The Government needs to become a venture capitalist if Levelling Up is to be delivered

February 10, 2022

The Treasury is often stuck in two minds: that of the bank manager, and that of the venture capitalist.  To put it another way, the Treasury is torn between an impulse to tighten the belt and an impulse to spend money on initiatives that lead to growth. Former Financial Secretary to the Treasury Rt Hon Jesse Norman MP pointed this out this week at an excellent Policy Exchange discussion on Levelling Up.

As Robert Shrimsley argues in the Financial Times, the bank manager mindset generally tends to win out. But as Jesse Norman suggested, the venture capital mindset need not be isolated simply to the Treasury. The Levelling Up White Paper offers a new way to think about the Department for Levelling Up, Housing and Communities and the role of the Department for Business Energy and the Industrial Strategy. Both of these departments are key to delivering the missions and wider regeneration outlined in the White Paper, and it’s absolutely crucial that they can become the drivers for local growth.

There are already mechanisms in the White Paper that can help build this mindset. For example, the Innovation Accelerators will help government partner and use local knowledge more effectively in key areas that have already shown R&D initiative. Similarly, the Levelling Up Directors – envoys from central government to coordinate the growth and productivity agenda – if used right, can help be the incubators for better local government policy and the capacity to actually generate economic growth.

These two Departments have the chance now to inject a new growth-oriented culture in Government, and they should use the White Paper as the launching off point, rather than the destination. It has been rightly pointed out that the White Paper could have thought harder about the role of the private sector in Government, and this can be rectified with a strong push by DLUHC and BEIS.

For example, some serious thought should be given as to how these Departments can help local leaders be ‘business ambassadors’ for their areas. Mayor Ben Houchen told Policy Exchange in our discussion yesterday that he spends about 75 percent of his time trying to attract local business to Tees Valley. This is exactly the kind of spirit that should be emulated in every region and in Whitehall, and was in fact a key recommendation in Policy Exchange’s 2019Modernising the United Kingdom report.

This brings us to another extremely important point about the future of local growth, which is that currently the Government does badly at measuring it. If we are going to push for a venture capital mindset – and we should – then that means a harder look on how we measure growth and economic success.

The White Paper has some important recommendations around data, including the creation of a new body to assess reaching the Levelling Up goals. That is a welcome step, but we need to think seriously about how such a body will go about supporting local growth. Last week, the National Audit Office released a report on how government (mainly DLUHC) evaluated local growth. £18 billion was spent between 2011 and 2020, and yet, the NAO found that “the department has built its evidence base…by drawing largely on external sources”. It goes on to say that even with the research it did use “it has not consistently applied the lessons and key policy principles from its own research”.

This is not necessarily surprising. The What Works Centre for Economic Growth, a research partnership at the LSE looking at how to evaluate economic growth, notes that, out of 2,200 studies considered, only 58 met the minimum standards set out by the Centre. More worryingly, the NAO cites research from the What Works Centre noting that, in terms of 46 evaluations from local authorities in 2019-2020, none met the minimum standards.

Even given the shortcomings in the evidence, the NAO notes that DLUHC “lacked a clear plan for measuring outcomes and evaluating performance across its entire programme”. If Government really wants to power growth, it needs to do more.

Now that the White Paper has been published, it’s incumbent on the Government to expound principles of measurement and accountability that will actually be followed. The Government has already set out plans for an independent monitoring body, but the devil will be in the details. The metrics should be based on clear principles, should be reasonably attainable, and should be accompanied by substantial data collection efforts.

Paradoxically, then, if the United Kingdom is going to have a venture capital mindset in Government, it should demand more of itself when it comes to counting the numbers. That doesn’t necessarily mean penny pinching, but it does require a greater degree of rigour when local and central Government develop local growth policies. Venture capital firms would always demand outcomes from their investments, and so should the Government. The Levelling Up missions are too important and too ambitious for it to be otherwise.


Join our mailing list