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The Research Brief: why raising taxes might be central to tackling regional inequalities

Your weekly dose of policy thinking.

By Spotlight

Welcome to the Research Brief, where Spotlight, the New Statesman’s policy section, brings you the pick of recent publications from the government, and the think tank, charity and NGO world. See more editions of the Research Brief here.

What are we talking about this week?Why hasn’t UK regional policy worked: The views of leading practitioners”, a paper by the Mossavar-Rahmani Center for Business and Government at Harvard Kennedy School and King’s College London.

Who? The Harvard Kennedy School is named after the US president John F Kennedy and is the school of public policy and government at Harvard University in Massachusetts. King’s College London is one of the top ten universities here in the UK and is world-renowned for its public research. The four authors of the report are: Dan Turner, Harvard Kennedy School; Nyasha Weinberg, Harvard Kennedy School; Esme Elsden, University College London; and the former Labour chancellor, Ed Balls, King’s College London and Harvard Kennedy School.

The researchers conducted interviews with 93 policymakers across the UK, including political bigwigs such as the Levelling-up Secretary Michael Gove, former Labour prime ministers Tony Blair and Gordon Brown, the Trades Union Congress chief Frances O’Grady, and regional mayors Andy Burnham and Andy Street, to name just a few.

What’s the gist? The report sets out a broad consensus across interviewees on a range of areas, including lessons to be learned from past mistakes and the prioritisation of future policies. The result is a comprehensive, 62-page report that attempts to shed light on why, thus far, regional development in the country has been largely fruitless. It explains why the UK is tied to a “geography of discontent”, and why living standards, employment and productivity inequalities remain stagnant across regions, despite the policies of successive governments in place to tackle this issue.

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There’s the good news: widening regional divides are not inevitable and economic growth – across the country – is entirely possible.

Then there’s the bad news: this may require tax rises (and some other stuff, too).

[See also: Why “security” should be more than a buzzword for Labour]

Tax hikes? In this economy? Potentially. There were more politically palatable solutions posited, too. The report recommended further devolution and pointed to the success of the mayoral combined authority model across regions.

The report also pointed out that “support for regional growth requires strong and united leadership in Westminster and the enthusiastic backing of the Prime Minister”. It suggested that where devolution has been successful, such as in Greater Manchester or the West Midlands, this came off the back of prioritisation by powerful cabinet ministers, and departmental opposition has hindered further progress. As such, a key recommendation made by virtually all interviewees for this report is that current and future leaders should throw their weight behind devolution and decentralising Whitehall.

The report also criticised excessive centralisation and political prioritisation given to investment in London and the south-east, stating that this “persistent bias of spending” was “driving geographical differences”. Interviewees pointed out that the hope that investment in London would “trickle down” into other regions had largely failed, and in fact now many regions have to “run to stand still”.

Okay, but… taxes? The report made it clear that fiscal devolution should play a bigger role in regional policy going forward. It pointed out that since the mid-1980s, the UK has become more centralised, with powers, tax collection and spending increasingly driven by Whitehall over local government; which, rather embarrassingly, it says is “the opposite trend of most countries in response to deindustrialisation”.

The report recommends giving councils their own fiscal powers, including the ability to raise taxes and increase public spending responsibility.

The former chancellor, George Osborne, said he wished his government “could have come up with something clever and eye-catching in the local income tax space without threatening the central revenues of the government”, while Andy Street, the Conservative mayor of the West Midlands, called tax-raising powers “the next big step in this journey”.

What else? This report is worth reading for yourself. It’s a unique collection of half a million words of conversation with several former prime ministers, chancellors and high-profile policymakers about where things have gone wrong and how things could be better. Former and current leaders reflect on what policy levers the government should pursue to tackle regional inequalities.

How will Labour and the Tories react to this? Both Labour and the Conservatives are avoiding questions about tax and public spending as much as possible. The shadow chancellor, Rachel Reeves, is renowned for her fiscally conservative approach to spending and Labour have ruled out wealth tax rises altogether, pledging a narrative of reform over spend.

Meanwhile the government seems to be constantly fighting off the right of the party, which is calling for tax cuts ahead of the Autumn Statement. Whispers that the Conservatives might slash inheritance tax and offer a tax cut for top earners have not been substantiated, but do hint at jitters in the party about the government presiding over potentially the biggest set of tax rises since the Second World War – by the next general election, taxes may have risen to around 37 per cent of national income, according to analysis by the Institute for Fiscal Studies.

[See also: Lisa Nandy’s housing plan is radical and – most importantly – cheap]

Back on Earth, several local councils have declared bankruptcy over the past year, including Birmingham City Council or Thurrock, with more said to be at risk. Public services up and down the UK are facing cuts and crumbling infrastructure, with many hospitals and schools at risk of collapse. The question of how current and successive governments will deal with these budget shortfalls poses a serious challenge for the two parties, neither of which are engaging with.

The interviews in this report demonstrate a bleak acceptance from politicians that not only is tax reform a necessity for regional growth, but that tax rises for voters – in some form – will most likely become an inevitability.

In a sentence? Nothing is certain – except death and taxes.

Read the full report from Harvard Kennedy School and Kings College London here.

If you have a report, briefing paper or a piece of research that you’d like featured in the Research Brief, get in touch at spotlight@newstatesman.co.uk.

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