Today’s report, “Britain’s system of local government and its impact on the national economy” is the launch paper for the Resolution Foundation’s Macroeconomic Policy Unit, forming part of the Economy 2030 Inquiry.

Britain has been experiencing stagnation for over a decade. The national economy is being limited by an over-centralised, inefficient and under-resourced system of local government.

Ultimately, improving the nation’s economic performance and overcoming this stagnation will require institutional reforms of local economic governance. Cities, as places of innovative and high-skilled activity, will be of particular importance in delivering such positive economic change.

Key findings:

• Britain’s system of subnational government is marked by an unusual level of fiscal centralisation; it has very limited resources and responsibility for improving local economies.
• Despite recent developments in devolution, Britain has become even more fiscally centralised since 2015, which de-incentivises local authorities to grow their local economies.
• England’s fragmentated local government structures is a bottleneck not just on local but national economic performance, making it harder to deliver comprehensive reform.
• Improving local prosperity is not currently an important responsibility of local government. Councils only spend 9 per cent of their budgets on local economic development, despite the political and economic importance of overcoming Britain’s geographic divides.

What needs to change?

If the national economy is to escape stagnation by 2030, 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.

This report was commissioned by the Resolution Foundation from Centre for Cities as part of the Economy 2030 Inquiry.