The ‘Levelling Up’ agenda is the heart of the UK Government’s current policy. It has announced billions of pounds in new spending to be allocated across the nation with the aim of ‘supporting jobs, businesses and economic growth.’ If done properly, the rationale is undeniably positive: by connecting ‘left behind’ parts of the country and spreading opportunity throughout by removing legal and regulatory barriers, ‘levelling up’ has the potential to increase overall productivity and wealth.
What ‘levelling up’ is not, is taking wealth being generated from one part of the country and shifting it to others with no objective measurements. This does not create wealth; it merely shifts it about. Abolishing cost-benefit analyses, as one Member of Parliament suggested, is not levelling up either. Nor is spending £100 billion of taxpayer’s money on a train line for a select few to save 45 minutes on their journey. Ditching vital reforms to the housing market due to strong opposition from a small but outspoken vested interest is not levelling up; it is counterproductive.
We are at risk of ‘levelling up’ becoming a proxy for one set of vested interests grabbing resources at the expense of everyone else. The list of projects demanded in the name of levelling up is astounding. Some have called for taxpayer funded stadiums, subsidies to ‘adult education,’ railway projects with very low cost/benefit ratios, state funding for underutilised bus networks, and a wasteful ‘kickstart’ scheme that subsidises big employers for the staff they would have hired anyway. Also in the name of ‘levelling up’ are raises to the minimum wage, and funds for ‘green projects.’
Far from levelling up the country and creating wealth, this form of ‘levelling up’ destroys and disincentivises wealth creation through misallocating resources. It also creates a moral hazard: the risk is always borne by the taxpayer, whereas the gains primarily go towards individuals.
If a project is truly valuable to ‘society’, individuals would be willing to exchange money for the service being provided. If the project is profitable, it means that enough people deem it of value to justify the costs. Unprofitable projects, however, are not deemed valuable by enough people to justify those costs. In this case there are two options: raise the price for individuals, or stop the project outright. Subsiding projects does neither and forces everybody to pay for things that they neither benefit from nor value very highly so that a select few can enjoy those privileges.
This is possible due to costs being spread very widely. The costs of HS2 will only amount to a couple of pounds per person meaning that there is very little incentive to protest. For the vested interests which stand to benefit, there are billions of pounds of state funding at stake, and so these will campaign very strongly in favour. This is the same with the debate over housing policy and almost all other forms of coercive taxation.
The ‘levelling up’ agenda in its current form is flawed for another reason. In Edward Glaeser’s ‘Triumph of the City,’ he identifies an important fallacy. Policymakers often spend billions of dollars attempting to ‘level up’ and renew cities through new buildings and cultural centres. To do so is to reverse cause and effect: companies invest in the built environment because of an accumulation of human capital and skills in a given area. It is also not desirable to atomise cities, which at their core are labour markets and benefit from economies of scale. Cities are more productive because of the concentration of skilled workers, employers, and capital.
If the Government is serious about levelling up, it would make these agglomeration effects possible through reforming the housing market to remove the incentive or possibility of NIMBYism. A failure to do so is not only counterproductive but also immoral: blocking young people from accessing opportunities where they are found and blocking social mobility.
Levelling up should focus on lives and not places. It means trusting people to know how best to allocate their own resources, rather than forcing them to devote their money in a set way through tax and spend. It should mean encouraging innovation and entrepreneurship, removing red tape, price caps, and subsidies to unleash a wave of creative destruction. Whilst I have noted the many problems with the current agenda, there are also a lot of positive elements in the Government’s plan: further devolution will bring decision making closer to the people, and there is the potential for ‘street votes’ on housing, which could have a substantial impact on increasing housing supply.
There are two choices. Levelling up can either be a proxy for different vested-interest groups competing over a limited amount of existing wealth, or it can be a chance to increase individual autonomy, social mobility, and entrepreneurship across the nation. We must hope for and demand the latter.