"The key to the Preston model is spending local authority money and ‘anchor institutions’ funds locally with local contractors and suppliers."
The city of Preston is apparently Corbyn’s ‘model town’. It has been hailed as Corbynomics in action, representing Labour’s new economic agenda, municipal socialism and ‘taking back control’.
The key to the Preston model is spending local authority money and ‘anchor institutions’ funds locally with local contractors and suppliers.
The logic of this move itself symbolises the left’s economic thinking. Namely, that something like public sector contracts should be spent in a way that yields the most value rather than simply the lowest price for taxpayers.
Spending in the Preston by these institutions rapidly increased, up from £38 million in 2013 to £111 million in 2017. The effect has been a decrease in unemployment above the national average.
The model also has symbolic significance for many narratives on the left that are popular and powerful: tackling regional divides, building municipal socialism, focusing on towns, ‘taking back control’ and the new ownership agenda that John McDonnell is fleshing out.
Because of this, I think it’s worth asking whether the Preston model has a practical value equivalent to its symbolic value and giving its criticisms serious consideration.
One criticism of the model is that “no value is being added”, funding is simply being relocated. The natural extension of this argument is that model is ‘protectionist’ and if it were adopted universally no city would be richer or poorer.
A second criticism is that by spending contracts locally, the city is making itself vulnerable to economic downturn. The city is effectively ‘putting all its eggs in one basket’.
Neither of these arguments works in the current economic context. The first argument falls down because it assumes the distribution of spending across the economy matters little. We know this isn’t the case. From London and the South East’s vastly overheated economy to the impact a lack of spending in the North has had on productivity in the region. Relocating spending from London and the South East would serve not just to help other regions, but save London from itself.
The second argument collapses when we consider the current shape of local government financing. As the central grant from Whitehall is cut, councils are being given more of their business rate revenue. Revenue from the centre is being replaced by revenue collected by councils in their own areas. These changes to the funding model could create the conditions for cyclical economic downturns. By increasing councils reliance on their own economy, if a local economy does go into recession, the council will lose income as tax revenues fall. If this results in cutbacks in council services the local economy will suffer further. Especially because councils are legally required to balance their books, ruling out counter-cyclical spending.
In short, the changes to local government financing are already causing local government to ‘put all their eggs in one basket’. The Tories have dramatically increased the risk local government finances are exposed to.
The Preston model should be seen as a response to this change. Many of the ‘anchor institutions’ which are key to the model are funded by the centre. Further Education colleges, The University of Central Lancashire (via student loans), hospitals, all are funded by Whitehall. Given the situation, attempting to re-embed what funds do come from the centre to power the local economy and stabilise and secure the local government’s revenue base is not ideological, but common sense.
You cannot attack the Preston model as protectionism if you look at this context. The need to re-embed funds from the centre has been made entirely necessary by factors like the weakness of the Northern Powerhouse agenda, weak transport links, the disproportional regional impact of austerity, uncertainty around regionally allocated European funding and changes the local government funding.
Could the model break out of its namesake and be applied beyond Preston? I suspect the main limitation will be a lack of anchor institutions with sufficient clout willing to alter their procurement strategies.
As austerity continues to bite, nominally apolitical technocrats at anchor institution may be more and more concerned with their own bottom line and prefer looking for the lowest price in their procurement contracts, rather than the best value for all. Indeed, it’s a testament to the skill of the Preston City Council that they were able to cajole and persuade the institutions they did.
Third, I suspect that Preston may be the Goldilocks city for the model, in that it is just the right size, with the just the right number of anchor institutions and just the right size of business base to provide the services in the local area.
Let’s use the other areas of Lancashire as an example. Matthew Brown, the council leader in Preston, speaking to Renewal noted that Preston compared favourably to lots of other areas in Lancashire with “lots of place-based institutions like the university, lots of public sector workers, [and] advanced manufacturing nearby.” Not only are the towns of East Lancashire smaller but they have weaker business bases, lack high-skilled employers like BAE and have fewer place-based institutions and public-sector employees. Preston may not be a wealthy city but the transformative ownership agenda works there because there are anchor institutions and a business base to transform.
The problems in other parts of the county are deeper rooted. In 2015, Blackpool had 7 of the top 20 most deprived neighbourhoods in the country; in the east, Blackburn had 2 and Burnley had 1. Preston had 0.
Going back to the centre-periphery analogy, Preston may be the periphery to London, but compared to the rest of the Lancashire, with its university and direct line to London and Manchester, it is the centre. The model has leveraged more funds into Lancashire as a whole, helping the whole county, but it hasn’t changed the dynamics which currently exist within these other towns around deprivation, poverty and social mobility.
For these areas, in Lancashire as across the country, re-embedding money going through local institutions in the local area is not going to be enough.
More proactive, externally-aided measures to develop the business base and infrastructure will be needed. Public institutions can only do so much and the development of an industrial strategy which gives towns robust industries needs to complement local community wealth building initiatives.
The Preston model is no protectionist racket, but it’s no silver bullet either.
Noah Froud is a Young Fabian member and Contributing writer.