On the road to Downing Street, Andy Burnham promised to transfer power from Westminster to every postcode in the country. After his first two weeks in office, the size and complexity of this project are becoming clearer.
With a date set for the autumn budget, thework of filling in the detail that will underpin his devolution plans begins – starting with his proposal to hand England’s regional mayors a share of income tax to support local economic development.
Despite its history as a patchwork of nations, the UK is among the most fiscally centralised countries in the developed world. The Centre for Cities estimates as little as 5% of tax revenue currently stays with mayors and local authorities. The rest goes straight to Whitehall and is allocated by central government. By contrast, 14% of tax stays local in France, and 22% in Japan.
For years British devolution has been a messy patchwork in which Westminster has largely clung on to its position as ringmaster; just ask the parties pushing for independence in Scotland, Wales and Northern Ireland. But the system in England is the messiest of the lot.
Successive governments have followed a piecemeal approach. Under the Conservatives, the creation of dozens of ringfenced funding pots fostered a begging-bowl culture. They were also no match for the billions of pounds in central government grant funding cut under austerity.
Burnham allowing mayors to retain a share of locally generated tax revenues is, therefore, a good idea in principle. Many economists say the idea – first announced by Rachel Reeves earlier this year – would help to tackle Britain’s deep regional inequalities.
In practice, the Institute for Fiscal Studies estimates that between 6% and 9% of local income tax revenues would be sufficient to fully replace the so-called integrated settlements, or central government grants, the mayoral authorities currently receive.
But it will take time to introduce the plan and there are wrinkles to iron-out – not least how to avoid weaker local economies falling behind.
The danger is the current fastest-growing mayoral authorities are typically the country’s wealthiest.
London, and the runaway success story that is Greater Manchester, are in pole position. The West Midlands and South Yorkshire are in a slower lane. If the winners get to keep a rising share of income tax, the laggards would risk a self-fulfilling cycle of weak growth; limited scope for investment, and yet weaker growth.
The reforms will also take a long time to bear fruit for a prime minister in a hurry.
It will be 2028 before the income tax plan comes into full effect. Dozens of new mayoralties are also still in the process of being created – with a deadline of the end of that year to give people in places including Essex, Stoke-on-Trent, and Warrington similar powers to the trailblazing mayoralties of London and Manchester.
Last month the Organisation for Economic Co-operation and Development gave devolution a ringing endorsement. But it also warned that the starting point in Britain makes it challenging. Several vital building blocks need to be put in place to make Burnham’s agenda a success.
First and foremost will be the challenge of repairing the damage caused by the Tory austerity years. English local government is a shadow of its pre-2010 self. Most places lack the staff and expertise to use their new money and powers well, at a time when many are struggling to do the basics such as collecting bins or filling potholes.
Across England’s town halls, the workforce has plunged since 2009 from 2.2 million to about 1.1 million. While Greater Manchester and the West Midlands have established sophisticated analytical, policy and delivery teams – enabling them to make better use of the devolved powers – the OECD says many authorities have a shortage of resources and have limited technical expertise.
The risk of making bad spending decisions is high. The shenanigans in the Tees Valley, Birmingham, and the multibillion-pound debts amassed in Woking, Warrington and Thurrock are a serious red flag. Labour inherited a broken local audit system , evidenced by the fact that just 1% of places published audited accounts for 2022-23 by the original deadline.
The loss of the Audit Commission (abolished by the Tories) and the death of local journalism has removed important checks and balances. Labour knows this, and has plans to strengthen the role of the new Local Audit Office, which has picked up some of the commission’s functions, and could lean on the National Audit Office.
While the public has greater trust in local government than in its Westminster representatives, surveys show that only about 35% of people report that their trust is high or moderately high, well below the OECD average of about 45%.
However, devolution could be transformative for the economy. Local leaders are best placed to understand how to support growth in their area.
According to the Centre for Cities, measures to integrate bus, tram and train networks in the six largest English cities outside London would better connect 1.2 million people to their nearest city centre, generating productivity gains worth an estimated £17bn. The OECD finds that countries with higher levels of tax and spending devolution tend to have higher wages.
At present, the UK’s second-tier cities significantly underperform their peers elsewhere in the G7. Among the bottom 20 big cities in the G7 for productivity, seven are British. Powering-up the UK’s regions would make a big difference.
There is no doubt that on the road to transfer power from Westminster to local leaders Burnham will encounter more than a few potholes. But the path is well worth pursuing.
