As the Chancellor took to the stand on 11th March, we were already at the foothills of the COVID-19 outbreak. But Rishi Sunak wanted to be clear this was still his levelling up budget. He made a series of impressive spending commitments. In total, £600 billion over five years for ‘roads, railways, broadband and homes’.
The size of the commitments showed that levelling up our regionally unbalanced economy had become the biggest political challenge that our society faced. We are in a different world now. But as we come out of the first stage of the health crisis and begin to see the economic impacts, levelling up the economy will be more important than ever.
The announcements made in the March budget give an idea of the key planks in the government’s levelling up agenda. There was a big focus on increasing and rebalancing transport investment and research and development spending. We anticipate a fiscal announcement next month will include more capital spending, including a focus on ‘shovel-ready’ projects.
All of this is good, sensible policy that should help bring high productivity jobs into regions where they’re currently lacking. This would fix part of our regional productivity imbalances and create new opportunities to improve living standards.
Skills are the vital missing link in the current levelling up agenda
But this is just the start of an agenda that would truly level up. To be successful, the levelling up agenda has to do more than close regional gaps in the number of high-productivity jobs. Levelling up must address differences in living standards across the country that mean that many people feel cut off from the prosperity that some feel. It cannot be right that so many people across the country remain trapped in poverty.
From this perspective, skills are a vital missing link in the current agenda. The UK compares poorly on basic and vocational skills with to our competitors. The Industrial Strategy Council has warned that 5 million workers could become acutely under-skilled in digital skills by 2030. At a local level, our research found that the proportion of the population with a decent skill level – 5 GCSEs or above – is one of the most important drivers of local poverty rates.
Skills enable people to progress out of low-paid, low-quality work. Missing basic, digital and vocational skills also hold back our national and regional productivity. Recent evidence suggests that a failure to invest in skills has contributed to the hollowing out of the labour market in the UK – with a growth of low-skilled jobs. Other countries with different skills policies have seen ‘skills upgrading’ – with growing middle-skilled jobs. Filling our skills gaps in parts of the country is vital to shaping local economies.
£600 million a year National Skills Fund
Skills haven’t been completely lacking from the levelling up agenda. The March budget did confirm the government’s commitment to a new National Skills Fund. But, at £600 million a year, the National Skills Fund is just half a percent of the size of the capital investment promised.
One reason the government often favours infrastructure investment over skills relates to its fiscal rules, which place tighter restrictions on current than capital spending. But the government should feel less bound by this distinction when it comes to levelling up. Skills spending is vital to our future growth and prosperity, and any spending that raises growth is prudent spending.
As we look ahead to the fiscal announcement in July, we are calling on the government to increase the scale of investment in basic, digital skills and vocational skills to match the ambitious investments in infrastructure.
This would be a vital next step in setting an agenda that would truly level up.
Dave Innes, Head of Economics, Joseph Rowntree Foundation