Ben Franklin writes for The MJ and argues that the Government’s flagship super-deduction policy stands to benefit London and the South East the most, and it is not explicitly targeted at the most deprived communities in the capital.
Imagine a government swept to power on the promise of finally rebalancing our disjointed regional economic landscape. No more prioritisation of London and the South East, much more investment to spur on productivity growth in the North and the Midlands. This was in essence what Boris Johnson meant by levelling up – a generational effort to improve the lot of left-behind regions and towns. That dream now lies in tatters.
In a cruel twist of fate, just moments after a comprehensive General Election victory, a global pandemic struck. London – the country’s economic powerhouse – has been on the rocks ever since with the highest rise in universal credit, largest fall in employment and greatest proportion furloughed of any UK region. Government’s first order of the day was to stop the levelling down of the capital and the Centre for Progressive Policy’s (CPP) latest Levelling up outlook finds that London has seen £7bn more spent on emergency economic measures than the North East and North West combined despite having similar sized populations. The furlough scheme has accounted for much of this – costing £1,300 per resident in London compared with £620 in the North East.
Shoring up the worst hit parts of the economy was a sensible response to the severest economic crisis in 300 years and the Government’s rescue policies such as the £20 increase in Universal Credit has helped the poorest in society regardless of whether they live in Newham or Stockton on Tees. London, with some of the most deprived local authorities in the country, and with huge retail, hospitality, arts and entertainment sectors was always going to struggle. Higher pandemic spending in London is no crime – it’s the recovery policies (or lack of them) which is the real sin here.
Announced in this month’s Budget, the flagship policy for economic recovery is the super-deduction. This giant tax break for investment costing the Government £25bn has been perceived as pro-levelling up because of its apparent relevance to manufacturing and construction sectors which are predominantly based in the North and Midlands. But CPP analysis reveals London and the South East stand to benefit the most. London has more business investment, and a concentration of investment in sectors like business services and financial services where investment tends to be more concentrated in machinery and equipment. It’s been overlooked that this massive investment allowance doesn’t just apply to tractors, ladders and drills, but computers, servers and office chairs. All this amounts to forecast tax breaks of more than £500 per resident in London compared to £280 in Yorkshire and the Humber.
The super-deduction will not level up the North or the Midlands. Nor is this massive tax break explicitly targeted at levelling up the most deprived communities in London. It’s hard to see how those workers who no longer have retail or hospitality jobs to go back to and are now living on Universal Credit will take comfort from the policy.
Other recovery policies of note in the Budget relate to the much smaller and even murkier world of pork-barrel funds – the centrally controlled Levelling Up Fund, Towns Fund and Community Renewal Fund. Each fund has a prioritised list of local areas for investment which are based on dubious methodology that end up (through accident or design) prioritising former Red Wall communities and excluding many of the most deprived places. We calculate that nearly half of former Red Wall areas are being prioritised by all of these funds, by comparison to just one in 10 areas that haven’t turned Blue. It means that more than six million people are living in highly deprived areas that won’t be prioritised by any of these funds. This includes Salford – one of the most deprived places in England.
And that’s pretty much it so far when it comes to government spending on recovery. Yes there’s also the UK Infrastructure Bank which as the Office for Budget Responsibility notes will lend a third of what we were receiving via the European Investment Bank. And yes there may be more announcements about the top secret Shared Prosperity Fund in the not too distant future. But here’s the thing – come 2023, the Government has banked on the economy having recovered enough to push tax rises and a £4bn spending cut. This second round of austerity is likely to hit local authority budgets. This is far from the great generational effort required to level up the country and make good on one of the Tory Party’s key manifesto commitments.