Nation Rebalanced: How do we create a country that works for all places?
Recommendations Summary
Recommendation 1: Use deeper planning reform, pension reform and smarter regulation, to create a self-sustaining engine of privately led growth particularly in the Greater South East.
Recommendation 2: Change national government spending patterns and the Green Book to rebalance public growth spending outside the Greater South East.
Recommendation 3: Increase the spending and autonomy of the ‘Established Mayoral Authorities’ to deliver growth as quickly as possible in underperforming cities.
Recommendation 4: Create ‘growth corridor plans’ agreed between national government and strategic authorities around major transport schemes to spread the benefits across regions.
Executive Summary
Gleaming towers rise around redeveloped London stations, while derelict land sits idle beside Manchester Piccadilly and Leeds. In the South East, house prices have soared to ten times the average income — twice the level of the North East. This model fails all parts of the country: for some, it means shorter lives and stalled growth; for others, an overheated economy locks people out of housing, while taxes go to welfare spending instead of long-term investment.
Nothing encapsulates previous failure more than the national government’s attitude to Leeds, a dynamic city with huge potential. The Leeds Supertram was cancelled by New Labour in 2005 citing rising costs. The city orientated itself to the new opportunities afforded to it by High Speed 2 - preparing development sites around the south of the city. A plan cancelled by the Conservatives in 2021. The city remains the largest city in Europe without its own mass transit system - a situation that has now undermined its potential despite repeated planning for decades.
These are the symbols of a country unbalanced. A country where people have to travel far from where they live to find work or housing; a country where places are stuck in a system that works for nowhere.
At the root of barely growing living standards, unaffordable housing, declining trust in politics and stagnating economic growth is a simple truth: many of these issues are a direct result of regional inequality. We must now address the causes rather than the symptoms. And the need to address this imbalance is threefold.
Firstly, the need is moral as it is simply unfair that geography has become destiny for too many people. Life expectancy for a boy born in Hart in Hampshire is 83 years, for one born in Blackpool it is a decade shorter. 94% of neighbourhoods identified as having the most critical need are outside the ‘Greater South East’ around London.
Secondly, the need is economic because whilst productivity and wages in some parts of the country have seen stagnating living standards and high streets; in other areas we have seen surging house prices that are unaffordable for the majority - creating a situation that satisfies nowhere fully.
And finally, the need is political. Trust in Members of Parliament declines the further you get from the capital. For Labour, the alarm bells were ringing in 2019 when the ‘Red Wall’ was taken by a Conservative government promising to ‘Get Brexit Done’ and to ‘Level Up’. The 2024 General Election may have seen many of these seats retaken, but polling is clear that many of these seats can be easily lost again if change is not delivered.
The underlying trend is an overheating economy in the Greater South East, whereas other regions and - in particular large cities outside London - underperform compared to their international peers. The underperformance of cities leads to poorer regions around them that do not benefit from the economic boost that a large city is meant to bring. And the sticking plaster for all this is an unsustainable level of fiscal transfer from one corner of the country to the rest - with the Greater South East effectively generating the tax revenues to sustain the rest of the country.
To change this, we must learn from the failures of the past - of both Labour and Conservative governments. Research shows that many ministers leave office regretting not having done enough to change this status quo. The new model must address the economics - all our regions and in particular our major cities underperform - tackling identified barriers to growth in terms of transport, innovation and skills. And it must address the politics - giving every place dignity over discontent. In particular, the North and Midlands have proud histories of industry and manufacturing - the places where the modern world was forged. Satisfying the economics and politics requires Whitehall to let go and resources to be more fairly distributed.
The failure of ‘levelling up’ provides a cautionary tale. The slogan featured heavily in the 2019 Conservative manifesto, contributing to Boris Johnson’s electoral success. It was appealing because it spoke to a reality that many in the country recognised, that opportunity was not spread equally.
Unfortunately for the Conservative government, the policies were poor and the public were less convinced about their ability to deliver it. And, as subsequent events proved, Britons were right to be sceptical. Our polling shows that 52% of people think that levelling up failed - compared to just 13% who think it was a success - a ratio of 4:1 with a consensus across all regions and voting intentions.
The Labour government is taking different places seriously, committing to broadening and widening devolution to create a new tier of local leaders equipped to deliver strategies to unleash the potential of their regions. And, despite the failure of ‘levelling up’ to deliver change, it has perhaps helped illuminate a policy agenda that does actually work: investment.
How do we know this? Because public spending statistics on ‘growth spending’ over recent years lay bare the inequitable spending patterns that reinforce this imbalance. Growth spending here is defined as spending on ‘Economic Affairs’ (including areas such as transport, business support and research and development), ‘Education’ and ‘Housing and community amenities’ in HM Treasury statistics.
While spending levels will always vary somewhat between places because of different costs, the gap between different regions is still staggering. Looking at just growth spend per head, we see that it is an enormous £1,839 (41%) lower in the East Midlands than London. And comparing the Greater South East with the rest of England, the gap is £667 (19%) per head. Despite the rhetorical flourish of “levelling up”, this gap has only grown since 2010. There is no doubt that this spending has served to grow the economy of the Greater South East through new infrastructure like Crossrail and research in the Golden Triangle. And these inequalities in growth spend end up simply being partially compensated for by ‘social protection’ on welfare and pensions - which is £487 (10%) higher per head outside the Greater South East.
This wasn’t inevitable. Over the period from 2008 to 2024, had governments chosen to fund the Greater South East at the England wide average for growth spending, other areas could have benefitted from over £100 billion. Money which could have been used to invest in infrastructure and people, narrowing inequalities and addressing specific regional needs. Looking ahead, if the inequitable spending pattern of 2023-24 persists for another ten years, the rest of the country will miss out on almost £100 billion of growth spending compared to an equal per capita allocation.
These imbalances create problems for all regions. For those left out of growth, their wages, educational outcomes and infrastructure suffer. And for the ‘Greater South East’, the supposed beneficiaries, housing and the cost-of-living becomes even more unaffordable for working people. Both of these issues are generating political demands to deliver: crudely, for more housing in the South East and for growth and regeneration everywhere else. A new model of growth would leave all places would be better off - and all places more able to stand on their own feet.
Addressing these issues is Labour values in action - a party founded by people from across the country to further the cause of working people. A party that states that ‘by the strength of our common endeavour we achieve more than we achieve alone’. In the 2024 General Election, Labour won the most seats in every nation and region in Britain with a manifesto declaring ‘the country remains too centralised, with the economic potential of too many regions and communities ignored.” Fundamentally, tackling regional imbalance is a Labour project.
So where can Labour go from here? The path forward will not be easy, but this paper outlines a set of proposals that can begin to remedy this imbalance.
Firstly, we should utilise the strength that prosperity affords us - particularly in the Greater South East. Planning system reforms can unlock land value in the places where previously we could not build. This would maximise development potential through already-announced projects, for example: the third runway at Heathrow, more homes in the Oxford-Cambridge Growth Corridor, all supported by existing public investment like East West Rail. And the government can also enable further business growth through pension reforms and smarter regulation. Together, such changes can unleash private investment in the places where growth is already strong and land values are already high, building a self-sustaining engine for development with a lower requirement for public investment (predominantly in the Greater South East).
Secondly, the government should rebalance public spending to drive economic growth in other parts of the country. Instead of the Greater South East receiving a public investment premium in areas like transport and innovation, the government should focus on supporting and growing other regions. New spending combined with the government’s focus on sectors like advanced manufacturing, clean energy industries and defence in the Industrial Strategy - alongside strengthened employment rights and a higher minimum wage - as well as Local Growth Plans tailored to places led by new strategic authority mayors, will improve the economy in all areas. This means improved roads and rail, better quality jobs, additional housing and renewed high streets in our towns and cities.
This would be supported by further reform to the Treasury’s Green Book, the guidance which helps departments appraise policies and projects, but which is also often blamed for wealthier areas receiving more investment. Many of these criticisms would be more accurately laid at the door of previous government ministers - but there are also some elements of the usage of the Green Book which must change, This must include an end to all arbitrary benefit-cost ratio thresholds based on limited economic forecasting - instead replaced with more rigorous evaluation, public transparency on calculations and published judgments on why decision makers believe a project to be value for money given the available information.
Thirdly, it would be beneficial to particularly boost the spending and autonomy of underperforming cities as defined by the current established mayoral authorities. Their size, relative underperformance compared to international peers and additional funding flexibilities (in transport, business, skills and housing), will lead to the greatest return as they utilise their local knowledge to benefit their areas. As seen in the South East, we should expect public investment to start to leverage private sector investment too and also to benefit the regions around them as London does.
Fourthly, and finally, to increase and spread economic growth the above should be coupled with a new focus on growth corridors around major national investments. For example, the Transpennine Route Upgrade will cost over £10bn, but previous governments failed to develop a growth plan for it. A ‘Transpennine Growth Corridor’ chaired by a government minister and bringing together the relevant strategic authority mayors could marshall investment along the route in transport, housing and businesses into something greater than the sum of its parts. This principle should be extended to all major national projects - extending the benefits of growth to larger numbers and reaping the benefits of agglomeration in towns and cities.
The way forward is clear, but not simple. It requires acknowledging difficult trade-offs in the short term: mainly rebalancing public spending on economic growth away from the Greater South East mitigated by reforms to allow more private investment. It also means ensuring the benefits of development are shared by the community and forcing devolution of power through a sceptical Westminster that wants to hoard power despite overseeing these failures.
Addressing this historic issue will require more than the proposals here, but the long term prize is a nation rebalanced. With self confident places providing good work for people, more affordable housing and greater trust in politics. A country less reliant on fiscal transfers from one place to another, with devolution of power to areas now able to raise the funds to deliver investment themselves in new transport, housing and services. A triumph of concerted effort rather than a hope that piecemeal policies like ‘levelling up’ or redistribution from one part of the country to the rest will suffice to meet the moral, economic and political aspirations of the whole country.