The answer to regional inequality isn’t public money, it’s productivity

Andy Burnham aims to make the economically disadvantaged regions of the UK more prosperous through his policies. The Labour Party previously used the slogan "Levelling Up" and the Conservative Party used "two nations" to describe this concept. The idea of regional inequality dates back to 1860s in the form of Benjamin Disraeli's concerns about the gap between rich and poor, and 1960s in the form of Harold Wilson's speech.

Despite billions spent on regional initiatives over the last 60 years, the inequality problem persists. The main reason for the persisting poverty in certain regions is the average firm's low productivity, leading to low wages and salaries. Focusing on transport, shopping centers, and training courses only have an indirect impact on income differences.

To address this issue, the primary aim should be to raise the productivity levels of firms. This includes improving the industrial structure in economically weaker areas, which are heavily weighted towards sectors with low productivity. Additionally, there is a significant disparity between the productivity levels of firms in different industries, with poorer areas having a higher proportion of firms in the mid/low productivity range.

Evidence from a new paper by the Productivity Institute at the University of Manchester supports this approach. The study found that public support for research and development (R&D) and knowledge collaborations positively impacts regional economic development. Public funding for R&D and knowledge collaborations can make a significant difference in narrowing the economic gap between regions, as opposed to blanket spending that has proven ineffective over the past 60 years.