• Over-centralised and fragmented system of subnational government leaves local authorities unable to manage their own economies.
• Local authority funding has seen slow growth in recent years, compared to other countries.
• Government should devolve fiscal powers to local authorities and ensure they have adequate resources.

Britain’s economy is being held back by an over-centralised, inefficient, and under-resourced system of local government, a new report from Centre for Cities and the Resolution Foundation for The Economy 2030 Inquiry has found.

Without the necessary powers and funding to effectively manage local economies, councils and combined authorities struggle to deliver positive change, especially in underperforming urban areas.

This has consequentially had a negative impact on the national economy, which has remained stagnant in recent years, with minimal wage growth, falling living standards, and deterioration of public services.

Today’s report, entitled Centralisation Nation: How a broken system of local government harms the British economy – the 31^st report of The Economy 2030 Inquiry, a collaboration with the Resolution Foundation and LSE, funded by Nuffield Foundation – outlines how subnational government currently experiences fragmentation and is under-resourced.

Currently the UK does not have a uniform system of administration, but a patchwork of different bodies with varying geographies, structures, responsibilities, and powers. These divides within places and between tiers of government make local management of the economy and other reforms much more challenging.

In addition, funding for UK local authorities has shrunk in recent years compared to other countries. Between 2015 and 2019, British local government spending per person only increased by 2 per cent, or $100 (£65) in nominal terms. Meanwhile, spending increased by 21 per cent in France, 23 per cent in Spain, and 25 per cent in Germany.

The fragmentation and lack of resources experienced by the UK’s local authorities, combined with a lack of fiscal powers, has left them incapable of supporting their areas through times of economic change.

If the national economy is to escape stagnation by 2030, then the current system of subnational government will need to change. To do this, central government must:

• Devolve fiscal responsibilities to local authorities, giving local policy makers powers to control local tax bases and rates.
• Fix fragmented local government structures and boundaries.
• Ensure local authorities have the resources they need to dedicate capacity to local economy affairs.

Centre for Cities Chief Executive Andrew Carter said:

“Britain’s unusual level of centralisation is a weakness, not a strength. It means subnational government is incapable of delivering the changes that they and the national economy require.

“Making small gradual improvements to fix our broken system of local government – as Whitehall has been doing in recent years – is not going to be enough to help us escape our stagnant economy by 2030. Big challenges require big responses and central government must now deliver reforms that devolve fiscal powers and give local authorities the resources to effectively level up their areas and encourage growth across the UK.”

Resolution Foundation Research Director James Smith said:

“One of the key challenges facing the incoming Prime Minister will be to ‘level up’ the country. This already daunting task is being made even harder by the fragmentation and squeezing of local government. A radical overhaul of devolved decision-making and resources will be needed to turn this around.”

This research forms part of the Resolution Foundation’s Economy 2030 Inquiry.