It’s time for Whitehall to stop micromanaging councils’ spending

27.03.23

By Jessica Bowles, Director of Strategic Partnerships and Impact at Bruntwood and Visiting Fellow at the Heseltine Institute for Public Policy, Practice and Place.

Powerful local leadership is a necessity for a successful economy, and it needs the tools and resources to govern effectively.

I’ve spent a career trying to figure out how we best create successful cities – first as a civil servant at the Department for Transport, then at Manchester City Council, and as an executive committee member of the Northern Powerhouse Partnership, the organisation bringing businesses together with local leaders to drive productivity and growth across the North of England.

Productive, prosperous economies all need the same key ingredients to thrive. An efficient transport system and access to an educated, skilled labour market are essential – but the thread that ties these elements together is the ability of local people and places to set their own agenda and decide on their own priorities.

Since Greater Manchester’s devolution deal was agreed in the early days of the Northern Powerhouse project, the government’s commitment to devolution has waxed and waned, with other major constitutional issues and global health emergencies taking up Whitehall’s core capacity. Nearly a decade on it feels like devolution is properly back on the agenda, with recognition from both the government and opposition that the UK’s centralisation problem is acting as a barrier to growth.

In the Budget this month Jeremy Hunt, the Chancellor, announced details of trailblazer deals for Greater Manchester and the West Midlands: multi-year single funding settlements that give the mayors of both authorities greater long-term flexibility over their priorities, including keeping 100 per cent of the income from business rates.

A week after the Budget I was in Liverpool to discuss these latest developments in English devolution. Standing in the sunshine on the bustling Albert Dock, which might have been demolished in 1980s without Michael Heseltine’s hugely successful regeneration project, gave me a powerful reminder of how much has already been achieved. We were there to launch a new report from the Northern Powerhouse Partnership – a blueprint for how to devolve tax to the regions of England and truly empower mayors and council leaders.

It won’t be an easy process, and there is resistance in some quarters. Westminster’s old mindsets and habits die hard, and it was reported recently that officials in central government found it “psychologically tricky” to accept that devolving more powers and responsibilities to local areas would result in better decision-making.

That is perhaps unsurprising, given that the UK has long been one of the most centralised countries in the developed world, with ministers and officials in SW1 setting all but a tiny fraction of taxes and hoarding control over key decisions. According to statistics from the intergovernmental Organisation for Economic Co-operation and Development (OECD) from 2021, taxation at a local or regional level amounted to 16.2 per cent of GDP in Canada, 13.3 per cent in Germany, 9.4 per cent in the US and just 1.7 per cent in the UK.

The result has been what Andy Street, the Mayor of the West Midlands, described in January as a “begging bowl culture” – local government beholden to changing winds and constant churn in central government departments in London, with little to no control over their own economic destiny. When a place wants to improve bus services, build a new tram system, train its workforce or invest more in innovation, more often than not it needs to ask the central government for the money – and the government doesn’t always say yes.

^{West Midlands Mayor Andy Street and Greater Manchester Mayor Andy Burnham}

That needs to change, and Hunt has already said that “we need to move more decisively towards fiscal devolution”. Firstly, implementing a tourism tax is straightforward and would bring us in line with much of Europe, bringing in roughly £5.5m a year for the Lake District alone to support culture and protect the natural environment.

Secondly, we should consider copying France’s example of a ring-fenced versement mobilité tax, and devolve 1p of employers’ National Insurance contributions to fund local transport services and infrastructure. This would ensure that businesses get the transport system they need to grow and succeed.

Thirdly, devolving property taxes such as stamp duty and a reformed business rates system could transform local government financing and massively reduce councils’ reliance on Treasury handouts.

Together, these changes would bring decisions closer to the communities they affect, giving local leaders greater independence, flexibility and control. Local leaders know best what projects and policies their areas need. Skills and transport policy will be radically different in Cornwall to the policies needed in Newcastle, Leeds or Sheffield, cities which themselves will have vastly divergent requirements.

Local control would also make for better policy implementation. At a national level, ministries are too separated and too complex to see everything everywhere. Joining the dots between housing, health and employment, for example, can be a thankless task for government departments that are used to guarding their own patches and don’t have a culture of working to resolve issues holistically. Making those pieces fit together is far easier at a local level. Whitehall has to recognise that it can’t successfully micromanage the affairs of more than 300 diverse local authorities and local economies from an office in the South East.

Places aren’t all the same, and each place needs tailored policy to fit its own specific needs and opportunities. Giving them flexibility over their priorities allows businesses and the public to work together in a more effective, innovative way. Devolution was never a single shot, it’s a long-term process of change. Fundamentally rewiring public financing and rebalancing the British state won’t happen overnight, but it’s vital to our future prosperity.

We’ve come a long way from where we started – but there’s still a long way to go.