Since Theresa May took office as prime minister of the UK in July there has been a great deal of speculation about how – if at all – powers over tax rates and local spending will be devolved to local authorities, as promised by the country’s former chancellor George Osborne.
Osborne presented devolution as a way for local authorities to break free from the shackles of central government and forge their own approaches to economic development. Yet despite his grand visions for a “Northern Powerhouse” and the “Midlands Engine”, Osborne’s legacy is arguably one of centralisation rather than decentralisation. The city deals he ushered through suffer from serious limitations – and they carry many risks and challenges for local authorities.
Now, May is in a powerful position – she has the opportunity to do away with the weaker aspects of Osborne’s “devolution revolution” and come up with progressive city deals that will revive struggling regional economies. The question is – will she take it?
Not enough power
So far, the deals have focused too much on devolving responsibility for delivering national policies, rather than giving local governments the power to make decisions about how best to support their local economies. For instance, councils have been permitted to raise council tax (which is largely regressive anyway) – but only if they intend to spend the proceeds on replenishing squeezed adult social care budgets.
Similarly, the government has outlined plans to allow councils to retain all revenue from business rates raised in their area. But councils will have very little freedom to redesign the tax to suit local purposes – even though this revenue is intended to replace grants from central government over the coming years.
The result will inevitably be greater inequality between areas with a highly developed private sector and those looking to build one. And there’s no suggestion of extending more borrowing powers to councils with weaker local economies, which could languish without support.
A generous interpretation is that the deals devolve power over micro-economic policy in lay terms to city regions, while leaving macro-economic policy to the central government. As such, local authorities might be able to take control of things such as vocational training, but not the regulation over or investment in the industries that might create jobs in the future.
So far, the devolution agenda has been shaped by the “Treasury view” – the notion that the budget deficit should always be reduced and that cuts to public spending will not harm economic growth. In practice, this means that deals are being made based on an economic philosophy which insists that markets will look after themselves, and implores government (at all levels) to simply get out of the way.
Local authorities and city regions have little means to shift the terms of the deals, because the Treasury – insofar as it controls all public expenditure – always holds the strongest hand. Yet city regions desperately need to unshackle themselves from the Treasury’s programme of austerity. Over the past six years, local public services have been cut to the bone. Devolving power over depleted budgets to local authorities would do nothing to fix this.
For all these flaws, the devolution deals are still a great opportunity. Brexit has underlined the British people’s desire to “take back control” – and devolution is a chance to give it to them where it matters most: at a local level. But if it’s to succeed, devolution needs to become a progressive agenda. It must empower the most disadvantaged groups and give every local economy an equal chance to prosper.
So far, May’s only significant announcement has been to signal a focus on all parts of England, rather than simply the Northern Powerhouse. This isn’t saying much: David Cameron and George Osborne’s approach already had an England-wide focus, with devolution deals marked out for Cornwall and various part of the Midlands and the east of England.
May would be moving backwards if she closed down the possibility of improving central government, at the same time as we’re reforming the local level. As it stands, the door is wide open for her to reset the devolution agenda in a more progressive direction.
The real deal
I explore what this new, progressive devolution agenda might look like in a new report – The Real Deal – co-authored with colleagues at the Sheffield Political Economy Research Institute and the Centre for Local Economic Strategies.
All too often, the devolution agenda is framed by the question: “what should be devolved?”. A progressive approach to devolution would instead ask: “where should power reside?”. Let’s rethink the powers that central government has, rather than simply gobbling up the ones it is willing to give away – and let this be the basis for a new constitutional settlement on what relations between central and local government should look like.
For one thing, proper consideration must be given to the crucial role which central government can play in growing regional economies. We need a meaningful industrial strategy – something May has promised to deliver. As part of this strategy, the nation’s resources would be mobilised to support strategically important industries, such as high-value manufacturing. Effective industrial policy cannot managed at a local level; rather, it must be informed by the local, but led by the centre.
It’s also important to build on the progress which has already been made, to take advantage of the political momentum around devolution. It is possible to go with the grain of existing devolution deals, while broadening out their scope.
Councils should be given more powers – including over tax – to shape how local land is used. Veto powers over planning should be supplemented by the ability to shape local housing markets. Local authorities should be empowered to deploy employment support programmes strategically to support local economies, rather than forcing individuals into “any old job”.
Above all, devolution must genuinely bring democracy closer to the people. For the process to succeed over the long term, we need to see much higher levels of citizen engagement in local politics. City deals with strings attached should be suspended while residents are consulted in a meaningful way. Unless individuals, communities and local authorities are empowered by devolution in a meaningful way, the entire process will backfire.