The UK government is seeking to reinvigorate its plan to “level up” prosperity across the country by creating a new body to drive economic growth in the north of England, despite the impact of the Covid-19 crisis on public finances.
Jim O’Neill, the former Goldman Sachs economist and Treasury minister, is in talks with the government to chair a new Northern Powerhouse “growth board” to help deliver on Boris Johnson’s election promise to narrow the UK’s north-south wealth gap.
The talks with Lord O’Neill, confirmed by people with knowledge of the discussions, are a sign that after three months battling coronavirus, Mr Johnson is now shifting focus back to his pre-crisis agenda of improving lives in towns and cities across the so-called “red wall” seats in the north and Midlands that underpinned his December election victory.
The Ministry for Housing, Communities and Local Government declined to say whether Lord O’Neill was in contention to lead the new body, but one official confirmed it was seeking “major figures” to implement the plans. Lord O’Neill also declined to comment.
However, Whitehall insiders said that appointing the man who guided the Northern Powerhouse under chancellor George Osborne, but quit under Theresa May because he felt the project was being sidelined, would send a strong signal of intent.
Before the coronavirus crisis, the government had pledged to tackle decades of regional UK inequality by investing heavily in infrastructure, science, and skills training, including a dedicated £4.2bn fund for urban transport and a £3bn national skills fund.
In his March Budget, chancellor Rishi Sunak promised capital investment amounting to “triple the average over the last 40 years in real terms” but the spiralling costs of coronavirus have now cast that into doubt.
“Is that [£4.2bn] still going to come? We will be lobbying hard for it,” said Andy Street, Conservative mayor of the West Midlands, adding that the party’s commitment to levelling up remained strong. “The political necessity for it is still there, even more so as we come slowly out of the pandemic,” he added.
But with the Office for Budget Responsibility now forecasting that government borrowing will hit £298bn for the 2020-21 fiscal year — up from an estimate of £55bn before the lockdown was introduced to slow the spread of the virus in the UK — opposition politicians question what will actually be delivered.
“The Treasury is in default mode, challenging every dot and comma of everything. There is no trust,” said Andy Burnham, the Labour mayor of Greater Manchester, who warned of a “rerun of the 1980s”, with massive unemployment and social breakdown if the government failed to deliver on its election promises.
In Whitehall and Westminster, a renewed focus on improving the “left behind” parts of the UK is expected once the immediate lockdown begins to ease. Mr Johnson reassured Tory MPs last week that the crisis was “a springboard to double down on the ‘level up’ agenda”.
Richard Holden, who became the first Tory to win the North West Durham constituency since its creation in 1950, said the government had no political choice but to deliver. “What the prime minister said initially is what he meant; when he said people have lent us their votes, we must deliver for these people,” Mr Holden said.
He added that giving Mr Sunak, who is MP for Richmond in North Yorkshire, direct responsibility for the Northern Powerhouse might also help turbocharge the agenda. The brief is now held by Grant Shapps, the transport secretary.
Paul Swinney, director of policy at the think-tank Centre for Cities said that focusing on rail systems within cities, better skills training to boost services clusters and more devolution were the three keys to transforming UK cities, which typically lag their US and European peers in terms of productivity.
A Centre for Cities analysis of unemployment statistics released by the Office for National Statistics this week found that northern and Midlands cities and towns had seen the highest increases in the UK, with Blackpool, Liverpool, Hull, Belfast and Manchester topping the list.
“There’s lots of talking about ‘levelling up’, but the government is in ‘propping up’ mode at the moment, not levelling up,” Mr Swinney said. “The question is how to get back on an even keel, because if we get there, the levelling up agenda won’t have gone away.”
Downing Street believes that the coronavirus economic shutdown and ensuing rebuilding of the UK economy can go “hand in glove” with the levelling up agenda.
“It’s just about how we manage the changing circumstances. We can turbocharge a lot of that policy and perhaps see a greater delivery on levelling up than was once thought,” said one senior Downing Street official.
With the threat of 1980s-level youth unemployment looming, vocational education is one aspect unlikely to be knocked off the government’s levelling up agenda.
One government insider said the aim remained to give young people opportunities “by studying things that are really valuable to industry”.
The government has already pledged £2bn for improvements to FE institutions, but some in the Department for Education are concerned that funding from the Treasury will prove “more difficult given the impact Covid is having on the finances”.
The dilemma facing Mr Johnson and Mr Sunak is whether to cut spending and public services — or ask for a larger tax contribution from those wealthy traditional Conservative voters in the south-east of England, who already subsidise public services in the rest of the country.
Torsten Bell, the chief executive of the Resolution Foundation, a think-tank focused on those on low-to-middle incomes, said how the Tory party confronted that choice would be the ultimate test of their commitment to “levelling up”.
“The overall strategic decision facing the Tory party is the need to confront the choice on tax,” he said. “In the end, when push comes to shove, you choose the social solidarity approach on spending — if making a break with the politics and economics of the 2010s and supporting the ‘red wall’ is what you are ultimately about.”