Levelling up has barely been whispered in the lead up to the 2024 election. But both main parties declare that devolution is necessary to enhance local and national growth with Labour recently setting out how it can do so and tackle long-standing spatial inequalities in England. Geoff White, Peter Tyler and Colin Warnock argue that, if Labour is serious about adopting a sustained growth and rebalancing strategy, it will have to allocate public funding to reflect local opportunities and needs more closely and secure a step-change in private sector funding into priority sectors and areas.
Devolution is not sufficient to drive growth
Both major parties have declared that devolution is needed for growth. But there’s been little difference in their rhetoric on this – until now. Labour’s latest campaign document, Power and Partnership: Labour’s Plan to Power Up Britain sets out more clearly how it will use devolution to drive growth and tackle England’s long-standing spatial inequalities. It intends to accelerate its pace by getting more local authorities to combine, encourage devolved settlements to be tailored to functional economic areas, and give greater devolved control over expenditure on the key growth-related policies of transport, skills, housing, planning, employment support and energy.
But it recognises that even this ‘full fat’ version of devolution will not be sufficient. It will need to be driven by a national industrial strategy with tailored sectoral and spatial growth plans and complemented by strategic public investment and wholesale reform to England’s system of planning – all set within a context of overall economic stability. Apart from the latter – where the primacy given by the Shadow Chancellor, Rachel Reeves, to abiding by her fiscal rules is evident – there is not yet much clarity about what the national and local strategic frameworks would look like, how public investments priorities will be determined and what form an effective spatial planning framework would take.
Yet however democratically and locally stimulated, growth will not be achieved without a national growth and rebalancing mission, clear spatial and sectoral priorities, an allocation of public resources that reflects spatial differences in need/opportunity, and a mobilisation of private resources at scale over the long term that has not been achieved by previous administrations.
Clear spatial and sectoral strategic priorities
If it is to be successful, a UK growth strategy requires a strong spatial rebalancing dimension that recognises that strategic policy mixes must be customised to the varying configurations of needs and opportunities across different areas. The policy mixes should be focused on strengthening the capabilities of local firms and skills of residents (especially in those left-behind places) to adapt to competitive pressures and changes in technology within a spatial growth framework. This could be developed centrally but will be shaped by local growth strategies (as were produced in the wake of the short-lived 2017 Industrial Strategy of the May premiership and now proposed by Labour).
The framework should have sectoral and technology dimensions that acknowledge how future growth opportunities (Net Zero, the ‘Fourth Industrial Revolution’) are likely to play out in each area. The Labour emphasis on agglomeration economies through clusters will be a feature in this, but there has perhaps been an excessive focus on agglomeration over the last ten years. The mechanisms by which increased local economic growth occur are more than agglomeration per se, important as it may be.
A supplementary approach could be to consider a sectoral typology in which each category has distinct mechanisms by which policy can encourage productivity enhancing technology and assist local business and workers to adopt this. This will be important if the objective is to transform the growth potential of all sectors – not just those that could benefit from clustering.
The growth and rebalancing strategy and the associated spatial growth framework should drive the devolution process as it relates to key growth-related policies and functions. But they should also determine national policies and protocols (e.g. respectively, science and technology and procurement) to ensure that they are also directed at supporting the same spatial and sectoral mission objectives.
A new approach to funding allocations
The mechanisms by which growth-related public spend is allocated (e.g. assessed by formulae and/or other means) should be reviewed, amended and made more granular. This is simply because the existing mechanisms don’t appear to be following regional need. Growth-related public spend per head is much higher in London than elsewhere in England. The poorer a region performs in terms of growth (and productivity), the lower is its relative allocation of growth-related spending per head (Figure 1).
The allocation process and outcomes should be amended to reflect the proposed spatial growth framework and map of needs/opportunities. This must be done before or, at the very least, alongside devolution. It is likely to become much harder to fix once funding has been devolved to local areas (through fixed pots or tax revenue streams).
Figure 1: Growth-related spend per head 2021 and GVA (current) growth 2010-2021 (indices England = 1)
Source: PESA (2023) and ONS (2023)
The spatial growth framework should also inform public spend and procurement more generally. The pipeline of infrastructure investment over 2023-2024 demonstrates that London and the South East (SE) has more investment per head (£2,074 and £1,799) than the other regions of England (e.g. £1245 in the North East (NE)) except the South West (SW). Ministry of Defence spend with industry per head from 2022 to 2023 was much higher in the SW (£5,930) and SE (£6,350) regions than the northern regions especially the NE (£320) and Yorkshire &Humberside (£500).
A steadfast commitment is required to transform the systems and procedures by which central government funding and procurement is spatially appraised, allocated and delivered.
- At present, the process is insufficiently granular. Departmental Outcome Delivery Plans should be published, and the Treasury and Cabinet Office should insist they set out the spatial distribution of funding and outcomes at local levels.
- A systematic and transparent process is required by which it can be seen how decisions are made on the spatial allocation of growth-related spend and resources (and public spend more generally).
- The formulae and appraisal methods by which current spend and investment allocations are made should explicitly factor in an assessment of local needs and growth opportunities.
Enhanced and coordinated private sector investment
Devolution will only achieve growth and rebalancing if it works hand in glove with substantial investments by the private sector. This will require central government to:
- Work with local government and stakeholders to use the spatial growth framework to revive spatial planning.
- Reinstate priority areas eligible for grants, bonds and fiscal incentives for private sector investment.
- Transform the dialogue between government and the private sector to one that is based on a genuine trust-based relationship that enables an atmosphere of greater stability and certainty to be created.
Growth and rebalancing plans, based on the above, could be developed, owned by councils, mayors, towns and cities working in partnership and with a suite of place-based, innovation-led programmes. The government could then direct the UK Infrastructure Bank, the British Business Bank and any other central government growth-related funding regimes (such as Labour’s proposed National Wealth Fund) to work with local stakeholders and institutional investors to set up project delivery units to identify, design and package investment projects in areas of need to appeal to investors looking for long-term opportunities.
Radical incentives will be needed through the tax, rates and planning regimes to transform expectations about the risks and returns of investing in local areas of need – such as incentives for new investors in priority areas (e.g. the Opportunity Zones of the US) and streamlined planning for projects above a certain scale.
Devolution Plus – driving regional growth
Devolution on its own – even in its “full-fat” version – will not be enough to bring about the transformation of our low growth and imbalanced economy at the scale and speed required. Labour proposes to adopt a strategic, mission orientated approach, but this must be:
- Driven by a national and sustained growth and rebalancing strategy.
- Supported by a spatial allocation of public funding that properly and explicitly reflects local opportunities and needs.
- Accompanied by a seismic and long-term increase in private sector funding which is spatially targeted to deliver the growth and rebalancing objectives.
It’s time to set out a long-term plan for a radical rebalancing of resources, using devolution to drive regional and national growth, not just as an end in itself.
The views and opinions expressed in this post are those of the author(s) and not necessarily those of the Bennett Institute for Public Policy.
