The UK must prioritise levelling up if the economy is to get back on its feet | Business

The UK must prioritise levelling up if the economy is to get back on its feet | Business

A year into the premiership of Boris Johnson, a new kind of normality is beginning to dawn. The roads are getting busier, pubs are open again, and people are slowly returning to the high street as summer rolls on.

It would be normal after a year in power for a prime minister to lay it on thick about their achievements in the last 12 months. But after four months of crisis inflicted by the pandemic, Johnson’s achievements in the past year will always be coloured by Covid-19.

Progress on the promises he made on the steps of Downing Street a year ago remain minimal. Levelling up is still no more than a phrase, social care is not fixed, Brexit is not done. Many voters would give the prime minister a pass on these issues during a global health emergency. But as the summer months provide distance from the initial shock, and as the government attempts to shift gear from crisis management to the recovery phase of the outbreak – with the prime minister promising to “build back better” – patience will be tested.

This week will mark one of the biggest tests yet in the drive to get the country going again. From Saturday, the government will begin to scale back its furlough scheme – the biggest single economic intervention of the crisis, which has benefited 9.5m jobs so far. Businesses will be asked to stump up some of their own money to keep staff on furlough. Funds are due to be entirely removed by October, in a carrot-and-stick approach to encourage Britain back to work.

With town and city centres still quiet – despite gradual increases in the numbers of shoppers – employers will also be asked to return staff to offices from the start of next week if they feel it safe to do so. For once, the message from a government that has so often muddled its communications is clear: Britain is exiting the crisis phase. It is time to get back to normal.

But in the headlong rush, the government plan to get the country going again has severe deficiencies. What’s worse, is that the biggest deficiencies are also those at the heart of the prime minister’s pre-Covid agenda. In particular, the challenge to level-up Britain’s lopsided economy.

As the government attempts to move on from the crisis phase, a damning report from the Commons public accounts committee last week warned that local authorities are at increasing risk of running out of money. Councils are at the eye of the storm in the recovery phase of the pandemic. Some places have been hit harder than others in the economic crash triggered by lockdown, and will require greater support. The prospect of local lockdown restrictions also means greater funding support is required in these areas. But a funding settlement from Westminster of sufficient scale has not been made.

Labour reckons councils face a £10bn shortfall due to to Covid-19, threatening the reopening of town centres and causing more trouble on an already struggling high street. The consequence of this lack of clarity means councils in England fear they will have to make budget cuts of 20%, and face a social care funding shortfall of £3.5bn. The key aims set out by Johnson on the steps of Downing Street exactly a year ago – to level-up Britain’s lopsided economy and to fix social care – are being badly neglected.

Johnson’s government had promised resources would be made available, but many local authorities are facing income shortfalls and a dramatic rise in demand for their services as the economic damage unfolds.

The plan in Westminster is to draw up a comprehensive solution for local areas to help them bounce back, using the chancellor’s spending review to develop a fresh funding settlement. But local authorities can’t wait for the chancellor, Rishi Sunak, to run the rule over local authority funding in a process that is due to complete this autumn. Councils need clarity now so they can plan and prioritise future spending.

The urgency of the task will be further exposed this week in a raft of reports from the National Institute of Economic and Social Research. To be published in its quarterly economic review on Wednesday, Britain’s oldest economics research body warns that extreme levels of regional inequality can drag down the country’s overall economic growth. If the government is serious about levelling up and escaping the deepest recession in history while embedding sustainable growth for the future, tackling this issue head-on is vital.

In a raft of papers, the analysis shows that Britain has a hyper-centralised state structure, with too much power concentrated in Westminster. Local authorities, it finds, have among the lowest levels of revenue-raising and spending powers within the OECD, – falling below both Romania and Ukraine.

For decades this inequality has been allowed to develop, with the worst of the damage done amid the dismantling of Britain’s manufacturing base in the 1980s, just as a bonfire of financial regulation allowed the City of London to boom – fuelling a gulf between London and the rest of the country, particularly former industrial heartlands. Councils have been left unable to invest in their local areas – fostering regional inequality and crimping national growth.

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Repairing the damage was rising rapidly up the agenda prior to Covid-19, but since the onset of the crisis, it has taken on a new importance. According to the NIESR research, devolving power and allowing greater alignment between local government spending and taxation could boost the returns to public investment.

As the government unwinds the furlough scheme, low-income workers that have been among those protected most by the wage subsidy programme will be at the greatest risk of unemployment. Job losses are already rising faster in parts of the country that were already struggling before the pandemic struck.

Following a year with limited progress on his core promises, the coming months as Britain moves from crisis to recovery will need the prime minister to make sure the levelling-up agenda becomes more than just words.

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