Why are all the infrastructure projects the Chancellor wants to invest in in the South? James Nations says the answer can be found in Matthew’s Gospel: “for to everyone who has, more shall be given”…
With the Chancellor wanting to move the conversation on from last year’s doom and gloom, she might be pleased to hear her economic plans linked to the Gospel. She has good news to spread, arguing that this government will reform a sclerotic planning system and actually “Get Britain Building”. But there’s a passage from Matthew that she should bear in mind: “For to everyone who has, more shall be given, and he will have an abundance; but from the one who does not have, even what he does have shall be taken away”. This has been adapted into the so-called “Matthew effect” in economics: already rich areas get richer because they can demonstrate the highest returns on public money; the poor areas lose out.
Consider, in that context, some of the reaction to the specific projects announced last week in the Chancellor’s speech. If Reeves is able to truly grasp the nettle on the Heathrow third runway and on finally moving the Oxford-Cambridge Arc from whizzy AI-generated photos to reality, then she is to be applauded.
The ‘Matthew effect’ in Treasury methodology will show the best benefit to costs ratio for projects in high demand, heavily populated areas
But where were the specific projects beyond the south, some commentators asked? What about a coherent story for regional growth? To understand why these criticisms have emerged, you need to appreciate the ‘Matthew effect’ and how that shows up in Treasury methodology. Internal analyses will tend to show the highest benefit to cost ratio in high demand, heavily populated areas. Treasury models therefore lead you towards more investment in cities to drive agglomeration. Based on the modelling alone, investing in a highly strategic area like Old Trafford probably makes sense. Ploughing money into derelict industrial land in northern towns with high upfront remediation costs, probably less so. Left behind areas get further left behind.
A familiar shopping list
Given the Chancellor’s urgent need to reset the economic narrative, it is no surprise that she reached for the familiar shopping list of infrastructure projects. The government has also indicated that it wants to go much further on empowering city mayors, which is all to the good. But some of the reaction to last week’s speech from the regional side should also be a cautionary tale. Labour’s focus so far has been to introduce new Treasury-led guardrails, whether the Office for Value for Money or the National Infrastructure and Transformation Authority. The risk, though, is that this additional bureaucracy amplifies existing Treasury modelling, particularly in the absence of sufficient political challenge. Instead, there should always be a push for officials to take into account a wider range of benefits, even if these are harder to monetise.
As an example, I remember the debates over the location of the Treasury’s new economic campus. Civil service advice was clear that it had to be in a city centre. But I recall asking: What about quality of life, for example accounting for lower house prices, particularly for employees who want to start a family? Proximity to infrastructure and universities for new hires, yes, but what about the potential for government presence to rejuvenate a town centre? A few years on, the Darlington Economic Campus is proving a great success under superb leadership.
Here, operating in ‘receive’ mode for growth ideas from the civil service won’t cut it. There has to be the political will to work more closely with leaders on projects that can make a material difference locally, even if they don’t necessarily show up positively in Whitehall models. Otherwise, the risk is that, beyond the familiar story of London and the South East powering ahead and driving up macro growth, there isn’t enough good news to spread elsewhere.
James Nation is managing director at Forefront Advisers and former Deputy Head of the No10 policy unit