Future Governance Forum: Five tools to make regional growth a reality

Today The Future Governance Forum launches its new report, Impactful Devolution 03: A toolkit for regional growth and industrial strategy. Community is pleased to have supported the report, which you can read online here.

In a guest blog, Future Governance Forum Research Fellow Alex Bevan outlines how the new report sets out five tools to make regional growth a reality.

The story of Britain’s regional economic divides feels familiar, stubborn and complicated. For some, it is the cause of a burning motivation bound up with identity and social justice. For others, it can feel like a hopeless distraction from bigger economic challenges that, if not tackled, will make life worse in the very places that can afford it least.

It’s true that the rhetoric lamenting our disparities can bring on repetitive strain to the ears of a weary listener; the ink has barely dried on the vaulting boosterism of those Levelling Up speeches. Nevertheless, after nearly two decades of sluggish growth – and that all too recent failed experiment – it will be in tackling those disparities that the Labour government’s promised ‘renewal’ will live or die.

In practice, Ministers will have to manage two converging dilemmas: i) how to maximise the UK’s economic opportunities in a less certain world after years of low growth and; ii) how to drive up regional growth in an increasingly divided country.

Bold and sustained action will be needed to respond to, and connect, these challenges.

The report we publish today argues that a project keeping investments and decisions focused on regional results can be guided by practical tools and purposeful institutions. These tools are underpinned by the principles needed to help the state to a better job of supporting regional economic development. That means practical steps, based on evidence, that encourages a more capable, reliable and purposeful state.

Impactful Devolution 03: A toolkit for regional growth and industrial strategy sets out five tools to help the state better connect high level economic strategy with regional growth, based on the new direction set by the Industrial Strategy and allied interventions.

Five tools to make it stick:

1. Fund the fundamentals: A Renewal Investment Tracker: The most growth-friendly forms of public spending – on transport, R&D, infrastructure, skills and housing – are the fundamentals that help lock in local benefits of investments and national strategies. As things stand, these budget lines are significantly skewed towards London and the South East, undermining the government’s proposed new policy direction.

While higher per head spend on health and welfare tells a story of redistribution (via fiscal transfer), what is less visible is the state largesse reserved for the strongest regions when it comes to investment that helps places grow. JP Spencer’s report, Nation Rebalanced, reveals that per head spend on these building blocks for growth is 19% higher in the Greater South East compared with the rest of England.

Our first recommendation calls for the creation of a Renewal Investment Tracker – hosted on gov.uk – to encourage a shift in this gap so that new investments are backed by consistent support across this essential mix for local growth.

2. Build the evidence: An evidence and evaluation service for local growth: More balanced growth-friendly investment must be attached to a focus on understanding what is possible, where and how. Learning lessons of the past and hardwiring evidence into regional policy decisions could guard against poor value outcomes and policy chop and change. Better still, it would encourage the UK Government to be more strategic and leave behind the habit of micro managing failing funds.

Evaluations should be mandated across economic development programmes with an enhanced evidence base benefiting from cooperation between nations and regions. This would mean acting on advice from the What Works Centre for Local Growth and scaling up positive contributions of the Productivity Institute and Insights North East among others.

3. Ditch the pots, open up innovation: More open government-industry collaboration on complex problems could improve the quality of interventions. Where possible, government should remove competitive grants that shut out collaboration and innovation.

The technology, defence and energy sectors share frustration that competitive funding pots too often lead to the government pre-defining solutions that are often wrong. By contrast, open innovation processes allow government departments to work with industry across the UK on problems to identify a broader range of solutions together, that could be more effective and better geared for growth. The new Strategic Defence Review is advancing this approach, and wider economic development policy should follow suit.

4. Create regional business development banks in England: Newly expanded access to finance via the British Business Bank should be backed with new regional institutions that have mandates with specific objectives around SMEs, start-ups and supply chains aligned with the Modern Industrial Strategy.

New ‘gap funder’ banks should explicitly seek to co-invest with venture capital to drive up investment in more regions. The aim should be to use the UK’s enormous finance talent pool to create visible, proud local institutions that are close enough to read a region and big enough to act at scale.

With expert board and executive teams and a dedicated regional purpose, development banks could connect energy, defence and technology opportunities to underserved local economies.

5. Put place at the heart of decisions: An evidence-based focus on regional outcomes needs to be hardwired into decisions across the Industrial Strategy. The London School of Economics has developed a data-driven framework connecting comparative advantage and innovation strength with place and jobs considerations for investment decisions. The model developed for clean energy industries and technologies should be applied to all eight growth sectors.

Seeing it through:

Regional disparity is a complex problem but it is not a mystery. Our latest report argues that efforts to address it have been too peripheral to make a difference, and so a politically and economically damaging status quo has taken hold.

This government has set a more coherent direction than we’ve seen for decades, offering a more realistic opportunity to make a greater impact. The five tools in this report are designed to apply the lessons of the past to reinforce a new direction that can spread opportunity rather than deepen familiar divides.

Whether the state can back up this new approach with bold and sustained action remains to be seen.