A make-or-break autumn for provincial Britain

The decisions to be taken this autumn will determine the course of British history. Down one path is reversion to business as usual, down the other is the transformation of provincial Britain—the “levelling-up” agenda across the regions for which the government was elected.

Boris Johnson, newly returned to Downing Street with strong support from England’s industrial rust belt last year, has made clear which path he aspires to take: his aim is a New Deal that resets history for the better. But between aspiration and achievement lies strategy. The yawning productivity gap that has opened between the south east and the rest of Britain was entirely avoidable: it hasn’t happened in Germany. But rectifying it is much more difficult than avoiding it. When it comes to reversing rather than avoiding regional divergence, we are largely in the dark. Just as in coping with Covid-19, it is an instance of radical uncertainty: no model can guide us.

The dragon to be slayed is clear enough: Whitehall is a labyrinth of fiefdoms and established practices which continue to marginalise most of the country. Time after time, and to an embarrassing degree with Covid-19, Whitehall has indulged in fragmented decision-taking and ineffective implementation. The fate it deserves is obvious, and the departure of so many mandarins, including the cabinet secretary, could be a sign it is already in process. The open question is what St George does afterwards. Does he liberate those who suffered from the dragon, or instead become tempted to supplant it?

Cummings and a chancellor’s going

That temptation will be stronger than you might think. If the only problem was fragmented decision-taking, it could be solved by centralising power in the newly-combined No 10 and No 11 operation. The two came together after Johnson aide Dominic Cummings forced out the previous chancellor, Sajid Javid, for seeking to retain his own advisers with their own agenda. Such centralisation was certainly needed; for those problems where we know what to do, the fiefdoms impeded an integrated response. But many other problems remain.

[su_pullquote]“Rishi Sunak is an able Chancellor and may triumph over inherited Treasury instincts, but powerful voices will resist”[/su_pullquote]

The current government plan for the autumn is a white paper that reviews the powers of local government, prepared by the Ministry of Communities, Housing and Local Government (MCHLG), while in parallel the Treasury does the Budget and Spending Review. For the project of “levelling up,” devolving responsibilities and the money that empowers them is existentially important. States with more devolution enjoy more equal growth across the country than centralised states, at no overall cost to national growth. As Britain argued years ago in Brussels, the working presumption must be subsidiarity: unless clearly demonstrated to the contrary, decisions are best taken at the lowest feasible level.

But even if MCHLG comes up with good ideas, it will struggle to orchestrate other Whitehall ministries into agreeing to them. The Treasury sees itself as far grander than merely dealing with communities, housing and those strategically wing-clipped but still pesky local authorities. This pecking order is long-established but intensified under Gordon Brown, and persisted during austerity. Rishi Sunak is an able Chancellor and may triumph over inherited Treasury instincts, but powerful voices will resist.

If the Spending Review and Budget end up addressing levelling-up merely through the Treasury showering northern towns with building projects that it has chosen, the pre-Covid-19 energy generated by the historic general election result and the decision to proceed with HS2 will dissipate. Although small changes on the ground and the mooted shifting of ministries to provincial cities and parliament to York can usefully ratchet up expectations, we still await a genuinely transformative, but necessarily experimental, economic strategy. A nightmare could still arise, were the MCHLG to place more responsibilities on local government while the Treasury failed to match them with devolved finance.

Why the centre cannot hold

Why would further centralisation in Whitehall make levelling-up more difficult? For managing radical uncertainty, a core principle is to try different things in parallel and learn rapidly by adjusting to some inevitable failures. Unfortunately, Whitehall’s architecture is ill-equipped to this style of policymaking: ministers are expected confidently to announce the same strategy everywhere, and thereby become politically reliant on the skill that the civil service has perfected over the decades—covering up failure. Learn-as-you-go depends on overcoming the fear of failure, and combining the top-down codified knowledge of experts with the accrued bottom-up knowledge of experience. It is inherently easier to push codified knowledge down the decision hierarchy than drag the lessons of experience upwards. And so, the vital step is to empower the people who are actually implementing the experiments locally, so that they can adjust as appropriate without fear of reprimand.

[su_pullquote]“Given its continued economic divergence, Wales may be the next Red Wall to crumble”[/su_pullquote]

Yet Britain starts out with the most centralised and top-down government in the western world, rivalled only by Albania and Moldova. Whitehall wouldn’t even let local government have data on outbreaks of Covid-19 until embarrassed into permitting locally-devised responses. Even France, which used to be notoriously centralised, has for some years been shifting the power of decision to the regions, and Macron, once the arch centraliser, has latterly repented: “I have the deeply-held conviction that the organisation of the state and of our actions must change profoundly. Not everything can be decided so often in Paris.” Centralisation in Downing Street can fix coordination problems when it comes to well-understood national objectives, but could also impair the very processes that will be essential if levelling-up is ever to work.

Currently, only London, Scotland and Wales have real power to run their economies. They can learn-as-they-go, and if they don’t, their voters have the power to change the team: given its continued economic divergence, Wales may be the next Red Wall to crumble. But without levelling-up the empowerment of provincial England to match London, Scotland and Wales, then no matter what Sunak might spend, little will change. It is crushingly clear that the revival of the west midlands and south Yorkshire cannot be planned from Whitehall, whether or not it is coordinated from Downing Street. Neither Stoke nor the Don Valley voted for that.

England’s maze of municipalities

So the authority needs to shift—but where to? It isn’t immediately clear, because unfortunately, after decades of contradictory and incomplete “reforms,” the local political architecture of provincial England is breathtakingly dysfunctional. The midlands is an example. The West Midlands Combined Authority, despite its grand name, actually has little direct authority. Getting the component local authorities to pull in the same direction without having an independent income is like trying to herd cats without any cat food. The region includes four Local Enterprise Partnerships, which themselves were supposed to coordinate economic policymaking across local government. It has fuzzy boundaries, with some areas being within it for some purposes but not others, while their inhabitants are excluded from voting. And the region’s rural areas are largely excluded, even though they are within the pull of its economic gravity. Unless they are included, regional empowerment will create a divisive and energy-sapping political battle between cities, towns and the countryside.

The incoherence of local government structures even impedes prosperous parts of Britain: a high-tech hub to rival Boston’s Harvard-MIT dynamo is a natural thought for the corridor between Oxford and Cambridge that runs through Milton Keynes, and indeed the CaMKOx corridor has been a Whitehall plan for five years. But its short distance—so badly connected that an entrepreneur even tried an air link—straddles over 20 local authorities. They need to work together, but there is no entity empowered to make that happen. George Osborne took an active interest; his successor, Philip Hammond, threatened to impose change from the Treasury. But what is there to show for the past five years of fuss? Less CaMKOx than COCKUP: nothing.

We need multilevel governance—national, local and regional—but for levelling to be up and not down we need economic dynamism, for which the vital entities are coherent economic regions with clear boundaries and independent funding.

[su_pullquote]“Regional empowerment of mayors like Andy Street and Dan Jarvis would complement necessarily nationwide policies in Downing Street”[/su_pullquote]

And they would help to overcome Whitehall’s silo problem. Some policies—such as the regulation of markets and most taxes—need to be decided nationwide. Some others—such as bus schedules, which have actually been centralised in the Department for Transport —should be highly localised. But for much of the levelling-up agenda, designing and implementing coherent packages is much easier at the regional level. The regional authorities have a sufficiently wide geographic span to overcome the local rivalries which would surface if power were to be further devolved, while coordination is far easier than when done nationally. Meanwhile, regional empowerment of mayors of the calibre of Andy Street in the west Midlands and Dan Jarvis in south Yorkshire would complement the centralisation of necessarily nationwide policies in Downing Street, not undermine it.

What powers should be shifted to the regions? If job creation is a priority, planning laws need to be reformed: current delays are impeding development and other countries have more localised procedures. The current idea of classifying areas into the categories of growth/renewal/protect is sensible, but it misses the key point, which is the need to link local planning decisions to local revenues.

Training needs massive improvement, much of it best managed at the regional level, where the provision of courses could be coordinated within an economic strategy drawn up with local businesses. Funding university research could be coordinated with regional economic ambitions: a university science park linked to local firms and venture capital could create clusters of high productivity. Currently, that doesn’t happen unless a university chooses to do it: many don’t.

But above all, the regional mayors should have discretionary revenues from their own tax base. Once the authority captures some of the region’s growth as revenue, whether from leaving a share of VAT receipts in the region or introducing a tax on the appreciation of land values, it has a powerful incentive to learn what works for its economy and to renew rundown areas, and it would have the resources to herd all those local cats so that renewal becomes feasible.

And this brings me back to managing radical uncertainty: the principle of “no regrets.” Once you recognise that you’re bound to get policy somewhat wrong, you should focus on avoiding choices that get it irretrievably wrong. That parallel-track approach—Spending Review in the Treasury, local government reform in MCHLG—has the potential to breach that principle: one of the two arms can lock down a policy (with, say, a multi-year funding settlement) even while the other arm is discovering it doesn’t work. Instead, the two halves need to cohere.

Levelling up has to mean something more than a shopping list of building projects. The Treasury’s autumn Budget needs to be publicly linked to a larger agenda of levelling up empowerment. The ace in the hand that needs to be played is discretionary control over funding for regional mayors, who are able to reallocate it between skills, infrastructure, housing, or industrial support according to a regionally-devised strategy that learns as it goes. The Treasury needs to shift from its presumption of centralisation enforced by ex ante micromanagement, to one of subsidiarity, complemented by ex post evaluation of regional variation; the discipline of comparison tempered by the modesty of learning from others.

Paul Collier is co-author (with John Kay) of Greed Is Dead: Politics After Individualism (Allen Lane)