DOI: https://doi.org/10.58248/HS101

Overview

One of the UK Government’s missions is to have the “highest sustained growth in the G7, with good jobs and productivity growth in every part of the country making everyone, not just a few, better off.” [1] Local areas will have a duty to produce Local Growth Plans, which will link to the new national industrial strategy.

The government intends to expand devolution settlements with existing Combined Authorities and extend devolution to more local areas. The government plans to support diverse business models and double the UK’s cooperative and mutuals sectors.[2]

Economic and social inequalities

Periods of economic change have led parts of the UK, such as London and the South-East, to thrive, while other places have been disadvantaged.[3] Job losses in manufacturing and heavy industries in the UK (such as steel, coal, textiles and shipbuilding) have created long-lasting socio-economic consequences for former industrial areas (for example, the Midlands, the North of England, Scotland and Wales),[4] with lasting consequences for communities. Some of the impacts of large-scale job losses for communities include lower life expectancy, a rising reliance on benefits, and lack of opportunities for future quality employment.[5]

Inequalities are often larger within places than between them; pockets of deprivation can be found close to affluent areas in the same town or city.[6] In disadvantaged areas, poor economic performance can make it difficult to tackle social problems and vice versa.[7] Deprivation can be compounded by a lack of social infrastructure (such as libraries, pubs, shopping centres and parks).[8]

Productivity and resilience

The What Works Centre for Local Economic Growth explains that local economies grow when they increase the amount of goods and services they produce.[9]

Local community resilience encompasses how well communities prepare for risks, as well as how well they recover from disruptive events.[10] Longer-term resilience includes the extent to which communities adjust to economic, social and environmental changes and continue to prosper.[11] Resilience also relates to social cohesion and shared values within communities.[12]

The UK has had slow economic growth since the 2008 financial crisis, with only modest improvements in living standards.[13] Recent shocks to the economy (such as covid-19 and the cost-of-living crisis) have exacerbated economic and social inequalities. Economic shocks affect communities (and sectors) differently, although the most vulnerable tend to be the hardest hit.[14]

The British Academy found that communities that entered the covid-19 pandemic with more established social infrastructure were more resilient and benefitted from strong community sources of support.[15] Economic changes continue to shape local economies and communities. For example, high streets are responding to the rise of online shopping, especially since the covid-19 pandemic, including reducing retail space.[16]

Challenges and opportunities

There are likely to be tensions between improving national productivity and reducing economic and social inequalities that exist between, and within, places.[17] The concentration of economic activity (such as in cities) inevitably causes variation in economic performance between places. Due to this, the National Institute for Economic and Social Research has pointed out that it is for societies to debate how much inequality is “socially and politically admissible”.[18]

Nationally, the government must decide where to direct limited resources (for example, between more and less productive areas).[19] The Economy 2030 Inquiry noted that such decisions will influence how fast national productivity improves and how fast inequalities between places are reduced.[20]

The UK’s centralised governance system has been criticised for restricting local areas’ abilities to respond to economic challenges.[21] Devolved governance is associated with more spatially balanced growth.[22] Evidence for a causal link between devolution and economic growth remains unclear, although there may be civic and social benefits from devolving powers to local areas.[23] There is also a question about how locally decisions should be taken, given the hyper-local nature of some of the UK’s economic and social inequalities.[24]

The Centre for Cities has argued that regeneration efforts should focus on making cities more attractive to businesses to encourage investment.[25] Alternatively, Community Wealth Building (the Preston Model) focuses on retaining wealth locally,[26] by:

  • diversifying the ownership of the local economy (small businesses, social enterprises, cooperatives)
  • harnessing local wealth (such as investment from local pension funds or creating mutually owned and regional banks)
  • using anchor institutions to help improve the local labour market (for example, paying the Living Wage) develop local supply chains (such as through progressive procurement) and use land and property productively for social purposes[27]

Academic contributors to the horizon scan discussed the importance of entrepreneurship and support for small businesses. A report for The Economy 2030 Inquiry suggested that policymakers should focus government support on young and growing firms that drive change, regardless of their size, to help create a more dynamic economy.[28] Notably, the Help to Grow government scheme offers support for entrepreneurship and development for SMEs.

There is less diversity in how UK businesses are owned and governed. Despite support from successive governments, a greater percentage of GDP in France, Germany and the Netherlands comes from alternative businesses (cooperatives, social enterprises and mutuals) that make up organisations with a social purpose than in the UK.[29] These business models offer opportunities to improve local growth, local resilience and enable communities to become actively involved in decisions that affect them locally. [30]

Key uncertainties

Uncertainties around economic conditions in the UK continue to be a concern for businesses, including small and alternative businesses.[31] There are aspects of the UK’s productivity problem that are not well understood, such as why some major cities in the UK do not exhibit some of the agglomeration benefits seen in similar cities internationally, that is, the economic benefits that are generally observed when employers and employees are in close proximity to one another.[32]

In 2022, the National Audit Office suggested that central government had a poor understanding of what works to drive local growth because it had not consistently evaluated these interventions.[33]

Key questions for Parliament

  • What are the key trade-offs between improving national productivity and making the UK more equal, economically and socially, and how should these be managed?
  • What lessons should the government learn from previous efforts to improve local economic growth?
  • How should the government target resources to drive economic growth and build resilience within and between places, ensuring that benefits reach the communities who need them most?
  • What are the trade-offs between pursuing local economic growth and improving the resilience of local economies?

References

[1] The Labour Party, Change: Labour Party Manifesto 2024, June 2024

[2] The Labour Party, Change: Labour Party Manifesto 2024, June 2024

[3] HM Government, Levelling Up the United Kingdom, February 2022

[4] House of Lords Library, Regeneration of former industrial areas in the UK, February 2024

[5] House of Lords Library, Regeneration of former industrial areas in the UK, February 2024

[6] HM Government, Levelling Up the United Kingdom, February 2022

[7] What Works Centre for Local Economic Growth, Policy challenge: Evidence-based policy in disadvantaged places, October 2019

[8] All-Party Parliamentary Group on Left Behind Neighbourhoods, A neighbourhood strategy for national renewal, October 2023

[9] What Works Centre for Local Economic Growth, Understanding local economic growth, August 2023

[10] Cabinet Office, The UK Government Resilience Framework, December 2022 (updated December 2023); Interreg Baltic Sea Region, Priority 1: Innovative Societies (accessed on 29 July 2024)

[11] Cabinet Office, The UK Government Resilience Framework, December 2022 (updated December 2023)

[12] Interreg Baltic Sea Region, Priority 1: Innovative Societies (accessed on 29 July 2024)

[13] House of Commons Library, Low growth: The economy’s biggest challenge, July 2024

[14] Cabinet Office, The UK Government Resilience Framework, December 2022 (updated December 2023)

[15] The British Academy, Social infrastructure’ in two minutes, January 2023

[16] What Works Centre for Local Economic Growth, Evidence briefing: Improving high streets and town centres, March 2021.

[17] P Brandily, M Distefano, H Donnat, I Feld, H Overman and K Shah, Bridging the gap: What would it take to narrow the UK’s productivity disparities?, The Resolution Foundation, June 2022

[18] The National Institute of Economic and Social Research, Regenerating the UK regions, March 2022

[19] P Brandily, M Distefano, H Donnat, I Feld, H Overman and K Shah, Bridging the gap: What would it take to narrow the UK’s productivity disparities?, The Resolution Foundation, June 2022

[20] P Brandily, M Distefano, H Donnat, I Feld, H Overman and K Shah, Bridging the gap: What would it take to narrow the UK’s productivity disparities?, The Resolution Foundation, June 2022

[21] Productivity Institute, The Productivity Agenda: A blueprint for how the public and private sector can be better equipped to translate productivity gains into improved living standards, November 2023

[22] Productivity Institute, The Productivity Agenda: A blueprint for how the public and private sector can be better equipped to translate productivity gains into improved living standards, November 2023

[23] Productivity Institute, The Productivity Agenda: A blueprint for how the public and private sector can be better equipped to translate productivity gains into improved living standards, November 2023

[24] All-Party Parliamentary Group on Left Behind Neighbourhoods, A neighbourhood strategy for national renewal, October 2023; IPPR, Handforth in Hindsight: The future of hyperlocal governance in England, March 2024

[25] Centre for Cities, Making places: The role of regeneration in levelling up, October 2022

[26] Centre for Local Economic Strategies, How we built community wealth in Preston: achievements and lessons, July 2019

[27] Centre for Local Economic Strategies, How we built community wealth in Preston: achievements and lessons, July 2019

[28] R Davies, N Hamdan & G Thwaites, Ready for change: How and why to make the UK economy more dynamic, Resolution Foundation, September 2023

[29] Social Enterprise UK, Ending the monoculture: How diversity of business can bring prosperity, January 2024

[30] Social Enterprise UK, Ending the monoculture: How diversity of business can bring prosperity, January 2024

[31] Federation of Small Businesses, Small Business Index, Quarter 1, 2024, June 2024; Social Enterprise UK, Mission Critical: State of Social Enterprise 2023, December 2023

[32] Productivity Institute, The Productivity Agenda: A blueprint for how the public and private sector can be better equipped to translate productivity gains into improved living standards, November 2023

[33] National Audit Office, Supporting local economic growth, February 2022


Photo by: Mangopear creative on Unsplash

Horizon Scan 2024

Emerging policy issues for the next five years.