It’s a clear shift leftwards into territory which the Labour Party considers its own. Earlier this year John McDonnell spoke favourably of the ‘Preston model’, introduced in 2013 to link the local council with key local organisations and businesses. The initiative aimed to revive and grow the economy of Preston, one of many apparently ‘left behind’ areas of the country, and may be an example of what the Prime Minister and his advisors have in mind.
As a result of this initiative, the share of the public procurement budget spent within the city has risen from 5% in 2013 to 18% (an increase of £75 million). Similar initiatives across Lancashire have seen the proportion procured locally rising from 39% to 79%. It has been claimed that as a consequence unemployment in Preston has more than halved, and that there have been above-national-average improvements in transport, skill development and (more tenuously) health and work-life balance.
The Preston experiment involves local ‘anchor institutions’ in Preston and the surrounding area – colleges, police, the university of Central Lancashire – being induced to spend more of their budgets locally.
Controversially, Lancashire’s County Pension Fund has invested up to £100 million in Preston and South Ribble developing student flats, new hotels and office space as part of a ‘City Deal’ to revive the local economy. There has been encouragement to new worker cooperatives, and talk of starting a municipally-owned regional bank.
This scheme of ‘community wealth building’ has been widely praised on the Left, for example by Demos and the New Economics Foundation. Mr McDonnell regards it as a model to be rolled out across the country.
But this model of ’socialism in one city’, while certainly an interesting experiment, seems to negate the advantages of national, let alone international, trade and capital mobility. It may also be unwise for pension funds to be used in this way, as it increases the risk to pensioners’ incomes.
Labour has used this model as an inspiration for thinking about decentralisating utilities after its planned renationalisations. If applied to, say, energy, this model would imply a bias towards local self-sufficiency and ignoring the benefits of scale and networks.
There is certainly a role for local non-profit energy suppliers – Robin Hood Energy, set up by Nottingham City Council, is often favourably mentioned. However, Cardiff Energy has just ceased trading and Ofgem has appointed SSE as supplier of last resort for its 800 or so domestic customers. Non-profit supplier Our Power, set up in Edinburgh four years ago with support of Scottish ministers, went bust in January 2019 with 38,000 customers, causing a loss of £10 million in loans from the Scottish government. And none of the English local authority suppliers has yet made a profit.
Whether Boris Johnson intends to buy into the entire programme is doubtful. He or his colleagues will be mindful of possible difficulties with changing procurement rules as planned post-Brexit negotiations with the EU get under way. However, as my colleague Victoria Hewson points out, the rules need not be changed very much. What has gone on in Preston so far is perfectly legal and single market rules do permit assistance to areas of high unemployment and to SMEs to help them to bid for government work.
Advocates of free markets would be much happier to see a new government starting to unpick the swathes of regulation which hold back business in many parts of the country. They will point to the very poor record of publicly-sponsored enterprises in the 1970s and the potential for rising costs to the taxpayer and ratepayer as a consequence of Preston-style initiatives. But we may have to get used to the New Localism.