Neil O’Brien: So you want to level up. In what way? And how will you do it?

 

Neil O’Brien is MP for Harborough.

Anand Menon has a telling anecdote from the EU referendum campaign. Making a speech in Newcastle, he said economists were forecasting a plunge in GDP if we voted to leave. He was interrupted by a female heckler: “That’s your bloody GDP. Not ours.”

She’s not alone in feeling that national statistics don’t reflect the experience of her area.  The Prime Minister says he wants to “level up” poorer places. I think that’s great. But how should we measure whether we are succeeding? In fact, why do we want to do this?

In one sense, the answer’s obvious. We just won a huge majority by gaining seats in places we’ve rarely or never held. Places that voted to leave, feel ignored by Westminster and left out of growth. But there are good policy reasons as well.

For Conservatives, the sorts of things we might do to level up (like helping attract new jobs to a town with high unemployment) might be more attractive ways of spreading opportunity than lefty solutions like increasing benefits. Handups not handouts.

Levelling up might mean fixing imbalances caused by government itself: much of the government’s most growth-enhancing government spending (transport, housing, research, culture) is currently skewed towards London.
We might want to level up because a more even distribution of economic activity is correlated with stronger economic growth overall. It’s striking that there are no major economies that are richer per head than Britain and have a more unbalanced economy.

Levelling up could mean regenerating poorer areas, meaning we no longer have resources like land and infrastructure overloaded in some places, while underused elsewhere. People don’t simply leave their homes in the face of local economic problems. That’s particularly true of lower earners who rely more on family networks for help.

Levelling up mean could closing the gap between unemployed workers and job opportunities, again increasing growth overall. A more even pattern of growth might lead to higher levels of wellbeing as well as growth. Do we really all want to cram into London and the Home Counties? Rather than being crowded into tiny flats in a couple of congested cities, wouldn’t we rather spread out, and live in bigger houses with gardens?

But what exactly are we trying to level up where? And how will we measure it?

First, we need to look at smaller areas, not just big regions. We aren’t just interested in the difference between say, Yorkshire and London, but in the differences within them. Places with problems can be right next to places that are booming, although places that are isolated tend to do worst.

Second, we need to take a rounded view of levelling up, not just have one measure. Our measures should include whether we are getting unemployment down and employment up. The data on employment is reliable even for small areas. Differences between areas have shrunk as unemployment has been slashed. But in local authorities like Chesterfield, Hartlepool and Birmingham, the unemployment rate is still over eight per cent – twice the national average.

We could look at people’s own reported well being. But the data from government surveys doesn’t have a big enough sample size to tell you anything reliable about local areas. In so far as there are patterns, there’s not much government can do to influence them: people seem to be happier in more rural areas, but we can’t move the Lake District to London.

Measuring people’s incomes needs to be part of measuring progress – but we need to be careful about what metric we use, because different measures give different results.

For example, whether income differences between areas are getting bigger or smaller depends how you measure income. If we look at Gross Disposable Household Income (GDHI) per head, it looks like Britain is diverging. Between 1997 and 2017 income per head in London raced ahead from 22 per cent to 43 per cent above the national average, while the North East fell further back, from being 14 per cent to 19 per cent below.

But if we look at median household income (based on the governments Family Resources Survey) we seem to see convergence. In fact, if we look at incomes after housing costs, London isn’t even the richest area any more. On that measure the North East caught up, from being 14 per cent below average in the mid 1990s to 10 per cent below, while London fell back, from seven per cent ahead to smack on the national average, and the richest areas, the South East, fell from 14 per cent ahead to just 10 per cent ahead.

Why such a different picture? The key is the word median average. If we look at mean average incomes on the very same measures we see divergence not convergence. That’s because the incomes of poorer workers have been converging, but the incomes of richer workers above the median have diverged. Both matter.

The Annual Survey of Hours and Earnings (ASHE) lets us look at that in detail. It shows that rich people’s incomes differ between regions much more than poorer workers (see graph at bottom).

People working in London who are on the 10th percentile of incomes (i.e. only ten percent of people earn less than them) earn 16 per cent more than people in the same position across the country. However, high earning Londoners at the 90th percentile, earn 54 per cent more. And these differences for higher earners have been getting wider. In 1999, top earning Londoners were “only” 40 per cent ahead of the national average.

It may be that poorer people’s incomes are crunching together while richer folks diverge because of a combination of the rising National Living Wage, tax cuts aimed at the bottom end, and the growth of tax credits & Universal Credit. All of these help a greater proportion of people in poorer areas, while changing things less for higher earners.

But we should measure what’s happening across the board in poorer areas, not just for the poorest people there.
ASHE is probably the best measure of whether we are really “levelling up” earnings. It is generated from tax data, so has much more detail than other measures. It lets you see that people in the Huddersfield constituency earn much less than people in Leeds East, and that incomes have grown more in Hull than Barnsley.

True, it doesn’t let you see benefit income, but levelling up should focus on helping people sustainably earn more, not increasing benefits. Crucially, it lets you look at the distribution of earnings, not just a misleading average that might not tell the full story.

Finally, when we are measuring progress, we need to have a sense of what the counter-factual is. With radically different qualification levels and very different age profiles, different areas are unlikely to grow at the same rate. In Wandsworth 70 per cent of people have a degree. In Sandwell in the Black Country, just 20 per cent. The average age in Sheffield Central constituency is 26. In North Norfolk, 54, because so many are retired. These patterns can change over time. A place can attract more young graduates. But we need to have some sense of what the initial baseline is if we are going to realistically work out if we are making a difference.

“What gets measured gets managed”, they say. If we really want to level up, it’s crucial to be clear about what we are trying to achieve and how we are going to measure it.

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