Brexit will undermine Johnson’s plans for poorer regions

Extra investment will not compensate for new trade barriers with Europe

January 22, 2020
Photo: Claire Doherty/SIPA USA/PA Images
Photo: Claire Doherty/SIPA USA/PA Images

In September, Boris Johnson told cabinet colleagues that he was “basically a Brexity Hezza.” In the 1980s, Michael Heseltine led regeneration projects in London and Liverpool’s docklands, and Johnson will now try to revive poorer areas with more government investment after former Labour voters “lent” him the votes that secured his election victory. But Heseltine is famously Europhile—and Johnson will discover that he can’t be Hezza and Brexity at the same time. 

Poorer regions are likely to be hit hardest by Brexit. Manufacturing, the food and drinks industry, and goods distribution make up a sizeable chunk of these regions’ economies, and they export more of their output to Europe than London and the southeast. Global manufacturing companies are always on the look-out for places where land prices and wages are comparatively low, labour is plentiful, and where they can get their goods to market. Before Brexit, the UK’s regions outside the southeast had served them reasonably well, but now big manufacturers will wind down UK operations. This will have a knock-on effect on the local economy: good jobs will be lost on the shop floors, but also in components, maintenance, cleaning and other services that big manufacturing plants buy in locally. 

Of the 54 seats that the Conservatives gained from Labour, 42 have more manufacturing jobs than the average UK constituency, and 22 of those seats have more than twice the national average. While voters in these seats may refuse to believe that Brexit is to blame for the loss of jobs, they will blame the Tories.

In contrast to manufacturing, top services companies cluster together in cities with lots of skilled workers, and these cities can cope with nasty surprises like Brexit better than regions that are dominated by fewer industries. The last ten years are a case in point: London’s economy has been growing faster than any other region since the financial crisis of 2008-9, despite the struggles of the City. Other service industries have more than made up for the decline of finance, with TV, music and film production leading the way. And London, Manchester, Bristol and the towns along the Thames valley have continued to draw in graduate workers, leaving the populations of poorer places older and less educated over time. 

None of this is to say that the new Conservative government should not try and invest in the poorer regions. And there are ways to soften the effects of Brexit on these regions, too, although many of them go against Johnson’s instincts. The first priority should be to avoid leaving without a trade deal at the end of 2020, when the transition period is scheduled to end. A sudden ramping up of barriers with the EU would probably cause a recession, and people on lower incomes are more likely to be laid off in downturns. While Johnson has said that he will not extend the transition period, it is unlikely that the whole relationship with the EU will be negotiated and ratified this year. Some parts of the deal could be agreed and implemented early to give him a win, while other parts could be phased in over time. Alternatively, Johnson could cave on most of the EU’s demands in order to secure an agreement quickly.

The second priority is to row back on plans for divergence, and pursue a close relationship with the EU in goods, agriculture and food. This is overwhelmingly in the UK’s interest, and it would preserve at least some of the manufacturing and farming links that had built up over decades. In an interview with the Financial Times last weekend, Sajid Javid said that “there will not be alignment—we will not be a rule-taker.” That will make “levelling up" all the more difficult.

The third priority should be to supplement splashy, expensive infrastructure projects with the boring grind of incremental improvements. Better regional transport would make labour markets bigger, giving workers more choice of jobs. This will make both workers and firms better off. One of the benefits of HS2 will be that it allows more commuter trains on the old mainlines. Commuter trains on existing lines are limited because fast intercity services that stop infrequently need to travel on the same tracks. But improving commuter rail and bus services between city centres, suburbs and satellite towns needs to go beyond HS2.

Providing more money to local government after the extraordinary cuts of the last decade would allow them to do up parks, municipal buildings and roads, which would encourage people to move in. Employers and workers mulling a move will be put off by places that are visibly decaying. 

A speedy transition to renewable energy, with stronger incentives for energy companies to replace gas with wind and solar power, should provide plenty of decent jobs around the country, as renewable energy generation must be spread around in order to deal with intermittency. 

Johnson may do better or worse than Heseltine: the redevelopment of London’s docklands was more successful than Liverpool’s. Governments since have all tried to rebalance Britain’s economy, with little success. And Boris will be sailing into the wind generated by leaving the EU. To keep his new coalition of voters together, he will have to find a way to be less Brexity.