This article is written by Andrew Paterson, Senior Counsellor at the OECD Centre for Entrepreneurship, SMEs, Regions and Cities. Before joining the OECD, Andrew was a senior civil servant in the UK government.

  • The problem: Stark regional inequalities persist in the UK, with London far outpacing other cities in economic output and development.
  • Why it matters: These disparities hinder national growth, exacerbate social divides and make lagging regions more vulnerable to economic and environmental shifts.
  • The solution: Comprehensive policy reforms focusing on infrastructure investment, green job creation and greater devolution are essential to bridge the gap and foster balanced regional growth.

“If instead of one, we had twelve cities in these kingdoms possessed of equal advantages, so many centres of men, riches and power would be more advantageous than one.” Much has changed in the 320 years since Andrew Fletcher wrote wistfully of the need for regional rebalancing in the UK. Yet the UK’s cities and regions are still worlds apart, and the country is paying a heavy price.

A deep geography of inequality

In 2021, output per head in London was nearly £60,000, twice as high as that of Greater Manchester and Birmingham and around three times as high as Bradford and Walsall. And while regional inequalities are common across OECD countries, the gap between the richest and poorest 20% of regions in the UK is higher than in the US, Germany, Japan and the Netherlands.

Worse, the UK is in a club of countries that have seen income inequalities widen over the last 20 years, according to the latest OECD Regional Outlook. Over that time, London’s share of UK GDP increased by 2.6 percentage points helping it surge ahead of other regions.

The aim should not be to ‘do down’ London but to build up the country’s other cities and regions

This is partly spatial economics. Scale and density matter for productivity, and London has a gravitational pull unmatched by other UK cities and regions. Yet other highly urbanised countries not only have narrower inequalities, but have also fared better in closing the gap, such as Germany, the Netherlands and Korea.

Temperatures are rising

As global temperatures rise and the green transition gathers pace, things could get particularly uncomfortable in lagging regions. The UK appears to be ahead of international peers in generating green jobs, with 25% of workers employed in jobs with a significant share of tasks that contribute to environmental objectives. This is seven percentage points more than the OECD average.

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Yet London is again the main beneficiary, where nearly 1/3 of jobs are green, compared to only 1/5 in the North East and Northern Ireland. London also has less to lose. Only 4.8% of London’s jobs are in polluting sectors that must be restructured or phased out – a figure that is more than twice as high in the Midlands and the North. Lagging regions also face a higher risk from the impacts of automation on jobs than the capital, a process that has been accelerated by the leaps in artificial intelligence (AI) in recent years.

Reviving the regions

The aim should not be to ‘do down’ London but to build up the country’s other cities and regions. The previous government’s Levelling Up White Paper set out plans for increased infrastructure investments and targeted spending in poorer regions, including through the £2.6 billion ‘Shared Prosperity Fund’, and the £2.4 billion ‘Towns Fund’. Following the decision to scale back HS2 ambitions, the previous Government committed to reinvesting savings from the £36 billion project cost into improving transport networks in the north and Midlands.

This transport investment is sorely needed. Recent OECD work has flagged that peak-time congestion in the UK is more severe than in any other European country and only 9 cities in the UK operate metro or light rail systems compared to 60 cities in Germany. The strategy also sets out a pathway to greater devolution within England, promising that by 2030, every part of England that wants one will have a devolution deal and a simplified, long-term funding settlement.

Enough?

Will it be enough though to close the chasm? These investments are spread over many years, and there is a long way to go in ensuring fair funding for the development of lagging regions. In 2021-22, UK public spending per head on the economic development of London was more than twice as high as in the North East. A decade earlier it was only 65% higher, and 15 years ago 35% higher.

There is a similarly long road to travel on devolution. Despite recent progress, notably in empowering mayors, the UK remains highly centralised. In 2021, subnational governments accounted for only 20.7% of total government spending, far lower than other unitary countries such as Italy (26.2%); Japan (41.9%), Korea (44.2%); and Sweden (49.5%). Subnational control over revenue-raising is even more limited. Subnational taxes account for only 17.5% of UK subnational government revenues compared to 42.2% on average across the OECD. And local governments are under growing financial pressure, due to recent rises in prices and service demands alongside higher interest rates that are adding to the burden of servicing debt which has grown by nearly 50% between 2014-23.

The new government faces a big challenge in reviving the UK’s regions. The UK’s regional divides are deeply rooted, and well-intended policy agendas stretch back as far as Andrew Fletcher. This government’s strategy will need to be backed across departments – and especially by the Treasury – if it is to be equal to the task.

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