July 22, 2022

Remember levelling up? Before Patterson, Partygate, and Pinchergate, it was supposed to be the main focus of this government. Along with getting Brexit done and keeping Corbyn out of Number 10, it helped win the Tories their largest majority in 40 years.

It is a clear and important attempt to address the UK’s deep regional disparities, without relying on traditional fiscal redistribution. But trotted out so much over the past few years, the idea has been emptied of meaning; it has also been almost completely absent from the leadership campaign amid the broader debate on tax cuts and the culture wars. Neither candidate has grappled with it despite Michael Gove’s urging.

Liz Truss, a self-proclaimed Thatcherite, has made much of her plans to deregulate the economy and lower taxes — music to many Conservative member’s ears. But when it comes to urban regeneration and boosting left-behind places her emphasis is on “new low-tax, low-regulation zones”. Her own launch drew parallels with the Thatcher-era regeneration of the London docklands.

But Thatcherism didn’t really have the answers. The hugely-successful London docklands regeneration programme has, for instance, been described by Dr Jack Brown as “an extremely un-Thatcherite mechanism for achieving urban regeneration”, since it saw the state (via the London Docklands Development Corporation) acquire land, spend money on infrastructure, intervene in the market and expand public sector employment. Hardly the free market free-for-all promised by Truss. Neither is Eighties Merseyside a great example of Thatcherite levelling up. All Michael Heseltine as Minister for Merseyside could manage was to prettify Liverpool’s docks and inaugurate a garden festival, neither of which had any long-term impact on the rest of the city.

Meanwhile, Sunak is rigorously and risibly also claiming to be Thatcherite. Patrick Minford, economist and former advisor to Thatcher, is having none of it. He quite rightly claims that no Thatcherite would have raised taxes to a 70-year high. At least Truss’ plan for lower taxes would leave more money in people’s pockets to spend in their local areas, nominally boosting the local economy.

Sunak can certainly talk the talk when it comes to levelling up — he has won the support of Tees Valley mayor Ben Houchen and signed the Northern Research Group’s levelling up pledge sheet — but it comes to walking the walk the former chancellor is immobile. During his time at the Treasury, he was a significant barrier to spending more on what should have been the Government’s flagship policy, including granting more money to levelling up when the policy was relaunched in November 2021 and placing his own leafy constituency – in the bottom 20% on the index of multiple deprivation – in the highest category for levelling up funding. If this is counts as having “readily embraced levelling up”, as Seb Payne wrote in yesterday’s FT, then I would love to see what Sunak would do if he were opposed to it. In reality, his instincts are more suited to the austerity era than today’s political context.

Neither of them — nor the party at large — recognises the true scale of the problem that levelling up seeks to address; even fewer people in government realise just how expensive the policy will be. The scale of spending needed goes “far beyond anything currently being contemplated” by the government, says the Resolution Foundation; it is on par with the reunification of West and East Germany, says The Centre for Cities, and so is the cost: around £2tn. Yet the Government’s Levelling Up Fund is currently at a paltry £4.8bn, roughly the same as the spending on “Project Gigabit” (roughly around 0.25% of what Centre for Cities say is needed).

Perhaps inconveniently for our candidates, voters are now convinced that levelling up is important. Polling by More in Common in January 2022 found that 59% of voters think progress on levelling up will be important in deciding who gets their vote in the next election. Among the sub-group who swung most strongly towards the Conservatives in 2019, the ones the party desperately needs to retain if it wants to hold the hallowed Red Wall, the proportion rises to 70%.

There are, however, risks to uniformly embracing levelling up as a key policy. It is particularly problematic in areas of traditional Conservative strength in the south of England. In the South East, 25% of voters think it will result in less money being spent in their local area, compared with just 2% who think there will be higher levels of spending. In the South West, the figures are 23% and 5%. The Liberal Democrats have been making hay with this, painting levelling up as something which focuses solely on the north of England and ignores the very real issues people are facing in southern coastal or rural communities. Some Conservatives also fear this is the case. Perhaps it’s no wonder that those leadership candidates, for a party now 10 percentage points behind in the polls, are trying to downplay the policy.

But are the Conservatives really in a catch-22, whereby if they focus too much on levelling up they may hold on to some of the Red Wall at the expense of the so-called (and less rigorously defined) Blue Wall?

Not necessarily. There is a chance here for the new prime minister to properly embrace it. Only one quarter of voters know exactly what levelling up means, and one quarter have never heard of iteven though Boris Johnson described it as “the defining mission” of his government. So the new prime minister has the chance to reframe it as a policy for the whole country, one seeking to tackle the causes of poverty and a lack of opportunity wherever these are found.

Does either have the chops to do this? The scale of the costs involved — and the level of spending necessary — means Sunak is completely unsuited to the challenge. Truss, less so. In fact, one of her existing flagship policies might also provide the way forward for levelling up: “Covid bonds”. This is her proposal to package up Covid debt and repay it over a much longer term than the traditional government debt repayments of between 10 to 30 years, and separate it from traditional borrowing on the government’s books. It is an approach that could also be applied to the funding of levelling up.

Consolidated annuities (or “consoles”) — ie bonds that pay a fixed interest rate but have no fixed repayment date — could be used to fund proper levelling up at the scale required to truly tackle the problem. This would allow the government to separate levelling up borrowing from day-to-day borrowing, lock in current low interest rates, and free them from a set repayment date. Putting control of this money in the hands of Department for Levelling Up would also liberate the project from the straightjacketed thinking of the Treasury. The best time would have been when interest rates were truly rock bottom, but the second-best time is now.

There have been numerous proposals for what the new government should do under a levelling up agenda, some of it undoubtedly good — bringing back Gove as Secretary of State for Levelling Up, more devolution to combined authorities and councils, county deals, lifetime skills budgets, control of the bus network, prioritising spending in areas of deprivation — but the impact of levelling up will be limited if it is not backed up with significant financial firepower.

A proper funding scheme for levelling up is also necessary to reassure voters in the south of England that they will not be used as a magic money tree to fund spending in the north of England. It is also popular with Conservative voters: as I wrote here two years ago, Conservative voters as a whole think austerity has gone too far, and they want to see more money spent in their areas. This is particularly the case in the Red Wall. Only with enough money to go round, at a level suitable to tackle the UK’s long-term and deep-rooted issues wherever they occur, will the Conservative Party be able to hold on to both Red and Blue Walls.

Johnson himself recognised this, and used his final PMQs to issue a warning and a thinly-veiled dig at Sunak: “I love the Treasury, but remember, if we’d always listened to the Treasury we wouldn’t have built the M25 or the Channel Tunnel.” If we listen to the Treasury today we won’t get real levelling up tomorrow — or ever. And we’ll see Starmer in Number 10 come the next election.

Sunak will always be more comfortable in Davos than Darlington. But just as Thatcher challenged the traditional economic thinking of her time, Liz Truss could — at a push — do the same now.