As the economy begins to open, how we recover from this pandemic will dominate the local and mayoral elections this year and shape the contours of our politics for years to come. The scale of the challenge is immense. In January this year, the economy was 9 percent smaller than it was in February 2020 before Covid-19 took hold. Unemployment is expected to reach 2.2 million by the end of this year and we are braced for a huge income squeeze with average real wages projected to be no higher in 2026 than they were 2008 – marking almost 20 years in which living standards would not have budged. And to make it harder, the task is not simply to respond to the immediate economic crisis but to tackle long standing inequalities that have been so sharply exposed by the pandemic.
The scale of response to meet this challenge will require national investment and policy innovation akin to those we have seen over the last year. But to deliver meaningful change in people’s lives, this will need to be matched by equally ambitious action at the local level. We cannot claw our way out of this crisis – which will impact on different communities in different ways and will required tailored responses – without empowering and equipping those at the local level to respond. If we simply yank levers at the national level and hope for the best, we will not recover in a way that levels up the country. Ambitious national action and radical devolution must be key to the recovery effort.
So far, these two essential ingredients have been lacking in the government’s recovery response. The scale of investment and support set out in the March Budget fell short of what was required. Any transfer of resources or power to begin the difficult job of rebuilding local economies was absent. Instead, a centralising tendency reinforced during the pandemic has taken hold. Cash strapped local authorities have not been compensated for the £2.6 billion hole created by cost pressures and income lost during the pandemic. Nor was an ambitious programme of investment aimed at greening and levelling up our communities put on the table. Small top-down pots of funding like the Levelling Up Fund and Community Renewal Fund are woefully inadequate. And the £15 billion a year cuts to unprotected departments earmarked in the Budget signals a further squeeze on investment in our communities.
If the government is serious about Building Back Better in a way that levels up our economy, then it must change tact. It must commit to a big injection of investment into our communities alongside a rapid and radical devolution of power to regional and local government. Devolution of certain taxes should be combined with devolved funding and new powers over education, skills, employment support, energy, housing, planning and local transport. To be meaningful, devolution must come with the creation of strong local institutions, tasked with driving economic change in different places in partnership with local businesses, trade unions and community groups.
And in return for these new powers, local leaders must seek to use the procurement and investment power of the local state to create jobs and drive-up living standards. This means getting not just councils on board, but other anchor institutions – schools, further education, universities, the NHS and voluntary and community sector – to work together to sweat local investment to change the very nature of their local economy. And critically, it will mean giving people a bigger stake and ownership of their local economy so that more of the benefits flow to them by supporting community ownership of assets, employee ownership, mutuals and co-operatives.
The scale of the challenge is clear but so is the roadmap to transforming the economy in the wake of the pandemic so that we do ‘build back better’. Now we need politicians bold and brave enough to take the first step.