If Levelling Up is to work, then it must meet the needs of a green economy
Later today, the UK Government will publish its Spring Budget, hot on the heels of last month’s Levelling Up White Paper. Many questions remain about how levelling up will be fiscally achieved and align with the development of our green economy.
The most recent IPCC Report on Impacts, Adaptation and Vulnerability paints a truly sobering picture of the effects of climate change. This is set against an increasingly complex backdrop of deepening cost of living crises, ongoing COVID-19 concerns and a devastating conflict in Ukraine. How can the Government deal with these challenges and simultaneously meet the demands of both the UK Net Zero target and Levelling Up pledges?
Levelling Up just got harder
When the Levelling Up White Paper was published In February, initial reception was mixed – but on one thing all observers were agreed: Levelling Up was not going to be easy.
The vision behind Levelling Up is to address longstanding economic inequalities between London and the South East, and the rest of the UK. Yet we aren’t starting from scratch. The subject of evening up standards of living and improving regional and sub-regional productivity across the UK has been attempted before: through national devolution in Scotland, Wales and Northern Ireland, and at a regional level via EU funding and domestic government programmes, such as the New Deal for Communities and Neighbourhood Renewal.
What is new this time is Net Zero. Now, the challenge is not only to promote growth, but to urgently decarbonise the economy and to adapt to the negative impacts of climate change. To do so, the Levelling Up agenda and the national Net Zero strategy must be completely intertwined if they are to achieve success – meaning huge efforts must be devoted to generating the economic and business opportunities that flow from decarbonisation.
The existing energy crisis demonstrates that achieving these goals will be far from easy. With energy costs expected to rise again in April, due to the price cap being lifted, the Chancellor will have to consider very carefully how to balance cost-of-living with the global fiscal demands of achieving Net Zero.
This Budget will certainly provide an interesting insight into how the Government intends to talk-up economic prosperity for communities across the country, against a backdrop of rapid cost-of-living increases.
Committing to Devolution
For decarbonisation to successfully fit into the Levelling Up agenda, the entire country must be mobilised to work towards net zero goals. Hence, Government spending must reflect a full financial commitment to devolution at sub-regional level.
It is perhaps no coincidence that the persistence of geographic inequalities across the UK has gone hand in hand with one of the most centralised government structures in the developed world. Right now, while regional authorities are slowly being afforded greater decision-making competencies, they still lack the more extensive fiscal control required to create region-specific solutions to meet their needs.
But a successful green economy is only possible if local and sub-regional government is an architect of funding decisions and resources are readily deployable at a local level. Shifting the focus to support sub-regional initiatives means locally-specific solutions can be developed, making net zero goals more accessible and relevant to local populations.
Not only does this personalise and ground the climate crisis response, but it also supports the building of resilient infrastructure and sector-specific skills over time. By maintaining a significant level of financial independence, sub-regions can become less vulnerable to broader national shocks and can prioritise spending in areas where they clearly see it is most needed.
By giving sub-regions greater economic freedom they will not only have the autonomy to pursue interventions and programmes specific to their local needs, but in doing so, they will be able to support both the Levelling Up agenda and apply net zero solutions as an inherent part of local growth strategies.
Thriving businesses support thriving government
Key to regional development is allowing the private sector to flourish. The Government must provide opportunities for businesses to succeed locally, regionally and nationally – by establishing effective and efficient infrastructure, supporting new industries and product development, and skilling up local workforces.
Over 80% of the UK population works in the private sector. Therefore, to successfully ‘level-up’, the Government must understand what private businesses need, whether they are placed in technology, energy, finance, or healthcare, to enable effective business expansion.
Given that the bulk of the country’s economy is tied to business growth, the private sector must be effectively supported and incentivised to drive success. Local business clusters will develop most effectively where they have the scope or conditions for market capture and innovation. Government must create the conditions for businesses to view new regional marketplaces as attractive environments for investment.
For example, there could be a greater focus on establishing freeport style entities and developing business hubs more widely across the UK. Likewise, prioritising education and enhancing skills development particularly at a younger age, in left-behind communities, would support development of green industries regionally.
Going forward, collaboration is vital to ‘level-up’ and so the Budget should reflect a closer partnership between the private and public sectors.
Conclusion
In the wake of COVID-19, the ongoing cost-of living crisis, set against a backdrop of conflict in Eastern Europe, the UK Government has tough decisions to make in terms of providing financial support to struggling communities and businesses now, whilst incentivising investment for a future green economy. Tough decisions will have to be made and political expediency will need to be balanced against what’s really required for sustainable UK growth.
What is clear is that an over-cautious approach will only entrench economic stagnancy and push the UK further down the path of deepening inequalities between the different regions of the UK. In terms of levelling up, regardless of the exact form it will take, it is vital that it is a success this time.
Rather than using the current geo-political and economic challenges as opportunities to roll back – even temporarily – on net zero commitments, government spending should set out the path ahead and align with green growth. Ultimately, combining our net zero commitments and national Levelling Up plans is not only the most economically sound way forward, but it is also the only way to truly achieve a thriving green economy.
Jim Coleman is Head of Economics at WSP, one of the UK’s leading engineering professional services consultancies.
To find out more about how WSP’s Economics team is supporting clients and communities across the UK, or to get in touch, please visit our Economics webpage here.
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