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Earlier this week, Labour published their new report on devolution led by Gordon Brown. While its policies on the House of Lords and Scotland have caught the most media attention, it is its view on centralisation and the economy that represents an important shift in Labour thinking.
The core argument of the report is that national economic stagnation, high regional inequality, and the centralisation of the British state are all connected. This analysis points to devolution, not just for devolution’s sake, but as a tool for economic governance.
In some areas – notably fiscal devolution, responsibilities, and value of the metro mayors – the approach is on the right track. However, fully realising the benefits of devolution will require reforms that the report does not mention – especially concerning the geography and governance of local authorities.
The report explicitly rejects the so-called “Old Britain” model of wealth being generated in London and the South East and redistributed around the country to poorer places by a highly centralised state. Prosperity must come from within local economies: from production rather than subsidised consumption, from growth in private sector rather than public sector jobs, and from new rather than old industries.
None of this may sound particularly shocking, but it suggests that Sir Keir Starmer’s party will try to govern differently from previous Labour governments. Centralisation is now seen as the cause of Britain’s stark regional inequalities, not its solution. Ensuring every part of the UK can fulfil its potential is not just a redistributive goal, but a key priority for national economic policy.
If this sounds familiar, it is because it is very close to the Government’s analysis in the Levelling Up White Paper. The New Britain report shows that there is now a consensus in British politics that we need more devolution to solve our economic and our political problems.
Economic growth is a big theme of the report, especially at the local level. Unlike previous rounds of regional policy which were directed from the centre – such as the Regional Development Agencies or Industrial Development Certificates – the report concludes that centralisation’s problems can only be overcome by local government taking on more responsibility for local economies.
This is sensible. Despite Britain’s profound regional inequalities, local government in Britain spends much less than the average for developed countries on local economies – 2 per cent of all government spending, compared to 5.5 per cent for all OECD countries. If local authorities are to provide true self-government, then they require a broader set of duties that touch the lives of all residents, rather than just serving as providers of social care or other centrally-directed services to a minority of people.
Nevertheless, Labour’s report does not advocate a reorganisation of local government boundaries, and this is a bottleneck on reform. The sheer fragmentation and variation of councils ensures that local authorities rarely match local economies, which in turn makes it challenging for any Government to grant clear economic duties to them.
Reorganising English local government should be seen as a means, not an end. The real prize is not that the existing functions of local authorities become slightly more efficient, but that entirely new responsibilities can be absorbed by councils, to the benefit of local and national economies. For example, if councils are all unitarised around economic geography, then Local Plans (which are written by district councils) and Local Transport Plans (which are written by county councils) can be merged into true economic plans that join up new homes with new infrastructure. Changes like this are crucial if councils are to take charge of their local economies.
One of the most surprising ideas in the report were the warm words about fiscal devolution. While simplification of the current funding system for local government is long overdue and Labour was already campaigning on business rates reform (on which Centre for Cities has its own proposals), a promise for “gradual but clear steps towards fiscal devolution” amid wider funding reform was a big move by the party.
Labour has previously had qualms about fiscal devolution. Different parts of the country have different tax bases and there will need to be some form of redistribution between them to make any system work, which in turn will depend on political wrangling. In the long run though, giving councils fiscal autonomy is crucial to both protecting local services from future rounds of central austerity and providing better incentives for places to grow their local economies.
However, the report has a key omission – council tax. Reform in this area to make the system more progressive and give councils more control over residential taxation will be key to delivering any serious reform on fiscal devolution. Proposals such as hotel taxes or golf taxes may be worthwhile but will not make much difference if the biggest parts of the system remain unreformed.
Fiscal devolution would also be more easily accomplished through local government reorganisation. Using the business rates generated in city centres to keep council taxes low in local suburbs is currently difficult, especially in the biggest cities, as fragmented local government divides the tax revenues of the local economy. Matching councils to local economies would reduce the costs of fiscal devolution and any increases to taxes on local voters and firms.
Another proposal that jumped out of the report was the suggestion that Scottish local government should adopt the mayoral or metro mayor model for city regions. Centre for Cities has suggested “metro provosts” before, specifically to help provide a counterbalance towards Holyrood’s tendencies for centralisation and to give clear leadership for Scottish urban economies.
The evidence the report gives for this is the success and popularity of England’s existing mayors, which the report also suggests should get many more new powers. England’s mayors are also effective at showing residents of Scotland, Wales, and Northern Ireland that power in the Union no longer resides solely in Westminster.
However, this enthusiasm for mayors disappears when the report talks abouts the places in England that do not have them. The report tentatively floats the idea that partnerships between different local authorities “would not have to adopt a mayor” to receive extra powers. This would appear to be a backwards step from current Government policy set out in the Levelling Up White Paper, which requires mayors for the most advanced form of urban devolution.
The state is too centralised to govern efficiently, and local government is too weak and fragmented to steward local economies well. The New Britain report correctly diagnoses this, and sets a clear direction for reform, but it is not quite complete.
As our report with the Resolution Foundation’s Economy 2030 Inquiry, Centralisation Nation, set out, devolution will require reform across boundaries and governance, funding and local taxation, and responsibilities and powers. They are three legs of the stool, with each reform complementing the other. A big, comprehensive overhaul of all three is the easiest way to deliver visible, rapid improvements to state capacity and economic performance.
That means the Conservatives will have to go beyond the Levelling Up White Paper and Labour beyond their New Britain report and embark on reforms of each leg of the stool that neither party has yet mentioned. A consensus on devolution now exists, and the next election will be fought on getting the details right.
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