Levelling Up the UK: New Policies, Second Hand Ideas and 'Old' Distribution

Right after winning the 2010 elections, the UK’s conservative led government adopted a ‘rebalancing’ policy that strove to incentivize private investment in de-industrialized cities and ‘rebalance’ the economy across sectors and regions. This was the new government’s answer to the country’s declining productivity and slow recovery from the global financial crisis. Concurrently, the UK’s rent-led growth model produced incentives, opportunities and expectations that directed private actors away from real investment, especially in poorly performing regions. The macroeconomic ideas of fiscal austerity and monetary expansion which guided the government further strengthened this tendency. Put differently, the government push towards cross-regional distributional change intersected with the rent-led growth model that pulled to the other direction. This apparent paradox is still alive. Successive governments continually employ regional interventions to change the distribution of private investment and “level up” left behind regions, while also using macroeconomic ideas and policies that tend to increase the appeal of rent-led investments. I follow this policy agenda throughout the 2010s and ask what factors shape the relationship between the distributional patterns of the rent-led growth model, and government interventions that seek to mitigate its regional effects. I suggest that the government ‘rebalancing’ effort channelled rent-oriented investment to de-industrialized regions by making these regions attractive and profitable for rentiers, with the result of growing regional productivity gaps. I also claim that the expansion of rent-extracting sectors in low productivity regions, incentivised by tax holidays and government guarantees, aggravated the imbalanced distribution of income and wealth across sectors and regions. To test my suggestions, I analyze the ‘City Deal’ policy that has been operated by UK governments throughout the 2010s and early 2020s employing a constructivist approach to Baccaro, Blyth and Pontusson’s (2022) growth model theory. Since data covering the city deal’s outcomes on a country level is not available, I conduct comparative research of two ‘city deals’, Manchester and Birmingham, and use data collected by their local governments. Carefully generalizing my findings, I conclude that the incentives, opportunities and expectations produced by the rent-led growth model, and the institutionalised macroeconomic ideas that secured its dominance, made the City Deals policy counterproductive. They increased in-regional divides and regional productivity gaps, while also impeding the policy efforts to change the growth model’s distributional outcomes.