Power to the people: how devolution can champion levelling-up

The post-Global Financial Crisis era in British politics and much of that worldwide has been stained with great divisions and disagreements on key policy areas from tax and spending to crime. However, there has been an odd convergence between both major parties in two growingly important areas of public policy. Today, there appears to exist a bipartisan desire to give regions in England greater powers, particularly through the expansion of mayoral authorities where already almost ten million Northerners have their own metro mayor dedicated to local issues and concerns. In fact, the Levelling Up White Paper revealed earlier this year states that “by 2030, every part of England that wants one will have a devolution deal”. Furthermore, levelling-up has become one of the greatest priorities for the UK’s political parties, particularly after the term became so central to Boris Johnson’s 2019 election landslide. Public First has found the policy is the most popular with the public as well as being more popular with Conservative voters than Britain’s exit from the European Union.

Concern for the need to tackle regional inequality is essential regarding levelling-up. However, the success of this, due to England’s abnormally centralised system of spending, is predicated on the central government remaining committed to the task. Without this, regional disparity in transport, education and pay will remain stubbornly high, something that we have been able to see. Between 2019 and 2021 the public spending gap between the North and London has nearly doubled to over £3,000 per person whilst per capita expenditure in the North has fallen behind the average for England. What’s more, is that the Treasury funding that does go towards levelling-up isn’t spent effectively with only 38% of the 100 most deprived councils in England receiving money. Tightly controlling levelling-up may satisfy those within Whitehall that can better target funds to government priorities but doesn’t necessarily break London’s economic dominance. In fact, by the first quarter of 2022, London had fully rebounded from the pandemic whilst the North was still almost 4% smaller than at the end of 2019 with the West Midlands shrinking by more than 10% even when the Covid restrictions had mostly been scrapped.

Furthermore, the scale of Whitehall dependency has thus far not receded despite a growing number of metro mayors. The West Midlands mayor determines just 0.4% of regional day-to-day spending whilst over four-fifths is spent by Whitehall departments. Meanwhile, the post of London mayor has existed for more than two decades and is the most powerful in England yet even here the mayor has far fewer powers and fiscal autonomy than comparable cities like Paris and New York City. The lack of extensive devolution was demonstrated clearly with the five-year fight by mayor Andy Burnham just to establish his right to set bus fares and services in Manchester. It shouldn’t be a surprise that even international bodies such as the OECD have themselves stressed the need for greater devolution “at the UK subnational level” where it “remains low” compared to most other European nations.

This centralisation isn’t just a statistical footnote but has a real impact on local government. The Heseltine Institute found that England is highly abnormal in Europe when considering the lack of revenue-raising policies that can be exercised relying instead on central government to fund itself. In fact, in France, which is often considered as highly centralised as England, around 13% of all tax revenue is raised locally, more than double the figure for England. This enormous reliance on central government means that as grants to councils were cut by almost 40% in the decade after the Global Financial Crisis, local governments had no means to raise the shortfall themselves and were forced to make significant cuts to services with a third of libraries closing and a 70% decline in youth services.

Partially resulting from the lasting impact this has had, one proposal featured as part of a comprehensive report by peer Pauline Bryan has provided significant leadership on devolution. The report provided an ambitious programme of constitutional reforms, including devolving the power for English regions to borrow money which has, thus far, not featured prominently in the English devolution debate, predominantly as it is seen as a far less achievable aim than others. Yet, if devolution is to succeed and, crucially, if it is to champion levelling-up in communities across the Midlands and the North, regional authorities should be able to sustain public investment in transport and digital connectivity, essential in fostering productivity growth in areas that have historically lagged behind London. What’s more is that this would enable councils and regional authorities to finance essential services during a harsher macroeconomic period than current arrangments where, as described, cuts to grants typically force councils to cut their services. The Local Government Information Unit echoed Burnham’s criticism of a “culture of bidding” between local and central government, stating that devolution cannot succeed if mayors are “kept dependent on Whitehall for funding and approval”. Granting the capacity to raise capital on bond markets would cut the bulk of that dependency. Furthermore, this wouldn’t be a novel proposal. Most states in Germany and the United States have incurred debt as a result of infrastructure development and covering deficits during economic downturns.

Despite this, some worry that this would allow local governments to borrow irresponsibly as a result of moral hazard, given that, in the end, the national government is likely to rescue local authorities rather than allow them to go bankrupt. Resultingly, practical and pragmatic restrictions can be imposed, as is often the case in nations less centralised than Britain. This could regard limiting annual borrowing and total debt, as many individual states within the US have, or could be regulated only to cover capital rather than current spending. In fact, according to the Center on Budget and Policy Priorities, despite the ability to borrow for expenditure, all but one of the fifty states spent less than 5% of their budget on servicing debt pre-Covid. This means although a degree of moral hazard does exist for states to incur excessive debt, this has not happened particularly due to the restrictions imposed on state legislatures regarding debt and deficits. Whether such controls are established nationwide in the UK or vary region-to-region is a matter for public debate. It is the goal of greater fiscal autonomy that must first be realised.

To this end, there are some smaller, easier steps for Westminster to take in loosening the strings around mayoral powers. The success of local government in delivering on educational improvements can be noted by the adult education budget that mayors can use to support skills training which the Institute for Government found allowed a more flexible, regional approach to targeting training.

Problematically, centralisation remains highly prominent in education and skills. Regarding the former, despite a concerted effort to expand, successfully I might add, the number of academies in England, giving more autonomy to individual schools, approval for transforming a failing school with an academy still rests with the Secretary of State for Education. Given the roughly 25,000 schools in England, the education system is far too large and complex to be exclusively controlled by a Whitehall department. Local leaders, for example, the growing number of regionally-elected mayors, should have control over these processes to help improve and expand school infrastructure and cut class sizes. Twenty years of Scottish devolution, greater than that provided for Wales, has shown the importance of less Whitehall management with the Nuffield Foundation finding class sizes roughly 23-25% smaller in Scotland compared to the other nations within the UK.

As such, devolution in this key policy area is essential to levelling-up and must be central to any further devolution agreements. The Institute of Development Studies has found that investment in education can receive as much as a fifteen-fold return through higher economic growth resulting from greater productivity and skills putting greater educational outcomes at the core of any government’s mission to level up parts of the country. The educational gap between the regions of the UK is in many ways as wide as it is for economic output and living standards. Whilst not surprising given the overwhelming relevance of education to raising living standards, the size of that gap is still damning. South Shields, a Northern town, has 26% more people without any qualifications and 32% fewer with degrees than the UK average and even further behind London.

A key cause for the skills gap can be evidenced by the decline in apprenticeships in the last decade. Across the UK since 2011, Level 2 apprenticeships, the most accessible form of apprenticeship, have fallen a staggering 56% which has been particularly felt in the North and Midlands where apprenticeships have in recent decades played a bigger role than in the South and London. As such, a practicable form of education devolution would be to provide mayors with the ability to manage and administer the apprenticeship levy. This proposal, backed by the think-tank Onward, would’ve given mayors over £3bn in revenue in the last three years. Providing this to local administrations will allow for a more flexible approach that works for local SMEs whilst also giving greater fiscal space for elected officials to invest in regional priorities.

Secondly, transport devolution, particularly regarding bus routes, is of essential importance regarding access to and within cities across England which dominate the economic output and job creation of Britain. However, the deregulation of bus services in 1985 removed the right for local authorities to subsidise bus fares and made it far easier for providers to enter the market. Yet, far from enhancing services across the country through greater competition, regional monopolies remain whilst fares had risen around 64% by 2018 which has had, consequentially, a seismic shock to the UK’s bus network. Bus journeys across cities outside London had, following Thatcher’s reforms, fallen by more than 50% by 2019 whilst those within London, where far greater mayoral control has been exercised with a centralised body, Transport for London, running bus services, bus usage has soared by more than 100%.

With the UK’s comparatively poor bus network contributing to a productivity lag with countries like France, local leaders must at the very least have the power to undo these reforms and take a greater role in delivering bus services. With so much transport spending still tightly controlled in Westminster, the success of levelling-up is left mostly to grand projects like HS2 and Northern Powerhouse, projects that tend to run seriously over budget and are immeasurably delayed. Rather than £100bn spent on an extra rail line that Northerners oppose more than they support, many just want better local buses and trains with services that run more frequently and cost less. With the transport select committee warning the government that its current targets on levelling-up are set to be missed, partially resulting from the large cuts to Northern Powerhouse Rail, there is hardly a better time to argue the case for devolution.

The responsibility for devolution and levelling-up currently rests with Westminster and thus the ability to ensure progress on both. Only through a fundamental reassessment of the relationship between central and local government can regional administrations access the tools needed for tackling inequality in growth and living standards between the four corners of England. Whilst aspects of reform, particularly the capacity to sell bonds, may be out of reach in the immediate future, adult education and bus services must be given to mayors to better develop regional infrastructure, skills and thus productivity. The UK will likely never reach the levels of decentralisation seen in Germany, Australia and the United States. However, even modest steps towards a less concentrated system of government are essential if the UK government hopes to bridge the gaps between its nations and regions.