This document was submitted to the Housing, Communities and Local Government Committee Inquiry on the progress of devolution in England. Neil Lee explains “Devolution is a central concern to the RSA’s international membership base. This submission to the HCLG select committee draws on this expertise and provides advice on progress on devolution in England.”
Please see below for the full response.
Contributors comprise: Dr Neil Lee (London School of Economics), Professor Phil Tomlinson (University of Bath), Professor David Bailey (University of Birmingham), Dr Mariachiara Barzotto (University of Bath), Professor Lisa De Propris (University of Birmingham), Dr Felicia Fai (University of Bath), Professor Philip McCann (University of Sheffield), Professor Danny MacKinnon (CURDS, Newcastle) and Professor Raquel Ortega Argilés (University of Birmingham).
- The UK remains both highly centralised and highly regionally unequal. These two facts are highly likely to be related.
- The recent devolution deals have come into being in the difficult context of Brexit, austerity, and now Coronavirus. They should be seen as part of a longer-term process of devolution. It is too early to evaluate their success.
- The selective approach is leading to significant disparities in terms of power and funding between places. City regions are still too small for many necessary sub-national functions. Quality of government matters for accessing central government funding, but there has been too little focus on capacity building.
- The current system still allows only limited scope for experimentation and evolution. This would be enabled with substantial, long-term, and flexible funding with central government ‘standing back’ more.
- The government should be cautious about rapid fiscal devolution. There are concerns that the Shared Prosperity Fund will be used as a substitute for other local government funding streams.
- Any new devolution framework needs to balance local aspirations with equity between places. This can only be achieved through transparent, bottom-up democratic engagement over the long-term.
About the Regional Studies Association
The Regional Studies Association (RSA) is the leading UK-based, international learned society with global membership, representing a cross-disciplinary range of academics and policy makers engaged in questions of regional development.
We are pleased to submit this response to the HCLG Select Committee Inquiry on progress in devolution in England which is drafted by those named above and sent on behalf of the RSA’s Board.
Context: Devolution in England
The UK has one of the most centralised systems of government in the OECD (HoC, 2009). Consequently, big, strategic decisions on UK public goods (e.g. infrastructure /transport/education/skills/health) have historically been dominated by Whitehall, and especially, the UK Treasury (Coyle and Sensier, 2019). Simultaneously, the UK is also one of the most regionally unequal countries, at least in term of productivity and GDP per capita (Martin, 2015; McCann, 2020). These disparities adversely affect people in their education, pay, work opportunities and life chances, while they also highlight the UK’s unexploited potential (BEIS, Industrial Strategy White Paper, 2017).
These are long-standing issues, and while the empirical evidence on whether devolution reduces regional disparities is not clear, it seems highly likely that these two facts are related.
Since 1997, the UK has moved gradually towards devolution/devolved powers at both regional and more local levels. However, UK devolution has largely been driven by national political concerns. There have been multiple attempts to ‘level up’ or ‘geographically rebalance’ the UK economy. Yet, rather than create well-respected, well-resourced institutions able to plan economic development for the long-term, the UK model has often been characterised by ad-hoc and piecemeal efforts at devolution. Indeed, even with recent reforms, over 20 million people in England (approximately half of the total English population) have no devolved powers at all (Caden, 2018). The devolution process of the last decade needs to be the first steps in a longer-term process of devolution which builds institutions which can survive political changes.
Responses to questions
- The success and scope of devolution deals implemented, including the impact on local economies and health economies and the progress of all bids submitted by the September 2015 deadline.
It is difficult to evaluate the success of the devolution deals so far. There are currently 11 devolution deals in place, although 7 have run for approximately four years or less – an insufficient timeframe for an any in-depth evaluation. Moreover, the deals themselves differ in the scale and scope of devolved powers making direct comparison challenging.
Progress towards devolution needs to be seen in its wider social, economic and political context. Over the past decade, the impact of devolved powers has been hindered by the wider impact of reduced local government funding: in England, Local Authority spending on local services fell by 21% between 2009-10 and 2017-18.
Many of these cuts have fallen disproportionately on Local Authorities in the most deprived and least economically successful places (IFS, 2019). In addition, the shift from RDAs to LEPs in 2010 led to a more fragmented governance and (at least initially) a restricted funding structure (Bentley and Puglis, 2013). Where LEPs sit within the new Combined Authorities, there is some overlap/duplication of responsibilities for local economic development (Fai and Tomlinson, 2019).
Both Brexit and the Coronavirus crisis will have geographically uneven impacts (Los et al., 2017), especially in terms of the impact on local tax bases, while an ageing population is set to place additional pressure on local health services and social care.
It should be noted that evaluating the success/failures of devolution is notoriously difficult, and in part this reflects the complexities and diversities in the devolution process (Smoke, 2013). Evaluation requires ascertaining clearly what devolution is meant to achieve and how it will be assessed, and this is likely to differ depending upon the regional context.
We would therefore argue that the UK devolution process ought to be periodically monitored and carefully reviewed, though any full evaluation will need to be undertaken over the long term, with evaluation criteria jointly agreed between Whitehall and the relevant Combined Authority.
Anecdotally, we would cautiously suggest the first wave of devolution deals have had some positive impact on local areas. For instance, elected mayors have begun to coordinate policy, negotiated for necessary resources with government, and there have been a small number of high-profile policy ‘wins’ which would have been otherwise unlikely.
- The geographical spread of existing deals, including to non-metropolitan areas and the impact on adjoining areas.
We note the need for an integrated regional strategy based on the relationships between different places and their potentially complementary economic roles (MacKinon, 2020).
However, the current selective approach is leading to significant disparities between devolved and non-devolved places in terms of powers and funding (for example, the Transforming Cities Fund is allocated differently to mayoral areas). These are exacerbated by the resources available for LEPs, which vary significantly depending on location and underlying institutional capacities (Bentley and Puglis, 2013; Fai & Tomlinson, 2019). Moreover, designated Enterprise Zones can also ‘cloud the picture’ – since some areas, especially those residing in the major cities – can benefit at the expense of other areas. The current disjointed, fragmented approach makes it difficult to reduce spatial imbalances, and for weaker places to pursue an effective place-based industrial strategy.
Moreover, there is some scepticism that the Northern Powerhouse and Midlands Engine are ultimately ‘brands’, and Combined Authorities duplicate some of the responsibilities and tasks already established by LEPs (e.g. skills development) – those LEPs which do not link into such meso-level regional constructs sense it is harder for them to attract attention from government and other investors.
Devolution ought to provide a set of meso-level institutions which are able to coordinate strategic activities over a regional economy while meaningfully engaging with national level policy. These bodies should also represent some sort of meaningful economic area. The evidence from some successful economies (e.g. Germany, Australia, Canada, Belgium) is that meso-level governance institutions covering areas of around 3-5 million people are able to do this (see Martin et al. 2016; McCann 2016). Other countries (e.g. the Netherlands, Denmark) appear more centralised but are actually much better at integrating local concerns into national policymaking due to significant bottom-up and independent elements to national policy-making processes. Too much of the UK currently fails to do this as LEPs are too small, fragmented and larger meso-level institutions do not exist outside the major cities. Evidence suggests that fragmented local government structures at the metropolitan level area are associated with lower productivity (Ahrend et al., 2017).
- Further powers that local areas have accumulated over time and powers they should have which they don’t have already, including the specific case for London.
The recent movement towards city-regions plus the infrastructure expansions (and the National Infrastructure Commission) are all positive steps. Yet, for many policy issues such as energy, FDI, or interregional transportation systems, these city-region scales are still too small. Moreover, the relationship between the city-regions and also between city regions and their hinterlands needs to be established. Otherwise the UK risks the creation of a new (and in the long run) unbalanced and eventually an even more dysfunctional level of governance.
Moreover, even the city regions which have seen the most extensive devolution still have limited scope for experimentation and evolution (Tomaney and Pike, 2020). Experimentation could be enabled with a substantial, multi-year budget, particularly in the context of otherwise reduced local authority funding and additional pressures on local authority budgets (due to Brexit/Coronavirus/ageing population).
Experimentation also requires central government to ‘stand back’ from devolved areas of policy (Sandford, 2019). For example, despite some progress on skills in devolution deals, the UK’s educational systems are still primarily centrally designed and controlled – including further and technical education which is still dominated by national accreditation systems. As most FE students remain very local much more room is needed for local businesses to help develop curricula and training which is tailored to local demands. Germany offers a good template, whereby local educational institutions, firms and chambers of commerce all cooperate with länder governments to provide education-employment channels. Indeed, Switzerland, Austria, USA, and the Nordic countries also display many if these features.
Skills, and particularly skills mismatches, are a significant barrier to new business creation/investment. The issue of resolving skills bottlenecks is, however, more difficult at the local level since UK skills and education policy remains highly centralised (although the recent Skills Advisory Panels may herald a change). Indeed, responsibility for both identifying skills needs and delivery needs to be devolved to a meso-level governance level, with a city-region role where appropriate. Local areas and regions need to be given power to shape training programmes in line with spatially-specific needs and aspirations, as in the case of the new Ceramics Skills Academy in Stoke on Trent (Tomlinson and Branston, 2014).
Despite the constraints of centralisation, some LEPs have worked with local employers and Further Education colleges to devise courses that will meet the immediate needs of local business. There is, however, more variance as to whether the courses will meet the longer terms needs of employers in an ever-changing skills-demand landscape – for instance, with the growth of digitalisation and artificial intelligence. In addition, most of the skills initiatives have tended to involve only the larger employers, with little input from the long tail of SMEs in each area. This might act as a constraint on future growth (see Fai, 2018). There is hope for some progress in areas with new devolved powers, to develop skills provision for predominantly 19+ and adult learners, but for the Combined Authorities, it is too early to comment on what changes will be effected, let alone the impact that new devolution deals (which offer new devolved responsibilities on skills) has on breaking through the recognised bottlenecks.
More broadly, a major issue is that the ‘pillar’ of ‘place’ was largely under-developed in the government’s Industrial Strategy White Paper – the ‘place’ element only really comes into the White Paper at the very end and in a form significantly reduced from what had appeared in the earlier 2017 Green Paper (Billing et al. 2019). As such, industrial strategy and the devolution deals are not joined up very well because there is very little discussion or attention paid as to how these would work together. Here, institutions are key to joining up sectors with regions and places. But fragmentation and uneven capacities mean that LEPs are unlikely to serve as an effective framework for delivering such a holistic approach (Bailey and Budd, 2016).
To do this, the UK has to make some major and long-term policy and institutional steps away from the view or vision that enhancing London’s performance is in the ‘national’ interest. London and its hinterland have already largely decoupled itself from the rest of the UK economy (McCann 2016), and the benefits of productivity gains in London remain largely in London and its hinterland. This will require the building of new regional meso-level institutions or coordinating systems. This is the most important challenge ahead for UK industrial strategy and also the most difficult to achieve.
It is the critical meso-level of governance and policy – in which industrial and regional policies are largely symbiotic – which the UK lacks. As such, UK governance is often either to large and distant, or too small and local, to be effective.
- The commitment to devolution across Government and capacity in Whitehall to promote and monitor devolution, including the Government’s ability to capture relevant data at the right level – for example, in city region and combined authorities to assess the effectiveness of deals.
The commitment to devolution largely depends upon the contemporary political discourse, and the determination of policymakers. Nevertheless, since the late 1990s and beginning with Scottish and Welsh devolution, there has been an ongoing political shift towards devolving powers.
As noted earlier (see Response to Q1), the evaluation of devolution is challenging, since the process itself is complex and place-specific. Identifying evaluation criteria, the methodological approach and the timeframe for analysis is also problematic. There is however consensus – in the development literature – that a full evaluation of devolution should examine issues such as accountability, transparency, governance and the delivery of local services (Smoke, 2013). In the UK context, we may also add additional evaluation criteria with regard to the delivery of local industrial strategies, that fall within the remit of the Combined Authorities (CA’s) and LEPs and are critical to re-balancing the economy.
Given the place contingent impacts of devolution, we would caution that any evaluative criteria should be jointly agreed between Whitehall and the relevant Combined Authority. This would ensure local preferences and objectives are being accounted for, and evaluations are being fairly conducted.
We also note that key statistics for local areas – for example, Gross Value Added (GVA), education and health statistics – are released by the ONS too slowly to be useful for policy. Moreover, when it comes to pursuing and evaluating local industrial strategies, both LEPs and CAs will need a more granular data/evidence bases that cuts across traditional sectors (and Standard Industrial Classification (SIC) codes), and instead identifies emerging specialisms and capabilities. Nesta’s Arloesidur database (https://arloesiadur.org/data) for Wales offers a possible template.
- Governance and accountability: the impact of elected mayors and whether they are necessary to make devolution a success. Public engagement with the devolution process and how scrutiny is working in practice.
The academic evidence clearly suggests the need to focus on quality of government and local institutions more broadly than simply focusing on accountability. Empirical studies show that the benefits of decentralisation are sometimes only felt where there is high quality of government.
At the same time local areas in the UK have – as noted above – been experiencing a series of economic and political challenges which have restricted focus to basic services. The focus on governance should move beyond notions of scrutiny and accountability, which are important, and increase considerations of capacity building.
More generally, the fragmented structure of UK local governance and the plethora of institutions, has done little to address long-standing apathy among local electorates. The co-existence of City Mayors and Metro mayors can create some confusion among local electorates especially over governance, the allocation of powers and responsibilities. Indeed, local electorates have tended to be apathetic towards the concept of elected mayors; the majority of local referendums held have rejected the idea (Sandford, 2019) while turnout for mayoral elections have been low.
- How access to new sources of income – for example business rate growth – have impacted local areas and how broader devolution of financial powers will affect the success of the policy.
For the UK, where there are such large interregional inequalities over small distances and in which the core region (London/SE) is decoupling from the rest of the country, the only governance set-up which is worse than a top-down centralised system, is a devolved system which is primarily dependent on local finances (McCann 2016). Finding ways to encourage devolution (in order to foster local development incentives, accountability and engagement) without weakening the UK’s (already limited) interregional fiscal stabilisers, is a critical balancing act.
Currently there are a plethora of funding streams/pots available to CA’s and LEPs for regional development. In England, these include competitive bids to the Regional Growth Fund which was replaced by the Single Local Growth Fund, Growing Places Fund, and the EU Structural Funds (which will no longer be available, post Brexit). In addition, there are also a variety of local authority controlled schemes; Tax Increment Financing (TIF), Community Infrastructure Levey (CIL), Local Sustainable Transport Funding, Business Rates and City Deals (available to some cities, subject to certain conditions and contractual agreements). In addition, there are also a range of funding schemes available for the private sector such as the Business Growth Scheme and Venture Capital Loan Fund (for full details of these funding streams, see Bentley and Pugalis, 2013).
However, the extent to which LEPs and CAs can access such schemes largely depends upon their own internal capabilities. Some LEPs have become more adept than others in building local coalitions of business and legal expertise to apply for and gain access to external funding streams. This has arguably created a two-tier LEP structure and can exacerbate regional divides. From 2021 onwards there will also be a Shared Prosperity Fund (SPF) but this remains undefined and its impacts unclear. Again, we note the importance of local government quality and urge efforts to build capacity.
We would therefore suggest caution, with regard for a rapid fiscal devolution given the current large UK regional imbalances, small geographical areas, the impact on local tax bases, and the shifts from EU to SPF funding regimes. Rapid fiscal decentralisation raises genuine concerns about zero-sum tax competition, which may adversely affect local public services and exacerbate regional divides (Martin et al., 2016). The logic, nature, scale and forms of further devolution, especially in England, should only be considered in the light of a much broader set of issues regarding the role that the ‘levelling up’ agenda will play in the overall future trajectory of the UK economy (UK2070).
- The adequacy of existing sources of income and the potential need for more sources of income for local authorities that acquire more powers. Whether further business rate retention would provide additional funding for devolved services.
There have been significant pressures on the Revenue Support grant for local authorities, while as noted that funding for local economic development has become more fragmented in line with the LEP structure and the emergence of CA’s. A crucial aspect of the introduction of a Shared Prosperity Fund will be the design of its allocation mechanisms and formulas. However, it is critical that this allocation system remains separate from the allocation formulas related to other local government funding streams. Otherwise, there is a risk that the SPF will be used indirectly as substitute for other local government funding streams, and thereby cut or undermine, these streams, many of which have already been significantly cut back in recent years, and especially in economically weaker localities (Gray and Barford 2018).
- The potential scope of a devolution framework. Whether the current practice of bespoke deals for local areas is working or should some powers be made available to any local authority that chooses to adopt them.
As already noted, it is too early to undertake a full evaluation of the existing devolution deals. One issue arising from the current approach to devolved city-regional entities (i.e. CA’s) is that it is an arbitrary process, largely left to local authorities to define their own new entities, and is far from being a nation-wide network (Fai, 2018). Finding ways to encourage decentralisation and devolution (to foster local development incentives, accountability and engagement) without weakening the UK’s (already limited) interregional fiscal stabilisers, is a critical balancing act. On the one hand, they need to reflect real local aspirations and requirements, but balance this against the need for some form of equity between places. These tensions can best be achieved through transparency, and a move away from the top-down deal making process of devolution which has existed so far, and by democratic engagement, ensuring local people understand and are part of the trade-offs which need to be made.
The principles behind the design of new meso-level institutions (e.g. CA’s) are that they should foster and enhance local, city and regional leadership which links across institutions, stakeholders, and political affiliations. Building cross-party, cross-stakeholder and cross-institutional alignment is the most important role for local, city and regional leadership and this should be aimed long-term at maximising civic engagement. Some of this is already developing at the city-region level, but city-region types of set-ups are only realistic for a minority of UK localities.
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 Researchers have – largely in the context of developing economies – established a range of qualitative and quantitative methodologies/techniques to evaluate devolution outcomes. However, a caveat is these techniques largely reflect the researcher’s own underlying assumptions, especially with regard to the criteria for measuring ‘desired outcomes’.
 One example is the Durham Tees Valley Airport – See Sandford: https://www.instituteforgovernment.org.uk/sites/default/files/publications/has-devolution-worked-essay-collection-FINAL.pdf