Devolution will create losers too
Devolution is a laudable endeavour, but it will widen the gap between thriving and struggling areas as much as closing it, writes Sanjay Raja
Andy Burnham’s pitch for devolution was laudable. An economic mission centred around bottom-up, place-based policy could kick-start national growth and productivity – especially given the overly centralised and sometimes lethargic national policy engine.
That said, devolution shouldn’t be seen as a panacea for lagging regional productivity and living standards. The UK has spent a decade experimenting with various place-based policies from City Deals, Growth Deals, Enterprise Zones, Trail Blazer Deals, political devolution, to the more recent levelling-up agenda. So far, the results have been ambiguous.
While policymakers’ intentions on devolution policy may have been well placed, they have mainly relied upon pinpoint initiatives rather than laying the foundation for long-term growth. Devolution policy requires a wide range of ingredients to deliver its full potential.
So how to do devolution right?
How to do devolution well
First, building institutional capacity. This is important as it’s easier said than done: powers are only as useful as the organisations wielding them. Greater Manchester succeeded because it had built delivery capability over years via Transport for Greater Manchester. Fulfilling devolution to its maximum potential would require a big downpayment from central government, including installing paid commissioners/experts and secondments from Whitehall to build institutional capacity. Local government should also draw on the expertise of universities and academics to strengthen regional strategies, creating a network of local stakeholders to help guide decision-making.
Second, building political capital among regional institutions. Devolution is a coalition exercise. Mayors do not govern alone; they chair combined authorities and depend on council leaders voting with them on funding and major decisions. More fragmentation means more negotiation, more coalition-building and potentially slower decisions. Where leaders trust one another to put “place before politics”, devolution moves. Political capital cannot be legislated into existence. It is built over repeated, successful collaboration and ultimately requires the buy-in of the electorate, from both households and businesses.
Then there is staged fiscal autonomy. The Treasury still controls all core funding, and authorities largely spend allocated and ring-fenced money as opposed to monies they raise themselves. Too often, devolution has been shaped by a competition for Treasury funding rather than local need. More fiscal autonomy, albeit via a staged process, would help regions successfully build their own bottom-up growth strategies, creating the right incentives to grow and build institutional capacity.
The path to delivering good devolution is sequential, not simultaneous. There will be a need for an ambitious but realistic roadmap to set the course for effective devolution. Central government will need to work with local government to build capacity before transferring large amounts of power. Fiscal autonomy will need to be earned in stages to ensure taxpayer value for money. And combined authorities will need to build trust from the ground up to make devolution work.
Burnham must be honest about the losers too
Andy Burnham’s devolution push is a necessary and admirable drive. For too long the UK has leaned on centralised planning to deliver better economic outcomes, with little recent empirical success to show for it.
Putting the right pillars in place needs to be an early priority for the next prime minister, to ensure Greater Manchester’s success can be replicated rather than remain a one-off. But there is one reality every place-based policy must confront: it will produce regional winners and losers. Devolution has a long history of widening the gap between thriving and struggling areas as much as closing it. That tension, between the promise of levelling up and the tendency of growth to concentrate, is something the next government will have to govern openly rather than wish away.
Ultimately, devolution works where it has been given the time, capacity, money and trust to mature; where any of those four ingredients is missing, it stalls. The instinct to roll it out everywhere at once, on a single fast-track timetable, as opposed to setting out a credible and achievable roadmap risks repeating the failures rather than the successes.
Sanjay Raja is a researcher at the University of Cambridge focusing on the economics of English devolution and place-based policy. He is also a chief UK economist at a European investment bank. The views expressed are his own.