Germany teaches us that levelling up will be a long haul: Kevin Hollinrake

THE scale of the challenge of levelling up is huge – the economic disparity in productivity and economic output per capita between the North-East and London and the South-East is, in relative terms, as large as it was between East Germany and West Germany prior to reunification.

How can towns like Doncaster benefit from levelling up? Tory MP Kevin Hollinrake poses the question.

It took 30 years and $2 trillion in investment and incentives for businesses to narrow that gap, and it is still not fully narrowed.

The other lesson from Germany is that this cannot be done just by public sector spending; the private sector has to invest too. According to Andy Haldane, the chief economist at the Bank of England, there is an economic gap: overall economic activity per capita is £45,000 in London and the South-East, and £18,000 in the North-East.

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That leads, of course, to a gap in prosperity, which is what levelling up has to be about. Average wages are £41,000 in London and the South-East, and £28,000 in the North-East.

Chancellor Rishi Sunak is at the forefront of the Government's levelling up agenda.

This is a huge challenge. It is great that the Government have a real ambition and the right scale of ambition. The good news is that this is not a zero-sum game.

If we get the whole economy firing on all cylinders, the very fact that household consumption accounts for 58 per cent of overall spending in our economy means that it will be a self-fulfilling prophecy: when all areas become more prosperous, there will be more spending – more economic activity. That has to be good for everyone.

The Government have made a historic start, not just in the amount of money they are spending – they have pledged to spend £600bn on infrastructure over the five years of this Parliament, a 50-year high; the highest public sector net investment in the past five decades – but in where they will spend it.

In the past, the Green Book has allocated expenditure principally where the well-paid jobs are. Creating 100 new jobs in London and the South-East, at £41,000 each, will mean a much better return in terms of value for money than creating 100 jobs in the North-East, so obviously, the Green Book has always prioritised investment in London and the South-East.

Kevin Hollinrake is the Conservative MP for Thirsk and Malton.

The Government has quite rightly changed that; strategic objectives are now part of the equation of where money is spent. I very much welcome that. It is critical to this discussion. The Government has also promised to change where we invest in infrastructure for housing through the Housing Infrastructure Fund, on pretty much the same basis. That is a really good start in terms of public sector investment in infrastructure – roads, railways and other things.

The Government is also moving jobs around the country, with the UK Infrastructure Bank coming to Leeds and Treasury North to Darlington, and the Cabinet Office going to Glasgow. That just shows what can be done with public sector moneys in terms of levelling up. Of course, there is also the huge green investment that the Government is going to make with taxpayers’ money.

The key thing, though – we must learn the lesson from Germany – is that this cannot be about one Parliament. It cannot be subject to electoral cycles; it has to be a much longer strategic investment. This has to happen over 30 years – and, as I said, it cannot just be about public sector investment.

Mark Littlewood, the director general of the Institute of Economic Affairs, wrote a very interesting article about this in The Times. He asked, if this is all about infrastructure – if prosperity is about connectivity, in terms of roads and railways – why is Doncaster not more prosperous?

The Shadow Secretary of State for Business, Ed Miliband, will no doubt reflect on that. Why is Doncaster not more prosperous? It is very well connected. We need the private sector to invest alongside; that is the key thing. We can do that through devolution and get our excellent metro mayors, from either side of the political divide, to attract more private sector investment in their areas.

It would help tremendously to have greater tax incentives in some of these areas to attract foreign direct investment. We do not have a regional policy for foreign direct investment. That would help tremendously.

Finally, regional mutual banks could have a transformative effect on local investment by connecting investors with SMEs in the regions that need investment.

Kevin Hollinrake is Conservative MP for Thirsk and Malton. He spoke in the Queen’s Speech debate on the economy – this is an edited version.

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