Levelling up? How regional inequality has changed since 1997

The government will need to invest billions of pounds more than expected in its “levelling up” plans for them to work, a think tank has claimed. 

There are “substantial” and “highly persistent” income gaps in the UK, according to a new report from the Resolution Foundation. Six in 10 people said the gaps between regions is one of the “most concerning” types of inequality in the UK today. 

Earlier this year, the government published a plan for levelling up the country by 2030. Ministers proposed tackling regional inequality by boosting education, improving transport and increasing pay. 

But the Resolution Foundation is warning regional inequalities will be far trickier and more costly to tackle than the government expects. 

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The think tank has produced a chart, based on the most recent data from 2019, showing the average income per person was highest in London – at £23,070. That’s 1.6 times higher than that of someone living in the north-east, where the average income was £14,621.

The average income of residents in the richest local authority – Kensington and Chelsea – was £52,451 in 2019. That’s 4.5 times more than the average income per person in the poorest local authority – Nottingham – where it was £11,708. 

Even more critically, income gaps which existed 25 years ago still persist today. The average income per person in Hammersmith and Fulham has “stubbornly been two-to-three times higher” than in Burnley for more than two decades, for example.

Lindsay Judge, research director at the Resolution Foundation, said: “Britain is beset by huge economic gaps between different parts of the country, and has been for many decades. While progress has been made in reducing employment gaps, this has been offset by a surge in investment income among better-off families in London and the south-east.”

For the gap between London and Manchester to almost halve, Manchester would need the equivelent of tens of billions of pounds of investment, a 7 per cent increase in its share of graduates, and 300,000 more workers.

Judge added: “People care about these gaps and want them closed, as does the government via its levelling up strategy. The key to closing these gaps is to boost the productivity of our major cities outside London, which will also lead to stronger growth overall.”

Four-fifths of the variation in incomes across local authority areas today match the pattern in 1997. Put simply, this means the poorest areas have tended to remain poor, while the richest remain rich. Levelling up the country means tightening that gap.

Of course, there have been changes over the years. Newham, Hackney and Lewisham’s average incomes were below national levels in 1997, and they have seen their income per person grow rapidly over time. The richest boroughs in London have largely remained so. 

But other areas in the country have struggled. Bradford, Blackburn, Nottingham and Leicester were in a poorer position relative to the UK average in 2019 than they were in 1997.

Employment has grown fastest in areas with higher than average earnings. Gwynedd in Wales, for example, only saw its employment rate grow by 1 per cent between 2004 and 2019. It was one of the places with the lowest average earnings in 2004. By comparison, Tower Hamlets, a higher-earning borough, saw employment soar by 34 per cent.

The report says that there is an “obvious skew” with a higher share of households in the poorer local authorities in receipt of working-age benefits than in the richer local authorities.

But there are a number of better-off places where more than an average share of people receive benefits. Some of the richest parts of the country – such as Ealing, Tower Hamlets, Brent and Haringey – are also places where a considerable share of households receive benefit support.

This is partly because the benefits system increasingly supports households with high housing costs. But it also “reflects that some local authorities are very unequal”, with particularly affluent people living in the same area as those in deprivation. 

There has been a faster growth in house prices in higher-income areas, with London at the forefront again. High house prices make it even more difficult for low-income families. 

Before taking housing costs into account, the highest child poverty rates are found in northern and Midlands local authorities. But after taking housing costs into consideration, child poverty rates are highest in large cities, particularly London, Birmingham and Manchester. 

Child poverty rates stand at 58.5 per cent in Poplar and Limehouse in Tower Hamlets, for example, while the skyscrapers of Canary Wharf tower over them. Soaring house prices leave low-income families exposed in richer places.

Local authorities and experts have criticised the government’s levelling up strategy. Alex Beer, of the Nuffield Foundation, said: “Alongside efforts to reduce geographical disparities we need action to address other persistent inequalities, for example in relation to age, gender and ethnicity. People everywhere should have a fair opportunity for a healthy life and good access to education, public services and employment opportunities.”

The report warns that action must be taken to close the income gaps. “If the country wants to get serious about closing the stubborn income gaps,” the authors note when discussing the future of levelling up, “policy makers would be wise to look to the top end of the income distribution, where disparities are not only large but increasing.”