What is Driving this Devolution Push

DevoPushThis is started out as a short post to get behind what is driving devolution to cities in England. It got a little too long. Apologies.  Well what is this all about; why is it happening and what can we expect from it.

There is much talk about how centralised the UK’s decision making is when it comes to investments and tax raising. In essence the whole debate is about in some way changing this.

The idea behind it is we should get better decision making by lower tier authorities; as currently most important (and many unimportant) decisions are made in Whitehall in individual departmental silos. If many more decisions are handled at a lower level we will hopefully get more joined up decision making cognisant of local factors. This might be for big investments or surprisingly it might be for much smaller issues. The Leader of Preston Council recently pointed out that even minutiae are controlled by Whitehall. He gave the example that double yellow lines need the agreement of the Department of Transport. A Birmingham Councillor confirmed this recently and said even a short distance of double yellows will cost the council many thousands of pounds in fees/bureaucracy. Quite daft really.

What does the evidence say about . Well it is not conclusive…and some evidence points in the wrong way. A recent OECD study of 21 countries found that economic growth was slower in countries that had more fiscal decentralistion.ie there was a negative relationship.  There are many issues with this research and its applicability to the current English devolution push. A more relevant study by the UK Spatial Economics Research Centre  on the UK whilst not finding a negative association cannot find much of a positive association in the UK’s limited experience of devolution to date. There are lots of caveats again in the paper that would caution drawing strong policy conclusions from the research. However both studies do actually raise the possibility that you can theoretically devolve too far. For instance would you devolve spending on major public transport investment to Solihull or Wigan. No you wouldn’t as it doesn’t make sense. Would you devolve funding over economic development and Innovation policy to them…well again probably not because both local authorities are not standalone socio economic entities, they are part of a wider connected economy. So really the debate is not just about devolution but devolution to the right level.

This is where another dynamic comes into to play. The Government is focussing most of its energies on what are called Combined Authorities…groupings of local authorities. Hopefully groupings that start to match up with what economics/ economic geographers call functional urban areas (FUAs).  It makes no sense to devolve big sums/ powers to Birmingham or Wolverhampton on their own because in reality for the best use of such resources in economic development terms this should be done at the overall level of the local economy. Currently economic development in Birmingham stops at the boundary. It makes no sense in what is a bigger economy. What does academia have to say about such FUA’s. Well an other OECD study – Governing the City Policy Highlights is helpful. This summary report feedbacks on a number of different workstreams and concludes.

‘Experiences among several regions recently analysed by the OECD and beyond suggest that good metropolitan governance may not be the only solution for improving growth and well-being, but it is certainly a critical part of any solution.’

It also amongst  its recommendations it suggests

  • Leadership by the national government can be a crucial factor for the success of reforms
  • Co-operation among municipalities works best on a voluntary basis, with incentives provided by higher levels of government.

So the Government is in this devolution debate in focussing initially on the large metro areas such as Manchester, is really responding more to this agenda of getting good metropolitan governance rather than devolution per se. It is focussing on improving governance at the metro level and is using the incentive of more devolved resources and powers to  stimulate collaboration – just as the OECD recommends. So for instance the arrival of HS2 in Greater Birmingham, Greater Manchester and Leeds/Sheffield will require as the report from the Independent Transport Commission – Ambitions and Opportunities – Understanding the Spatial Effects of High Speed Rail indicates a need for Urban Masterplans to maximise benefits. Therefore combined authorities with enhanced transport powers, with earn back funding arrangements from business rates and with spatial planning powers are key to maximising HS2’s positive impact.

But then it is not just about collaboration and joint planning of major projects. The Government is keen to ensure greater accountability. Current Council elections are broken as evidenced by turnout figures that are woefully low apart from when they are run concurrently with General elections. The Government is right to say for Combined Authorities….we will give you much more power if you accept a Mayor. Would you trust Council leaders…who are not well known generally and who have such a limited mandate to work together for the good of a city region. The mayoral model, which in London has had real buy in gives the average citizen the knowledge of who is running the show. Ken Livingstone and Boris Johnson  are very well known in London and have shown that a figurehead is a real focus for debate …both pro and cons. And with a Mayoral approach you get an individual who is tasked to look after the whole…not a committee that might still be looking after their own little patches. It in theory can give more strategic decision making.

A Mayoral approach is not a panacea – and there are plenty of examples of poor Mayors in the UK and elsewhere. There are real issues about scrutiny and recall that need strengthening but to my mind this is a way to try and raise greater public awareness, debate and opposition. The counter argument to this is that Greater Manchester has achieved much without a Metro Mayor but then is the public aware of what is being decided and who is making the decisions. And Manchester is the exemplar – other places have singularly failed to collaborate. On balance I favour the further trialling of the Mayoral system.

The debate and direction of travel is also however is about coping with the cuts and growing public service demands. Just imagine …you can have one director who heads up economic development instead of 7 or 8. The savings should be apparent. Similarly with transport. But increasingly in Manchester the agenda is looking at delivery of social care and importantly coordinating it with the NHS. This is a mantra that has been tried before (Total Place) but is increasingly important for both local government and for the NHS. Hence the devolution of £6bn of NHS spend to joint control with Greater Manchester. Chris Ham CEO of the Kings Fund outlines some of the potential benefits and issues here.

In Birmingham the recently released statement of intent to form a West Midlands Combined Authority; yes we are running hard to catch up – outlines broad areas of work including public service reform. What was clear from a recent seminar where Sir Albert Bore and Mark Rogers (CEO Birmingham City Council ) spoke was that Birmingham is really focussed on public service reform. Issues such as the rise in A and E admittances and its extra cost in recent years and targeting re-offending rates and the potential to reduce the economic and social cost were mentioned as important issues to be tackled. The main issue however is skills. Birmingham despite having a good school system and rising skills levels still has the worst performing skills profile of any of the core cities. The addition of the Black Country will not make this any better.

So devolution is seen as a way both of delivering public services better and more efficiently – to help mitigate the cuts and as recently been pointed out by the Centre for Cities as a way to raise revenue. A pincer movement to help the Chancellor meet his budget deficit targets.

And it should be noted that the desire for devolution is not just an English issue. Cities in Scotland and Wales have been vocal in the Core Cities and the Key Cities networks  saying the same problems exist with the devolved administrations. Interestingly enough the Dutch Government is rolling out its version of City Deals to  Dutch cities, having learnt from the English approach. Perhaps the Welsh and Scottish Governments need to take heed and strengthen their approaches to devolution.

There is much talk about what is devolved. At present the vast majority of devolution is related to central government monies. There is not much been given away in terms of tax raising. The deals that Greater Manchester and Cambridge will have are about keeping the increases in taxes generated by investment decisions – called ‘earnback’.  This doesn’t allow them to vary the tax rate nor claim all the tax…only the increase going forwards. This makes sense as it incentivises cities to undertake investments that will lead to business growth. Similar, if more limited arrangements, are in place when it comes to Enterprise Zones and on the back of it Birmingham is borrowing £275m to invest in key infrastructure. This fund could expand to circa £1bn with the promised extension in the EZ geography and time span. These are key mechanisms to get an uplift in city investment and to drive growth to pay for it.

Recently in an interview Greg Clark has indicated that he is not keen for greater fiscal devolution.  And I think broadly he may be right.  This really should be as far as it goes because imagine the problems that might occur if business rates for instance could be varied. You could have cities on a downward competitive spiral competing for the lowest rates. In the U.S this sort of competition between states for instance has led to sub optimal growth as low tax places grow at the expense of existing cities. It opens up a can of worms that need not be opened. This is not to say that new taxes such as bed taxes or the existing powers for workplace parking levies should not be  explored/used. So Birmingham has raised the possibility in its transportation work of something similar to it partner city Lyon – where firms pay a small tax on each employee to help pay for public transport. Why not allow experimentation with the new?

There are those who think this is all a political con trick. This post entitled Osborne’s Undemocratic Devolution illustrates the antipathy that exists towards what is happening – this despite the fact the nature of the types of devolution deal were well flagged up in the general election. I attended a recent conference in Manchester on Making Devolution Work and there was a lot of criticism of the motives and of the ‘lack of democracy’.  Interestingly Manchester seems to be at the centre of those both for and against devolution. There were complaints about bureaucrats running the show. (As an ex bureaucrat I didn’t take kindly to this) But aside from pointless debates about the failures of the neo liberal agenda there was a real sense of ‘we have got it, lets try and make it work better’. Even the most critical didn’t want it to fail.

There are a number of more practical questions about this agenda

  • There is a need to ensure in any way forward that redistribution of resources from better off places to less well off places still remains. This was eloquently put by Professor Alan Harding from the Heseltine Institute at the conference – and has been raised before in such work as the London Finance commission. This is why the Government’s approach in allowing the keeping of increases in business tax is quite smart.
  • There are fears that the deal based approach might breach equality legislation. How are sums to be decided – Merseyside fairly recently challenged its allocation of European funds in the courts – and had a victory albeit a brief one before the Government went back and consulted.
  • Does the government have the capacity to deal with possibly circa 30 Combined Authorities and their deals? The Civil Service is increasingly lacking in capacity given the cuts they have undergone – and CA’s together with LEPs add to their workload. The Centre for Cities which is close to this debate make the point that there is not much time for Combined Authorities to get their deals done in this Parliament. This is partly because of the capacity issues but also to ensure that the deals are included in the Government’s long term spending plans to be outlined in the Autumn statement.
  • There are also range of other concerns about capacity of combined authorities and what are non sensible CA proposals. The Government is right to focus on the Metropolitan Areas to counter many of these issues.

Neil McinRoy CEO from Manchester based ThinkTank CLES sums up the tussle in some peoples’ mind in this blog post (here) and comes to the conclusion that

‘I think we need to grab this opportunity, but grapple with making it better’

and this broadly is my view too. This is an opportunity for the core cities and their functional urban areas to show they can be trusted to deliver strategic investments. To work across boundaries. This to my mind is just the start. Manchester’s leaders have been brave, pragmatic and committed to this agenda – lets hope other areas that follow can be equally so.


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