This week, the long overdue Levelling Up White Paper was published by the UK Government. Weighing in at 332 pages, it is a substantial piece of work that puts forward the case for addressing the economic inequalities across the UK.
Naturally, some critics have already suggested that it long on ambition and short on the funding needed to achieve that ambition. Nevertheless, it must be applauded for at least getting this important issue front and centre when it comes to government policy and also on identifying a number of broad objectives to ensure a more equal distribution of economic prosperity in every part of the United Kingdom.
These include boosting productivity, pay, jobs and living standards by growing the private sector (especially in those places where they are lagging) as well as spreading opportunities and improve public services in the weakest regions. By adopting a bottom-up rather than the usual top-down approach, it also intends to restore a sense of community, local pride and belonging and empower local leaders and communities.
As it would take several months of column writing to cover everything within the white paper, I’ll focus on a few key policy changes which need to be considered as important opportunities and challenges to the Welsh business community.
As we know, research and development, which leads to innovation, is critical to competitive economies across the World. Yet spending on R&D continues to be spread unevenly across the UK with 54% concentrated in the most prosperous regions namely the so-called “Golden Triangle” of London, South East England and the East of England.
Whilst the UK Government has made a commitment, post-Brexit, to make the UK a science superpower and a global hub for innovation over the next decade and a half, it is clear that any increase in spending by 2025 cannot just be focused in one part of the country if the gap in competitiveness and innovation is to close within the different parts of UK.
Therefore, the decision that 55% of the UK Government £40 billion of R&D spending between 2022-25 is to be spent outside of the “Golden Triangle” should be broadly welcomed, especially as it will apply to all R&D programmes, R&D funding competitions, industry R&D programmes and R&D infrastructure expenditure.
And whilst it would be easy for the Welsh Government to carp from the sidelines if this money goes elsewhere, there is now an opportunity to bring together all of the key stakeholders in higher education, industry and the health sector to come up with a coherent plan on how to work together to maximise the R&D funding that could be attracted to Wales over the next decade. Whether that will happen, of course, remains to be seen.
Whilst innovation is key to raising productivity, another important issue remains that of access to finance especially for ambitious firms that want to grow.
Again, there are massive discrepancies across the UK and whilst London, the South East, the East of England and the North West of England, are home to only 55% of private sector business in the UK, they currently receive 86% of equity investment. In Wales, this is a serious issue as it attracted only 2% of all UK venture capital despite having 4% of all businesses.
Yes, it is good news that the British Business Bank has been instructed to develop a £130m fund for Wales and to invest £150m into new regional business angel funds outside the UK but it’s still uncertain how the former will be distributed and with a low number of Welsh informal investors, it is unlikely that any of the latter fund will be deployed in Wales soon.
However, perhaps the most important observation within the report in terms of local fiscal potential is that of the presence of large pools of underutilised capital across the UK, such as Local Government Pension Funds that have assets with a combined market value of £326 billion.
To date, very little of these funds have been used to support the regeneration of local communities and if there is a change in regulation, this could release vital funding to make a real difference in transforming those parts of Wales that have had difficult in attracting investment. Again, the question is whether Welsh local authorities (potentially by working together under the city and growth deals) will reap of the benefits of this potential funding pot to make a real difference
Finally, by referring to areas which are devolved, the levelling up agenda could result in a widening of the gap in areas such as skills. For example, there is a target within the plan which states that 200,000 more people in England will successfully complete high-quality skills training annually.
This is a critical issue to consider given that there is little focus within the Welsh Government current policies on this very issue despite countless studies showing that higher quality skills improve the productivity of businesses and the competitiveness of economies.
Again, Welsh policymakers will have to consider how to respond to this challenge if further resources are allocated to the less prosperous English regions to address this gap.
Therefore whilst it is easy to score cheap political points against this white paper, any serious politician will go through it with a fine tooth comb to examine the opportunities for their region or nation. However, there are also real threats if Wales does not take this seriously especially as those areas in England getting further devolution as part of this new deal most certainly will make the most of any chance to finally close the gap with the more prosperous parts of the UK.