18 March 2022
While awareness of “levelling up” has grown in the political consciousness in recent years, it is really a recognition of a long-standing problem within the UK economy: regional inequality and productivity. Few wealthy countries have the regional disparities we see in the United Kingdom. While many nations have seen a geographic concentration of economic activity due to globalisation and rapid technological progress, the stark divergence in regional economic opportunity in the UK has been nurtured by decades of centralisation in policy-making and the financial sector alongside uneven infrastructure spending (for example in life sciences).
The Johnson Conservative Government recognised the importance of this disparity and has made reversing it a central litmus test of his premiership. However, there remained (and remains) ambiguity on the actual meaning of “levelling up” as the term has tended to be a catch-all for any regional and sub-regional differences. Boris Johnson’s July 2021 speech emphasised regional inequalities in health, crime and education but there was a clear disconnection between the ambition of levelling up and another central policy of his Government, the transition to net zero.
The publication of the Levelling Up White Paper in February did little to establish the link between these two policy objectives. There was no mention of climate change or net zero in the press announcement or the national “Levelling Up Missions”. Closer inspection of the full white paper revealed that mention of “net zero” didn’t appear until 50 pages in. The actual section on net zero emphasised regional opportunities from delivering net zero and regional comparative areas of advantage but was mostly recycled from the Net Zero Strategy (a document strong in ambition but lacking in a delivery plan) and didn’t involve any new commitments.
It seems the delivery of net zero and climate change action was not paramount in “levelling up”. So, here we have the two major transitions within the UK economy for the next decade, which have clear interlinks, and Government policy suggesting they will be delivered almost independently of each other. There are two risks in this, discussed below. First, the risk of missed opportunities, such as failing to harness synergies between levelling up and net zero. Second, the risk of perverse outcomes, in which some policies for levelling up increase greenhouse gas emissions.
This is a missed opportunity as there is inherent potential for cutting regional inequality from delivering place-based net zero transitions across the UK. Many local authorities recognise the moral imperative to act on climate change (with around 300 councils declaring a climate emergency) but also the economic development opportunities that could stem from a transition to net zero. There are the obvious job creation upsides in emerging low carbon and renewable sectors (which have currently peaked during 2018) but also in transitioning workers from carbon intensive industries into new, quality jobs in these emerging industries.
This was recommended by the Green Jobs Taskforce but the Levelling Up White Paper failed to make linkages to several potential growth areas within the Net Zero Transition. A clear example of this is the necessary retrofit revolution across the UK building stock. This will unlock c.100,000 new construction roles across the country but will need locally conscious approaches due to the variation in housing stock and densities. Retrofit at this scale is also vital to reducing energy demand. There is much the Government could take from the National Retrofit Strategy and their strategy to develop local skills and capacity for retrofit. This approach will decarbonise the local economy and provide job growth.
This place-based approach is the most efficient method for delivering net zero and will simultaneously level up regions. The executive summary of the Levelling Up White Paper emphasises "Pride in Place" as a significant focus area. A recent PWC report compared place-specific and place-agnostic approaches for net zero delivery, and found a staggering divergence in investment cost and social co-benefits between both. The "place-based" bottom-up approach saved more than half the investment cost while still providing more than double the social co-benefits.
The Levelling Up White Paper, to its credit, did introduce greater devolution powers, but greater links need to be established between local climate finance plans and levelling up. This will also attract flows of private finance into under-invested regions, connecting the £130 trillion of assets under management from members of the Glasgow Financial Alliance for Net Zero (GFANZ) who are looking for net-zero aligned projects. This “wall of money” can simultaneously be leveraged into the net zero and levelling up transition, delivering a just and equitable transition across the UK. It will require expanded place-based finance development capacity, otherwise the project pipeline will not be created. The five Local Net Zero Hubs announced in the Net Zero Strategy are a start, but should be proliferated and scaled up if they are to meet the needs of place-based climate investment across the UK.
Finally, a place-based approach to net zero and levelling up demands integration of the Government’s proposed planning reforms with both agendas. The local and regional planning system is currently not well aligned with net zero – as, for example, its inability to prevent the proliferation of poorly insulated new housing in flood plains. Ensuring that an improved planning system supports net zero, nature recovery and levelling up in an integrated way is vital.
Net zero and adaptation
There are other risks in not having a joined up approach around both environmental resilience and health and wellbeing. Levelling up policy implementation that does not consider investing in climate adaptation could further exacerbate loss and damage from climate impacts. For example, coastal communities will be abundantly aware that investment in greater adaptation will not only provide development but also protect their communities. Health and wellbeing benefits, meanwhile, are a key focus areas of the levelling up programme. Likewise, Chapter 5 of the CCRA3 Technical Report emphasises how net zero strategies have the potential to bring significant co-benefits in terms of population health and wellbeing. The dots between them need connecting and adaptation must be considered in any net zero and levelling up transition.
The cost-of-living crisis alongside our new reality of war in Europe creates additional considerations to delivery of both transitions. It would be remiss not to acknowledge the additional complexity, and heightened sense of urgency for action, since the publication of the White Paper at the start of February. The Ukraine war and its ramifications highlight that the unsustainability of our reliance on fossil fuels is not solely about carbon emissions but also the insecurity, social injustice and turmoil that our dependence on non-renewable energy resources brings.
There is a clear economic case for investment in net zero to alleviate unequal impacts on different consumers across the UK while still providing all the social co-benefits outlined above. Investing in reducing energy demand as well as production of low carbon renewable energy will provide consumers with greater protection from fossil fuel price volatility and greater security of energy supply in the UK. Therefore, accelerating the energy transition should continue to be a priority for the policy of levelling up (this has been outlined by Secretary of State Kwasi Kwarteng).
Holistic approach needed
The Levelling Up White Paper did recognise much of what has been outlined. There was provision for increased devolution (particularly in England) and, while there continues to be centralisation of the financial sector in London, much of the net-zero aligned investment flows were outside the southeast (to industrial hubs like Humberside). There certainly appears to be broad policy support, even if detailed structures for delivery remain absent so far.
Looking forward, as the Government seeks to deliver on both its Net Zero Strategy and the Levelling Up White Paper, it needs to overcome the legacy silos in Whitehall and attempt to join up efforts. The delivery of a net zero strategy that is embedded in the distinct nature of different places will accelerate levelling up. The delivery of a levelling up strategy should also seek to reinforce, rather than contradict, the net zero agenda, and to build resilience rather than new vulnerabilities.
There is an opportunity to outline a more holistic approach from Government in the upcoming Green Finance Strategy later this year. Through this updated strategy, HM Government can outline an integrated approach to investment in net zero and levelling up, as well as investing in Britain’s natural capital. This approach gives the best chance of a truly net-zero, climate resilient and prosperous future for all places across the UK, one that ensures climate fairness and justice for all. Surely this is exactly the purpose of creating the Levelling Up programme?
Brendan Curran is a PCAN Policy Fellow in Sustainable Finance. We would like to thank the following members of the PCAN Finance Platform and the PCAN Network Plus for their input and for reviewing this Commentary: Ian Christie; Richard Essex; Andy Gouldson; Andrew Kythreotis; Sabrina Muller; Alice Owen; Jules Pretty; Nick Robins; Brett Willers.