Northern lights: Seven steps for levelling up Britain

If you ever need a reminder of what northern Britain has achieved, I’d recommend a trip to York. The National Railway Museum brilliantly evokes the local creative energy that produced Stephenson’s Rocket which ran on the world’s first inter-city passenger railway and ushered in the railway age. Just over the River Ouse is the chocolate museum, which celebrates York’s chocolate-makers and their entrepreneurial legacy.

It’s easy to be scornful about Boris Johnson’s talk of ‘levelling up’. Real levelling up would mean that for the foreseeable future, the North will grow faster than London, which seems almost unimaginable to Whitehall and in the City. But whatever the cocktail of culture and genes needed, northern Britain is evidently endowed with it, and, as I’ve argued in The Future of Capitalism, it simply must be done. Healing the economic and cultural divergence between London and the rest of the country is existentially important for British society, but it requires guts and an irreversible reorientation of public policy: power has to shift from Whitehall to the provinces.

There are three revealing examples of levelling up: two successes and one failure. Edinburgh and the cities of west Germany are the successes, all now energised and prosperous. The failure is east Germany. Despite huge sums spent since 1990, it’s still far behind. Why has it failed? Why did the others succeed? Well, there is no ‘magic bullet’ for Whitehall to fire, but these examples show that perhaps there is a ‘magic cartridge’: seven bullets, that, if fired all together, could produce the result that this government absolutely must deliver, if it wishes to survive.

The first bullet is local political autonomy. Whitehall cannot plan the economy of a city: it has to devolve the power of decision to local government, which being closer to the businesses and communities, is better able to learn through experiment. Edinburgh, like west German cities, has considerable developed political power.

The next one is a locally-based finance industry. Only if finance is local can it really know who to lend to, and only local finance really cares about the prosperity of the region. The Bank of England forced the merger of the regional banks but its remit did not extend north of the border so Edinburgh remained separate.

The third bullet is a locally-organised business community. This is a consequence of the first two: business communities like to be near to political and financial decision-taking. In Edinburgh and most German cities that is local, while in England the political and financial scenes are national, and clustered in London. In Germany public policy has encouraged the local basis for business organisation by giving it important functions.

Next comes locally-based college education. Local youth should be trained in pertinent skills which in turn help the surrounding firms. Scotland’s universities have links to local business but elsewhere in Britain they usually don’t. More crucially, Britain is failing those who don’t go to university: vocational training is too brief, too fragmented, and lacks coherent pathways to skilled careers. Whitehall has prioritised only the skills it values. German tertiary education has far stronger links with local business.

The fifth is a civic society that generates a strong sense of local culture. Edinburgh pioneered the festival, creating a brand which now attracts half a million people. All of Britain’s provincial cities used to have this sort of cultural heritage and they were proud of it: look at our town halls. German cities have particularly strong civic society, partly because public policy encourages group participation.

The sixth magic bullet is an infusion of public finance that lets local political leaders encourage all of the above. Edinburgh was lucky enough to benefit from the political consequences of Scotland’s oil. This cash was crucial.

Finally, the seventh is a gang of good local leaders with drive and a sense of purpose. In the wake of past failure there’s usually a great blame game, but these leaders must be forward-looking. It can be done: in Edinburgh in 2009 leaders brought the various local entities together to agree on attracting a sector that had the potential to generate knowledge-intensive jobs: they chose information technology. At the time, the city had only two such firms, but with everyone playing their role, Edinburgh did it. Today it has 480 IT firms — the fourth largest cluster in the whole of Europe.

How do you get good local leaders? Well, again, look at Germany. Because there’s a clear route, via mayordom, to the top of national politics, Germany has for a long time had able, powerful mayors. Germany’s current minister of finance was previously the mayor of Hamburg. England is only just now piloting the idea of mayors. In Germany it is normal for ambitious young people seeking a career in public service to start in local government; in Britain they join Whitehall: the exception proves the point — our former Mayor of London. Only as devolution begins will cities attract talent, build skills, and learn from each other: success is emulated.

All together these things help explain the success of Edinburgh and the cities of west Germany, but their absence also helps to explain the divergence of the cities of England, Wales and east Germany. No English or Welsh city has the full cartridge and for many it is completely empty. In 1990 east Germany lacked local business communities, its legacy from the GDR was highly centralised decision-taking, with no experience of local collective initiative: the GDR was Whitehall in its dreams.

Devolving power is vital. Whitehall can no more regenerate the North than Berlin could regenerate east Germany. It can’t even plan a railway — hence the mess that was HS2, though I think the decision to go ahead was nevertheless right, because being irreversible, it will help to reset expectations, and expectations of locational outcomes are largely self-fulfilling. If Singapore is seen as ‘the city of the future’, it becomes the city of the future. If Rotherham is ‘doomed’, firms won’t set up there, so its skilled young will leave.

The commitment to HS2 helps to convince everyone that this government means business and it will become economic as the North converges.

British public policy is overly centralised and overly siloed. It dates from wartime central planning which inspired extreme concentration of decisions in Whitehall after the war. Gordon Brown further concentrated decisions into the Treasury. Drunk on the aggrandising ideology of ‘we know the model’, the problem of government was reduced to that of command and control. It reflected complete ignorance of the radical uncertainty inherent to modern society and its implications for the design of decision-taking. For example, the Treasury model said ‘We need immigrants!’ I recall an article by Gus O’Donnell advocating rapid immigration on the grounds that, sustained for half a century, it would eventually raise average incomes by 3 per cent. The misplaced confidence in such distant precise prediction, coupled with the neglect of any effects that might upend it — such as firms reducing training of nationals — beggars belief. The NHS exemplifies Treasury dogma: more than half of doctors are now recruited from abroad. Yet Britain has three of the world’s top ten universities: the EU, South Asia and Africa, from whence our doctors now come, have none between them. Why are our universities no longer used to train our doctors? Not because our population lacks the intelligence to be trained, but because of an alliance between Treasury dogma, which counts a cut in investment in skills as parsimony, and that quintessentially upper-middle-class trades union, the BMA.

The ‘magic cartridge’ needed for re-convergence is utterly beyond Whitehall’s capacity. Whitehall is starved of local knowledge and, as ministries have turned themselves into fortresses defending territory, it has astoundingly poor links between departments. We need stronger co-ordination at the centre, but co-ordination will come most naturally as a consequence of devolution. Localised power will be closer to real anxieties, and they are not siloed. The unsocialised four-year-old, the truant teenager, the Deliveroo-peddling father and his stressed-out expectant wife constitute an interconnected challenge. And being smaller, local government departments are less inclined to the grandiosity of turf wars.

Levelling up is not just about productivity. It is also about culture: while London mirrored British society it made sense for our culture to be centred there. But manifestly, the mirror has cracked. We need a radical restructuring of cultural spending and the acid test of that will be the indignant howls from endangered, London-based privilege.