Following the unveiling of the Government’s Industrial Strategy White Paper, Tom Arnold, a postgraduate researcher of economic development in Northern England, examines what it could mean for spatial rebalancing.

• An improved awareness of where and why economic activity happens, and an approach which encourages longer-term investment, is welcome
• Since the financial crisis, there have been growing calls for a major improvement in the spatial awareness of UK economic policy
• The ‘Rebalancing Toolkit’ aims to ensure transport infrastructure benefits less productive parts of the UK, not just relieve congestion in economically buoyant areas
• Brexit means the Government has limited political bandwidth and a likely economic downturn on the horizon, but the White Paper includes some cause for cautious optimism

The Government’s long-awaited Industrial Strategy White Paper, released yesterday, is not short on ambitious rhetoric. According to the Prime Minister, it will “fulfil the mission” she set out in her first speech as Prime Minister back in the chaotic post-referendum haze of July 2016, to “make the United Kingdom a country that works for everyone”. A key objective, one apparently shared by her predecessor David Cameron, is ‘rebalancing the economy’ – to address the UK’s weak productivity by reducing the persistent economic disparity between the Greater South East and the rest of the country.

The white paper promises “a more strategic approach to infrastructure investment in order to drive growth across the country”, and includes a pledge that no investment decisions will be made without considering the impact on local economies. Previous government pledges to spatially rebalance the UK have come to little, so caution is advisable. However, an improved awareness of where and why economic activity happens, and an approach which encourages longer-term investment, is welcome.

Treasury dominance

Historically, UK governments have been poor at recognising the spatial implications of economic policy. Irregular and generally unsuccessful forays into regional policy over the last 40 years have tended to be regarded as at best tangential, focusing largely on the creation of new sub-national institutions with limited fiscal powers. Meanwhile, the position of the Treasury at the ‘apex of the British state’, acting as both economic and finance ministry, grants it an enormous level of influence over government business. Its institutional conventions are therefore highly significant in how policy impacts the economic geography of the UK.

The Treasury’s Green Book for example, last updated in 2003, sets out the rules of engagement for departments and government bodies when formulating policy interventions. Government intervention should only be considered on the grounds of “market failure”, or where there are “clear government distributional objectives”, and the guide warns policymakers that “government intervention can incur costs and create economic distortions”. Redistribution across space can therefore risk restricting aggregate growth and distorting the market. The implications for spatial interventions are clear. According to a 2006 Green Paper, “policies that aim to spread growth amongst the regions are running counter to the natural growth process and are difficult to justify on efficiency grounds”.

Transforming Cities and Rebalancing the Economy

Since the financial crisis, there have been growing calls for a major improvement in the spatial awareness of UK economic policy. The Industrial Strategy White Paper is far from radical, but there is at least an acknowledgement of the way a preoccupation with aggregate growth has contributed to the UK’s dire productivity since 2009. The Transforming Cities Fund, announced in last week’s Budget, will provide £1.7bn to improve transport connectivity within city-regions, contrasting with the recent emphasis on HS2, HS3 and other long-distance rail links that will do little to improve the lives of most daily commuters outside the South East.

Importantly, the rhetoric has shifted. A ‘Rebalancing Toolkit’ aims to ensure transport infrastructure benefits less productive parts of the UK, not just relieve congestion in economically buoyant areas. The benefits of investment will be “considered more strategically”, with the aim of “transforming productivity in city regions…by linking the towns around our cities to city centres”. There is a recognition that geography matters when it comes to economic activity – that “growth does not exist in the abstract, it happens in particular places”.

The White Paper is far from perfect, and often appears unfocused. ‘Place’, identified as one of five key themes, is ill-defined. Regional governance is becoming increasingly patchy and confusing. The proposed Local Industrial Strategies, for example, will be led in some areas by Local Enterprise Partnerships, a poorly funded and unfocused relic of the 2010-15 Coalition Government. In others they will be managed by City-Region Metro Mayors, whilst those yet to agree a devolution ‘deal’ with government, like Leeds and Sheffield, will be left to compete for additional investment. There is also little acknowledgement of the growing faultline between core cities and smaller towns: an economic, cultural and political gap so brutally exposed by the Brexit vote.

Cautious Optimism

The devil, as ever, will be in the detail. Will we see a new infrastructure appraisal process that gives a more favourable hearing to projects outside the South East? Will these decisions be taken out of the hands of the Treasury and into the Department for Business, Energy and Industrial Strategy? Better still, will the Government go further and give greater responsibility to metro mayors, combined authorities and new regional bodies such as Transport for the North? Aside from transport infrastructure, how will government address poor skills across the ‘everyday economy’, not just in high-value sectors such as engineering?

Expectations are high, and Brexit means the Government has limited political bandwidth and a likely economic downturn on the horizon, but the White Paper includes some cause for cautious optimism.