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Rishi Sunak to reform anti-Northern spending bias

Faisal Islam
Economics editor
@faisalislamon Twitter

Published
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The government has confirmed it will make a major reform to the way it assesses the value for money of big spending projects.

It plans to remove a longstanding bias that has affected funding for northern England and other regions.

Chancellor Rishi Sunak said the changes, to be unveiled at next week's Spending Review, were part of the government's "levelling up" agenda.

The move was welcomed by a group of Tory MPs in northern England.

However, the Labour Mayor of Greater Manchester, Andy Burnham, said the government had no "genuine intention" of levelling up the north and called for "much more substantial devolution" to shift power away from Westminster.

Mr Sunak said the changes would allow those "in all corners of the UK to get their fair share of our future prosperity".

Part of what will change is the Treasury's Green Book - a set of rules it uses to determine the value generated by government schemes.

It will mean - as the first portions of £600bn in planned public investment are delivered - the process of ranking transport, energy, schools or hospital investment will be widened beyond a narrow definition of benefit compared to cost.

Those calculations, the Treasury now acknowledges, have inherently favoured the government investing continuously in the South East of England and London.

That's because the values of economic return are influenced by existing high property prices in those regions.

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For example, a transport link between London and Reading would always have ranked as better value for money for the taxpayer than linking two northern cities.

The new process will update the equation to prioritise investments with regional impact, which will help Mr Sunak's levelling up plan and the government's green objectives.

Jake Berry, chair of the Northern Research Group of Conservative MPs and former Northern Powerhouse minister, welcomed the announcement.

"It was one of the most frustrating things I found, when I was Northern Powerhouse minister, was you would sort of come against this calculation that always preferred Reading over Rossendale," he told BBC Radio 4's Today programme.

Mr Berry, who is MP for Rossendale and Darwen, said his group had been calling for the chancellor not to reform the spending formula, but to "chuck it into the shredding machine" and "start prioritising northern investment".

"I think we've got a long way towards that today," he added.

Asked what investment should be prioritised, Mr Berry said fast delivery of smaller infrastructure projects, like local bypasses or improvement to bus services, would "make a much bigger difference" to people's everyday lives than long-term projects like HS2 and Northern Powerhouse Rail.

"But of course we need to do both," he added.

media captionBoris Johnson speaking in 2019 about plans to invest in northern railways

Henri Murison, director of the Northern Powerhouse Partnership, made up of business and city leaders and chaired by former Tory Chancellor George Osborne, said the reforms were "crucial to rebalancing the economy".

However, he said productivity remained the central barrier to overcoming the north-south divide.

What is the Spending Review?

A Spending Review is a chance to take a long-term view of the government's spending plans.

It sets out how much money will be allocated to different government departments and how taxpayers' money will be spent.

This year the government decided to abandon its long-term Comprehensive Spending Review amid the economic uncertainty of the Covid-19 pandemic and instead next week's review will cover just one financial year.

It is expected to focus on supporting jobs and public services through the Covid crisis as well as investing in infrastructure to deliver on the government's pledge to "level up" the country, reduce regional inequality and drive economic recovery following the pandemic.

The chancellor's planned changes will form part of the long-delayed National Infrastructure Strategy, which will be published alongside the Spending Review. This will cover flagship programmes such as fibre broadband, flood defences, and major transport schemes.

Some £1.6bn will also be allocated to tackling potholes in the next financial year.

The government will also launch its UK Shared Prosperity Fund - under which money previously allocated to poorer regions by the European Union will now be spent by the UK government.

A UK Investment Bank will replace the functions of the European Investment Bank when the Brexit transition period ends. The government hopes to be able to use more private sector capital, and to align the bank's investments more closely with UK economic strategy, for example on climate change.

Environmental campaigners are anxious to see whether the chancellor's plans support the prime minister's ambitious 10-point plan to protect the climate, published this week.

They sense the UK is poised for a seismic shift in the way it tackles the climate crisis - and Mr Sunak's speech will be a key test.

The chancellor has also confirmed the Treasury will move some staff to a new base in the north of England next year, as part of a shift of 22,000 civil servant roles out of London and the South East.

The location of the new headquarters will be announced "in the coming weeks".

However, Labour's Mr Burnham accused the government of having a "London-centric approach".

"I don't believe they have got any genuine intention to level up the north, and even if they have you can't do it by long-term infrastructure projects alone," he told a virtual Co-operative Party conference on Saturday.

"You level-up the north by investing in people, by investing in communities and then building up from there - keeping the wealth in those communities and recycling it for the benefit for everyone."

The party's shadow chancellor, Anneliese Dodds, called for Mr Sunak's Spending Review to "set the country on the right path", adding that the Conservatives' "track record is a litany of failure and broken promises".

Meanwhile, Mr Sunak used his appearance at the virtual Scottish Conservative conference to argue that "the overwhelming might of the UK Treasury" meant the government had been able to take "unprecedented action to support all of Scotland" through the pandemic.

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