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Blog: Addressing regional inequalities

Posted on Local Government News on 18th April 2024

Andrew Borland, Chief Innovation Officer at the Virtual Engineering Centre (VEC), University of Liverpool discusses the importance of levelling up when it comes to boosting local growth.

The Institute for Public Policy Research’s (IPPR) annual State of the North report, released in March, made for sobering reading.

With wealth, income and health gaps between London and the rest of the UK all expected to grow in the coming year, the report highlighted just how far we still have to go in reducing geographical inequalities and getting the UK economy firing on all cylinders. In fact, the IPPR estimates the wealth gap between the north and south of England will reach almost £230,000 per head by 2030.

It’s fundamental to the health of the UK as a whole that we give our regions the funding and tools they need to grow – taking advantage of our devolution powers and adopting a localist over centralist approach to levelling up.

Taking devolution one step further

Since its inception, devolution, for the most part, has been a huge success. In my city of Liverpool, devolution has allowed the City Region to take ownership of the transport system with a £500m cash injection to deliver a London-style network. More broadly, it’s allowed the Liverpool City Region to secure more than £1bn in extra funding.

These successes demonstrate the potential of a localist approach but to realise that potential, we must focus our efforts on the foundation of economic prosperity. That is the businesses, people, research and innovation that generate wealth.

How should the government address this, and what do the regions need to develop plans by the many and forge a path to growth? I would argue the focus should be supporting local businesses, specifically our SMEs, and driving a sustained effort to help those businesses improve their competitiveness and target growth.

Unlocking the economic power of our small businesses

The UK has more than 5.5 million SMEs, making up 99.9% of UK private sector businesses and employing 16.7 million people.

Importantly, from a levelling up perspective, our SMEs tend to be located equally across the country – unlike our large private companies, where 55% are headquartered in London. Unlocking the growth of SMEs could therefore significantly boost regional economic development if done well.

In fact, according to the European Center of Sustainable Development, SMEs provide more flexibility to the market economy, mobilise the financial resources of the population, reduce monopoly trends of economics and transform the economy in general.

Supporting new industries

One of the feathers in the UK’s cap is the specialist sectors we have dotted across the nation. The Midlands, for instance, has long been the UK’s automotive heartland, while the northeast is famed for its manufacturing heritage.

These, however, aren’t modern day sectors – most are centuries old and have proven to be difficult sectors to remain competitive in, within today’s global economy.

Through devolution and better targeted Government support for our regions, a focus on reindustrialisation is needed to ensure that we continue to build and grow sector specialisms across the UK.

We’re already witnessing this with the emergence of the digital industry in Liverpool, life sciences in Cambridge and advanced materials across the North West.

Supporting businesses operating in sectors like these by providing assistance with innovation and ensuring they have the funding to capitalise on new opportunities is critical for the UK’s levelling up ambitions.

Tapping into a suite of support

It’s this need for innovation support that was the catalyst for the Horizons project, a partnership between the University of Liverpool’s VEC (Virtual Engineering Centre), Liverpool John Moores University (LJMU) and Edge Hill University to support businesses across the Liverpool City Region.

Led by the VEC, the £5.1m Horizons project is funded by the Government through the UK Shared Prosperity Fund (UKSPF) to support more than 100 SMEs in its pilot phase, providing the expertise, facilities and funding businesses need to drive innovation.

Critically, it provides targeted support administered across the region in partnership with local universities that understand the nuances of regional businesses and the unique challenges and pressures they face.

Post-European Regional Development Fund Britain has the opportunity to develop new approaches to ‘interventions’ that deliver programmes which fuse together place, business support, R&D and skills into ambitious projects built around SMEs.

National and local government should embrace the role of the Entrepreneurial State. We must develop national, local industrial and growth strategies in a public/private partnership with our SMEs.

If the Government is serious about its mission to reduce geographical disparities and boost local economies, we must dare to innovate new support interventions that cross traditional boundaries. Providing businesses with the expertise and access to specialist support is vital if we want to create a thriving UK economy, which isn’t reliant on London.

The IPPR’s report should not be viewed as a pessimistic reminder of the challenges facing the regions but a rallying call setting out the opportunity that this generation of leaders must address: the challenge of boosting economic development outside of London and achieving a brighter future with less regional inequalities.