‘Levelling up’ began five years ago. Now we’re more divided than ever. Is this the UK’s fate? | Will Hutton

Stuck. Too many Britons are stuck in neighbourhoods they find unlovely and depressing, jobs that are going nowhere and lives with too little sense of purpose. To escape, or at least to have some prospect of improvement, would be wonderful. Part of the mood of despondency that has settled over the country is that the already slim chances of improvement – as the Labour government's dark messages of gloom refract and magnify – now seem negligible. The smart strategists who win elections have badly misjudged the national mood: they are much less smart advisers to government.

Public transport beyond London is in decay, forcing immobility on the poorest. The lack of social housing, expense of private sector rents and high property prices operate as padlocks on movement and ambition. There may be work, but the growth in real wages for the last 15 years has been negligible. Schools, especially in distressed areas, have their backs against the wall. With "hard choices" ahead, to be stuck seems an irreversible condition.

Last week, the National Institute of Economic and Social Research (NIESR) published its first regional regeneration index and online regional dashboard comprehensively monitoring regional disparities in wealth, health and wellbeing since 2019, when Boris Johnson launched his campaign to level up the country. It is confirmation of debilitating deterioration. London's living standards are inevitably recorded as the highest: but over the last five years the gap between it, the north-west, the north-east and the Midlands has close to doubled or worse; for example the gap between London and Yorkshire and the Humber has trebled.

The trends in living standards are mirrored by productivity growth – increasing in London but stagnating, even falling, elsewhere. This spills over into societal health and wellbeing. While those on average earnings and above enjoy improvements in their wellbeing, those who are stuck do not. For them, the metrics on mental health or even life expectancy are in retreat. The largest gaps that have emerged between prosperous and poor areas, writes the leader of the NIESR project, Prof Adrian Pabst, are in primary school educational standards, housing and public transport.

It is the quality of public transport that has seen the sharpest decline between 2019 and 2023 across most regions, with Scotland, Wales and Northern Ireland worst affected. Near-bankrupt local government has reined back its support for bus services, while investment in our ageing train infrastructure is deferred or cancelled; services are a byword for expense, delay and cancellation. Travel over a weekend at your peril.

Treasury accounting rules allow public infrastructure projects to go forward where there is most demand – so they seem "efficient", and thus get the green light in London and the south-east. Proposals in left-behind Britain become disqualified, disabling investment as a tool for regional regeneration. Under the Tories, the levelling up funds that attempted to close the gap were a tiny 3.5% of total infrastructure investment. In any case, the new towns fund, when run by then housing minister Robert Jenrick, according to an important paper by Royal Holloway, University of London's Prof Chris Hanretty, was nakedly used to support Tory MPs' towns, however well-off or poor. Hanretty recommended a formal investigation into the abuse of public money by Jenrick, now one of the frontrunners for the Tory leadership. Keir Starmer should launch one: this was transgression in a different league from accepting donations for clothes and spectacles .

The NIESR report finishes with a warning and a call to arms. The UK's regional inequalities are among the worst of 38 advanced countries. Unless there is a fundamental change in investment and priorities, it says, "there will be no significant progress on narrowing the economic and social gap by 2030 or even 2035". Creating 21st-century bus and train services, building more affordable housing, and turbocharging skills programmes – with as much control as possible in local hands – is imperative.

NIESR is not alone in identifying neglected public transport as a prime cause of discontent. Everyday Places, a report co-written by Demos's then chief economist Kitty Ussher in 2021, surveyed 20,000 people across Britain about their satisfaction with their daily lives . Expensive, limited and erratic public transport was the number one problem, especially for households on lower incomes in rural areas and the outer suburbs. Getting to work or finding work was near impossible, and supermarket shopping – vital for household budgets – no less difficult. They were literally stuck. One cheap obvious reform: give every job seeker a free travel pass.

As matters stand, the stuck are becoming ever more so. They are electorally volatile – Demos found they were more likely to have voted for Brexit, fearful of immigration that threatens their already hard-pressed lives. Their ongoing discontent makes them ready recruits for Reform, who are second to Labour in 89 seats . The stuck aren't just in "red wall" seats, but everywhere, and the political threat is obvious.

Levelling up has been dropped from Labour's vocabulary because, say ministers, it was no more than a slogan. True, it had descended into a slogan, but underneath the slogan sat recognition of a reality and the need for a forceful response. That it wasn't forthcoming is why Labour should now own the need that the Tories disowned – and even the term. Britain needs targeted, transformative public investment-led growth to unstick these people; and, as the unsticking takes hold, it will stimulate more growth – and so reduce the temptations of populism.

Yet as matters stand, public investment as a share of GDP is set to fall from 2.5% of GDP to 1.7% by the end of this parliament. Last week, a letter to the chancellor, Rachel Reeves, published in the Financial Times from eight prominent economists, including former cabinet secretary Lord Gus O'Donnell, former Treasury minister Lord Jim O'Neill under David Cameron and Prof Mariana Mazzucato, author of the concept of mission-oriented government, warned that to "follow through" in her 30 October budget on these inherited anti-public investment plans in the name of "fiscal prudence" will damage "the foundations of the economy" and repeat mistakes of the past. A decade of national renewal, to which the government is correctly committed, instead requires devising a new fiscal framework in which public investment will rise substantially – not fall further.

They are right, as is NIESR. Our stuck economy and society are at a decisive moment – a moment of choice. The only prudent way out that offers hope is to invest, challenging deep-rooted institutional biases. Prudence alone will not transform Britain.