Regional inequalities in incomes, wealth, health and education have persisted for decades. There are far more graduates in places like London and the South East where opportunities for high skilled, well paying jobs are much more plentiful than in other regions. Levelling up economic outcomes between places must mean getting high paid jobs more evenly spread - much easier said than done. Meanwhile, if people born in poorer areas are to see the full benefits of that then educational attainment in these areas must simultaneously be improved, or else many of the good jobs will be filled by graduates moving in. Decisions since 2010 to cut public spending in poorer areas more than in better off ones will not have helped.

It is really important to remember in all this that, while high paid jobs are unevenly spread, low paid jobs, and indeed poverty, are not. A higher fraction of London’s population is in poverty than that in any other region. We need to worry about places, but we need to worry about people too”.

Geographical inequalities in the UK are large and persistent

IFS research - including new research that will soon be published as part of the flagship IFS Deaton Review of Inequalities, funded by the Nuffield Foundation - shows that geographical inequalities in the UK are large and persistent.

There are large wage inequalities across regions.

  • In 2019, workers in London were paid £20 per hour on average, 60% more than the £13 in Scarborough and Grimsby.
  • Wages at the top are especially unequal. The top 10% of earners in London earned 80% more per hour than the top 10% in Scarborough. About one in seven of the population live in London, but one in three of the top 1% of income taxpayers live there.
  • The relative positions of places in terms of their average wages has changed very little over the last 20 years.

Geographical inequalities in labour market outcomes are underpinned by large inequalities in educational attainment, and then by the best educated moving to richer areas.

  • Fewer than one in five children from Grimsby go to university and get degrees, compared to one in three children from London.
  • Half of the children from Grimsby who get degrees have moved away by age 27, whereas London further attracts graduates through migration.
  • As a result, high-skilled people and high-paid jobs are concentrated in London and a handful of other cities.

That said, we shouldn’t forget that poor people live all across the country.

  • Wages at the bottom of the distribution are similar everywhere. In 2019, the bottom 10% of earners were paid £8-£9 per hour in all areas.
  • The combination of low wages at the bottom and high housing costs means that poverty rates are especially high in London. 28% of Londoners were in relative poverty in 2016-2019, compared to 22% nationwide.

Levelling up chart

Download data here

Fiscal redistribution and public spending

Taxes and public spending redistribute significant sums of money from London and the South East of England to the rest of the country, and from richer to poorer areas.

London and the South East pay a higher share of the tax burden

  • The amount of redistribution has increased over the last two decades. This reflects a combination of economic trends (such as in property prices) and tax reforms (such as changes in Stamp Duty and income tax) which have increased tax revenues in London and the South East compared to the rest of the country.
  • Tax revenues per person in 2019-20 were 88% higher in London than the North East of England, compared to 66% higher in 1999-00.

But a lower fraction of public spending goes to the North than twenty years ago

  • For example, whereas public spending in the North East of England was 30% higher than in the East of England in 1999-00, it was just 23% higher in 2019-20.

Over the last decade, cuts to English council and schools’ spending have been larger in more deprived areas.

  • Between 2009-10 and 2019-20, spending on non-education services by the tenth of councils serving the most deprived areas fell by an average 31% per resident, almost twice as much (16% per resident) as among the tenth serving the least deprived areas. This was a deliberate policy choice by the coalition government between 2010 and 2015.
  • The extent to which schools’ funding is targeted at schools with the most deprived pupils has declined since the early 2010s. Average funding per pupil for the fifth of schools with the highest levels of deprivation fell from 35% higher than the fifth with the lowest levels of deprivation in 2013 to 23% higher in 2019.

These trends matter for aims to level up health and education across the country. There is a growing body of evidence that spending on schools and council services matter for outcomes, especially among the most deprived and those with greater needs.

It is important that funding for public services is based on appropriate and up-to-date estimates of the needs of different places.

  • English Council funding is still allocated using data from 2013 and formulas from the mid 2000s, since when there have been massive differences in demographic trends across the country.
  • Updated data and a new formula is now used to allocate school funding, but choices the government made when it introduced this formula directly reallocated funding from schools in deprived areas to those in more affluent areas, making levelling-up harder.

A multi-pronged strategy will be needed

The white paper will need to recognise that differences between regions are longstanding and persistent, with differences in wages largely reflecting where high skilled people and good jobs are located.

An effective strategy will have to address the big differences in educational attainment across different parts of the country. But it will also have to consider the extent to which the jobs and amenities that encourage highly skilled people to stay in or move to an area can be spread across all places, or whether certain cities and towns should act as regional ‘hubs’ for high-productivity jobs.

The role of broader tax, public spending and public services policy should not be forgotten. Public services matter for people’s outcomes, and in recent years the way funding has been allocated to different places has often worked against ‘levelling up’.

The ‘levelling up’ agenda is not the first attempt to address the UK’s geographical inequality. Significant progress will require a long-term plan, across multiple policy areas, not least education, skills and economic development.

Making sure tax and spending policy is aligned with the levelling up agenda through, for example, updated funding formulas that target funding at poorer areas, and a revalued and reformed council tax, is a key test of the government’s commitment. It could also be an early ‘win’ in a task that will take many years.


Other work on levelling up


Is public service spending aligned with the ‘levelling up’ agenda?

Observation - 18/03/22

While oft-repeated claims that the UK is the most geographically unequal large developed country are somewhat overstated, the differences in not only economic outcomes but also health, education and public safety across places are striking.

Find out more >>>


Education spending changes put a major brake on levelling up

Press release - 30/11/21

The cuts to education spending over the last decade are effectively without precedent in post-war UK history, including a 9% real-terms fall in school spending per pupil and a 14% fall in spending per student in colleges. Whilst we have been choosing to spend an ever-expanding share of national income on health, we have remarkably reduced the fraction of national income we devote to public spending on education.

Find out more >>>


Education spending: resourced for levelling up?

Event - 30/11/21

The next few years are likely to be particularly challenging for schools, colleges, universities and nurseries. There have been significant squeezes on all areas of education spending over the last decade, which will only be partially unwound over the next few years. The pandemic has led most children to missing months of normal education, is likely to widen educational inequalities and has created acute financial challenges for some providers.

Find out more >>>


The growing gap between state school and private school spending

Observation - 08/10/21

At its recent conference, the Labour party committed to removing charitable status from private schools and the associated exemptions from VAT and business rates. The extra funding would then be used to increase state school spending and would be targeted at pupils from disadvantaged backgrounds.

In this article, we provide further context by showing that the gap between private school fees and state school spending per pupil has more than doubled over the last decade. Such figures will naturally feed into longstanding concerns about inequalities between private and state school pupils, such as differences in access to particular universities and occupations. These have come into sharp focus during the pandemic and will not be easily addressed while the sectors enjoy such different levels of resourcing.

Find out more >>>


Whatever levelling up might mean, there’s an age-old problem to tackle

Newspaper article - 19/07/21

I hesitate to dive into the discussion about levelling up. I have no answers. Nor, really, does anyone else, least of all the prime minister, who certainly provided none in last week’s much trailed but ultimately empty speech. Then again, he’s in good company. This ambition to level up is not a new one, after all. Efforts to reduce the UK’s spatial disparities date back at least as far as the 1934 Special Areas Act. Disparities between the regions of the UK are longstanding and in some dimensions, at least, haven’t actually changed that much in decades.

So what is the problem, what might we do about it and how will we know when we have succeeded?

Find out more >>>


Explainer video

02/10/20


IFS Green Budget 2020 - Challenges for the Spending Review and levelling up

Presentation - 02/10/20

Chancellor Rishi Sunak faces a difficult balancing act at this year’s Spending Review. Major public spending decisions will be made amidst the ongoing fallout from COVID-19, with the end of the Brexit transition period looming on the horizon, and with great pressure for austerity to be brought to a decisive end. The Spending Review is also a natural point to lay out the beginnings of a coherent ‘levelling up’ agenda. What can we expect for public services? Which areas might the government target for ‘levelling up’, and how? How might COVID-19 and Brexit complicate the picture?

Find out more >>>


Economic disruption from COVID-19 and Brexit will complicate the levelling-up agenda

Press release - 02/10/20

The UK ranks at or near the top of the international league table on most economic measures of inequality between regions. The government has pledged to tackle these inequalities by ‘levelling up’ left-behind areas.

Find out more >>>


IFS Green Budget 2020 - Levelling up: where and how?

Chapter - 02/10/20

This government has pushed geographic inequalities to the top of the policy agenda. In his very first speech as Prime Minister, Boris Johnson made clear his intent to boost economic performance outside of London and the South East, to ‘level up’ across the country and to revive the fortunes of the UK’s ‘left-behind’ towns and cities. This is an ambitious agenda, and one that will not be quickly achieved with off-the-shelf policy solutions.

Find out more >>>


Catching up or falling behind? Geographical inequalities in the UK and how they have changed in recent years

Briefing note - 03/08/20

The COVID-19 crisis has brought to the fore increasing concerns about inequalities not only between different population groups – such as the gap between the rich and poor, young and old, and different ethnic groups – but also between people living in different places. Even prior to the crisis though, there was a sense that the UK is not only a highly geographically unequal country, but also an increasingly geographically unequal one.

Such concerns are of significant political import. The Johnson government has made ‘levelling up’ the economy, living standards and life chances across the country a mantra, and has announced a review of guidance for infrastructure investment aimed at increasing the proportion going to the Midlands and North of England.

But just how geographically unequal is the UK? Is it true that these inequalities have been getting worse? Are there particular regions or types of places that have been doing particularly well or poorly? And what risks of widening and opportunities for narrowing these gaps might the COVID-19 crisis bring?

Find out more >>>


Sharing prosperity? Options and issues for the UK Shared Prosperity Fund

Report - 13/07/20

European Structural and Investment (ESI) funds help to pay for initiatives supporting business development, research and development, investment in digital and green infrastructure, as well skills and training interventions and support for job-seekers. But with the UK having formally departed the European Union, the country will stop receiving new ESI funding at the end of 2020. Thus, for 2021 and beyond, the UK government faces choices over what to replace ESI funding with. This is important as ESI funding forms a substantial component of spending on regional economic development in the UK, especially in the poorest regions. The government has announced the creation of the UK Shared Prosperity Fund (UKSPF) to this end, but has so far given few details around its scale, design and implementation.

Find out more >>>


Brexit offers an opportunity to rationalise regional funding schemes. It’s past time government announced what it will do

Press release - 13/07/20

With less than six months until the UK leaves European regional development funding schemes, the UK government has yet to confirm details of its proposed replacement: the Shared Prosperity Fund. A new report from IFS researchers, funded by the Economic and Social Research Council, looks at the issues and options for the design of this scheme, including how different regions would fare if different indicators are used to determine funding levels.

Find out more >>>


Podcast - 09/07/20


 

Revaluation and reform of council tax could be part of the ‘levelling up’ agenda, and could help the poor, young and disabled

Press release - 19/03/20

Property values in London have risen over six-fold since the mid 1990s, compared to less than three-fold in the North East of England. Values in Hackney are over 9 times what they were then, compared to just over 2.5 times in County Durham. But council tax bands and bills, as well as central government top-ups to councils’ revenues, are still based on relative property values in 1991, almost 30 years ago. These bills and funding arrangements are increasingly arbitrary and unfair.

Find out more >>>


Levelling up: what might it mean for public spending?

Observation - 09/03/20

This may be a budget dominated by the coronavirus but the government’s priority to “level up” across the UK is still likely to be a theme. This promise has so far been rather light on details, but the ultimate goal of a ‘levelling up’ agenda would presumably be to reduce the disparities in productivity and earnings across the UK. Recent IFS research has documented these regional inequalities, showing for instance that in London both productivity and earnings are more than 30% higher than the national average, but that in Wales they are 15% lower.

Find out more >>>

Nuffield logo

Mark Franks, Director of Welfare at the Nuffield Foundation said:

“As this research shows, geographical inequalities in earnings are large, persistent, and determined by the concentration of high-skilled people and high-wage jobs in London and a handful of other cities. Reducing these inequalities between areas requires investment in making moreplaces attractive to high skilled jobs and workers but doing so will not necessarily improve outcomes for lower skilled workers.

“It is important that efforts to reduce geographical disparities are supported by action to address other persistent inequalities in the UK, including in relation to age, gender and ethnicity.

Addressing geographical inequalities is important, but even wealthy areas of the country can still have some of the highest poverty rates. We must not lose sight of the fact that people everywhere should have a fair opportunity for a healthy life and good access to education, public services and employment opportunities.”