The Subplot | MIPIM special: levelling up

Welcome to The Subplot, your regular slice of commentary on the business and property market from across the North of England.

THIS WEEK

• The North’s big problem: ahead of next Wednesday’s UK Budget, a look at why levelling up isn’t happening
• Elevator pitch: your weekly rundown of who is going up, and who is heading the other way

MIND THE GAP

What’s going wrong?

This week, three reports tell one story: why the North’s economy, and hence its property business, has a big problem. Ahead of MIPIM week, we ask if levelling up is still alive.

On Wednesday next week, chancellor Jeremy Hunt is due to deliver his first (or second) budget. Coincidentally, MIPIM is convening in Cannes at the same time, which makes it a good moment to take stock of the government’s flagship regional policy: levelling up. The property business – and many local politicians – are relying on it. Can it deliver? The three stories in this week’s Subplot suggest it’s going to be tough.

Moving targets

If you want to level up regional economies then it stands to reason you need to know what’s holding them back. The old war horse answers are a lack of skills and training, not enough graduates, and poor access to the kind of finance that growing businesses need. The result is a lack of enterprise and low GDP per head. But new analysis by Harvard University co-authored by former shadow chancellor Ed Balls, knocks those ideas on the head. If levelling up is aimed at the wrong targets, the report implies, it just isn’t going to work.

Not quite right

The analysis looks at the “binding constraints” of the UK’s underperforming regions, and concludes that many of the banter answers are dubious or wrong. In particular, the authors can’t find compelling evidence that the problem is low retention of graduates, or a general lack of finance to grow companies, or that too many people migrate from the poorer regions to the richer.

STEM matters

But what they did discover is that poor infrastructure in big regional cities was a serious brake on development, that government policy didn’t help, and that graduate shortages in certain scientific, technical, and engineering disciplines (and funding to match) made all the difference in the world. They added that finding ways for people to leave London would also be useful.

Trains, of course

The big claims, though, come around city infrastructure. Coming the week after the latest Northern Mayors get-together in Newcastle to bemoan the region’s non-functioning inter-city rail network, it couldn’t be more timely. Their argument goes like this…

Poor comparisons

To grasp the problem you need context, and the context is international. Northern cities have more congested roads and smaller road networks than equivalents in the US, and have less public transport than equivalents in Western Europe. Some clever work on road congestion suggests that Manchester has near London-levels of congestion; Hull is poor, Liverpool, Leeds and Newcastle aren’t so bad.

Your service is delayed

Rail congestion is focused on Leeds and Manchester, Sheffield is iffy, everyone else is not so bad. They guess that if regional trains weren’t so consistently rubbish then demand for public transport would be higher, so the gap in infrastructure provision would be more obvious. The real victim here is Birmingham, where things are so bad it makes even London look good.

Effective size

The result of this transport gap is that the “effective size” of cities is limited. Large populations do not translate into large economies. They just can’t punch their weight. “The UK’s cities – outside of a handful of Southern exceptions, most notably London – do not appear to benefit from the agglomeration economies seen in other industrialised countries, where scale and population density are strongly associated with higher productivity,” the authors say. “Effective size” is a key idea, one well worth remembering.

TL; DR

Unfortunately there is no killer statistic: it’s not that kind of analysis. But it is nuanced and careful. The conclusion is that levelling up isn’t going to work unless you hit the right targets. But the authors also take time out to consider the way central government works and if you want killer quotes, this is it:

Look in the mirror

“This failure to stabilise governance structures for development, alongside patchy attempts at policy devolution, could be considered an obstacle to progress in narrowing the UK’s regional inequalities – especially when we consider that London and Scotland, two of the country’s relative productivity success stories, have benefited from relative stability and decentralisation.”

In other words, if we want levelling up to work, the place to start work is Whitehall and Westminster.

ELEVATOR PITCH

Going up, or going down? This week’s movers

A good week to be building sheds in North Manchester’s growth corridor; a bad week for fiddling with the Levelling Up Fund rules.

Pilsworth Plans

The vital Heywood-Pilsworth site that straddles the Bury-Rochdale boundary has been given a boost in the continuing to-and-fro of the public examination of Places for Everyone. PfE, you’ll remember, is the nine-borough plan for property and economic development in Greater Manchester, for everywhere except Stockport.

The plan now envisages additional development in the period to 2037, taking the lifetime total to 13m sq ft of industrial and warehousing – including the development of an Advanced Manufacturing Park.

But specific pledges to improve Junction 3 of the M66 and links between Junction 3 of the M66 and Junction 19 of the M62 got scrubbed from the latest draft. More vague general language about infrastructure was inserted instead, along with the commitment to explore the motorway junction improvements. Green Belt wording was beefed up, too. You can read it all here.

It’s still a bit early to judge the tenor of the inspectors’ changes – six of this, half a dozen of the other. But there’s definitely angles that could be politically popular in May’s elections.

Broken Britain

Next week the local councils (and their property industry partners) who failed to win levelling up funding in rounds one and two will get a written explanation of where they went wrong. The emails will land in inboxes a few days after it emerged that Levelling Up Department is likely to underspend by £2.5bn, thanks to economic upset and the usual delays.

It so happens that the House of Commons Levelling Up Select Committee has just released the latest batch of written evidence including a contribution from the Productivity Institute, a research vehicle whose co-pilots include Manchester University’s Andy Westwood and Jack Newman.

The Productivity Institute said it wants to explain the relationship between economic outputs and the way we are governed, and made a stab at an explanation: the answer includes a “pattern of short-termism and ad hoc decision-making” and “a centralising mindset, invariably implemented in an incoherent and fragmented fashion.”

So long as government tinkers with local structures and rules, but does nothing about its own centralised incoherence, pots like the Levelling Up Fund are “unlikely to translate into lasting or significant policy outcomes” they conclude.

The immediate prospect of a third round of bidding seems low: ministers told the Commons Levelling Up Select Committee “we want to reflect on the learning from Rounds 1 and 2 before running a further round. We will provide further detail on this in due course.” Yeah, yeah, yeah.

Get in touch with David Thame: [email protected]