Why is politics everywhere in such a mess? Here’s one answer. The rules of the game have changed, but no one has told the players. They’re thinking left vs right or, at a push, libertarian vs authoritarian. And yes, the crash did raise concerns about inequality – but there have been other forces at play; new ones that politicians have not yet recognised - like cities vs regions. Writing in The Spectator recently, William Galston, a former Clinton aide, put it thus:
“Most cities are now thriving but most smaller towns are not. Once, the fortunes of large cities and their hinterlands were linked. Now, cities are like black holes, absorbing skilled labour and resources — but failing to emit either wealth or opportunities to surrounding areas. Compounding this trend, we have the rise of higher education, which has created new cultural divisions. A degree not only ups potential salaries, but also reshapes an individual’s entire outlook.”
His theory: you end up with cities that talk to each other (or want to connect to each other with HS2), rather than spread wealth out to the regions who feel ignored, their citizens seen as old, pale, male and stale. And while the cities relish change and diversity, the regions see in this a new creed that alienates them. This leads to support for populist parties, who like to say they represent forgotten people. This, to a greater or lesser extent, this can be seen all over Europe. So what is to be done?
This was the topic of the first Spectator dinner discussion in Tory Party conference, sponsored by Barclays, for which we hosted numerous Conservative MPs and ministers, think tank giants like Demos’s Polly MacKenzie, and other business and industry leaders.
Kemi Badenoch, MP for Saffron Walden, said that her constituency suffers from the problem: it’s an infrastructure blackspot. Reasonably close to London, but too hard to get to for the place to be commuter belt. So her constituents do get the sense of being left behind - unless they take the outrageously expensive train to London. There is a certain metropolitan arrogance, she said, that was summed up by Oxford’s Paul Collier who wrote in a recent Spectator article that Londoners think of the region as being shackled to a corpse.
Sam Gyimah, then-Minister for Universities, disagreed. Cities do still radiate wealth, he said: saying ‘invest in towns,’ as a policy in isolation, is not enough. “If you want towns to succeed, you need cities to succeed - but cities that are well plugged in to the towns around them. A big part of that is infrastructure investment. I do not know any town in the UK where the town is really successful but the nearby city is unsuccessful.” Robert Jenrick, Exchequer Secretary to the Treasury, said that, to be sure kneejerk policy reaction is that to grow the economy, spend whatever money you have on the cities. “The real divide in this country is between the cities and the town,” he said. “Finding a way to help supporting the towns is one of the most important challenges for the Conservatives as a party. You neglect towns at your peril.” Apart from anything else, he said, young people don’t relish the idea of commuting - one of the problems railways face is declining commuter traffic.
Sarah Longlands, Director of IPPR North, said that small towns now regularly see themselves as being marginalised. “A lot of these places - Wigan, Barnsley - have really lost their sense of hope, the sense that they have a future. And that’s what government needs to provide: a sense that these places do have a future.”
And what’s making life even harder for towns, said Therese Coffey, MP for Suffolk Coastal, is the business rates: up by 171pc for some of towns, and has led to businesses closing. We need to completely rethink business rates. Kemi Badenoch said she’s heard 250%. Ian Rand from Barclays said that he sees hundreds of clients up and down the country and, for all the political focus on corporation tax, not many of them are worried about this. But they do fret about business rates.
And how about supply of funding? Tom Tugendhat, Chair of the Foreign Affairs Select Committee, said that banks have a massive incentive to invest in property, not people: the biggest tax cut you’ll get is investing in property. That’s seen as helping the economy. Lending £500 to Billy down the road is seen as gambling. Ian Rand begged to differ: banks were not adverse to lending, quite the opposite. It’s good business, but clients aren’t as interested in debt as they once were. Right up until the crash, in 2008/9, households had about £100 cash for every £100 debt. But the latest figures from December 2017 suggest that was £190 of debt for £100 cash. So yes, you can say: Britain isn’t borrowing, and therefore not growing. Or you can say that we have a pretty big buffer against the next crash. People are more cautious now, and it’s paying off.
When Carillion went bust, there were fears that there would be a domino effect as its supplies collapsed. But what happened? Very little. Suppliers nowadays have more cash in the bank, and that’s how they like it. So banks are trying to lend, in the regions and elsewhere, but there’s less appetite for debt. Much to the chagrin of the bankers, but there you go. Banks are often chastised by politicians for failure to lend, but lack of appetite for debt is a pretty big factor. “I have zero sympathy for the banks,” said Kemi Badenoch (herself a former Coutts banker). What MPs hear about from their constituents is branch closures: if banks think they’re being unfairly maligned, they need to make their case better.
Universities might offer more clues to regional growth, said Sam Gyimah: Britain is lucky to have more world-class universities than anywhere else in Europe and they’re all placed in decent regions. He was recently in Oxford, which now has more postgraduates that undergraduates and is spinning off two companies a month and investing in a science park. “But that’s playing catch-up”, said Fraser Nelson, Editor of The Spectator, “Cambridge did that long ago and Oxford tends to pride itself in its medievalism and can seem more interested in mispronouncing Magdalene than engaging in the real world like Ivy League universities do. Why are UK universities so insulated, Cambridge excepted? Might it be to do with the funding formula, or the way they are graded by league tables? Might there be scope for government to look at this, and force universities to be a little less ivory tower?” It might be happening already. Tom Tugendhat said he does some low-level investing, and has not found a single company in London worth the effort.
The last word went to Kit Malthouse, a minister for housing, who asked if we’re looking at all of this from the wrong end of the telescope. Shouldn’t we instead think of ways of unleashing capital and letting rip? And look at the state of venture capital: the reason its former titans (like Jon Moulton) moved away from VC and into hedge funds was that the returns were random - a major inhibitor of growth.
We discussed this issue (and other issues) for about three hours. The conversation ranged from whether grannies can go cashless (I mentioned my gran, in China, who does so) and the recent phenomenon of stolen JCB diggers ramming co-ops. But no one mentioned the ‘Northern Powerhouse’. Perhaps because the analysis of a North vs South divide is losing its relevance and being replaced by a new one - cities vs regions. With Labour’s Our Town video showing a very effective narrative for these places, there’s no doubt that this is a potent new ground in politics - and both parties are trying hard to be first to stamp their flag on it.