Glorious Devolution
Building a fairer economy relies on relaxing Whitehall’s grip on tax and spending powers via fiscal devolution
Today we’re publishing a report, A Fair Share, on the potential for increased fiscal devolution to address regional disparities in England. The article below introduces the main themes of the report, and you can read the full report online or as a PDF. Please help us by sharing the report on social media (here on Substack, but also on LinkedIn, Bluesky and Twitter/X). As an aside, we also had an article in Labour List over the weekend, with Transparency International UK, about the urgent need for action to cap political donations.
Almost exactly one year ago, the Government’s English Devolution White Paper affirmed that “we must rewire England and end the hoarding in Whitehall by devolving power and money”.
This was a welcome recognition that Britain can’t build a fairer economy while too many powers are held in Westminster. Since then, it has been accompanied by landmark legislation to create a new architecture of devolution across the country.
The Chancellor’s Budget almost two weeks ago included the devolution of powers to create a visitor levy in many English regions for the first time, a move which was widely praised by the country’s Mayors, with the Mayor of York and North Yorkshire David Skaith describing it as a “total gamechanger”.
The announcement in the Budget of the consolidation of more than thirty central government funding streams will also give regions more flexibility and autonomy to spend according to their priorities.
Yet even with these incremental powers, the UK will remain the most centralised economy in the developed world.
While a small levy on overnight stays is welcome, the truth is that such a move only scratches the surface of the changes that are needed to fundamentally rewire the state in the interests of local places.
As it is, the UK collects just 5% of its tax revenue at the local level - around one-third less than France and one-sixth less than Germany.
No other major economy in the developed world concentrates so much fiscal power in its central government. Despite this, the Government’s flagship English Devolution & Community Empowerment Bill, which recently passed its third reading in the House of Commons, largely avoids the issue altogether.
This extreme hyper-centralisation has severe consequences, contributing to deep regional inequalities that concentrate wealth in some parts of the country while leaving others struggling to keep up, and limiting opportunities for local economic growth.
These inequalities are stark: a £10,000 gap in disposable income between the richest and poorest areas, an 18-year difference in healthy life expectancies between the most and least deprived areas, and widening wealth divides between regions, with the North of England home to 30% of the nation’s population but only 20% of the nation’s wealth.
Our polling shows that 60% of the public identify regional disparities as one of the inequalities that concern them most, second only to class and disability.
Research consistently shows that fiscal devolution leads to more responsive policymaking, with local leadership able to better align public policy with the preferences of local places, improving the ability of regions to innovate more readily. Better policymaking could help to boost socio-economic outcomes, improving regional inequalities.
Fiscal decentralisation can also boost regional growth. OECD evidence indicates that, when properly designed, doubling the share of tax or spending controlled sub-nationally is associated with a 3% increase in GDP per capita. In other words, empowering local leaders can make economies both fairer and more productive.
So it stands to reason that bold action on fiscal devolution could help to address the UK’s entrenched inequalities between places.
In our paper published today, A Fair Share, we examine how a long-term approach to fiscal devolution could help to reduce those disparities, and expand opportunities for everyone.
We first outline the steps that could build capacity needed for deeper reforms, both in Whitehall and in local areas.
Those measures include learning more effectively from existing devolution arrangements through new collaboration. When considering international experience of extensive devolution, examples such as Germany or Australia are often cited.
Yet the experiences of each of the four nations of the UK offer 25 years of practical lessons on working with Treasury orthodoxy, navigating relationships with central government and innovating within smaller jurisdictions. The recently created Council of Nations and Regions could accelerate this learning by convening a cross-government subgroup focused specifically on fiscal devolution.
At the same time, Whitehall must strengthen its understanding of devolved governance by ensuring that civil servants are fully equipped with the knowledge and skills needed to navigate the implications of central policy on devolved jurisdictions. Local authorities also need support to map existing gaps in their fiscal powers and identify capacity challenges, a task that MHCLG could lead by working more deliberately with local government on preparing for future fiscal devolution.
These steps would help build the foundations for more ambitious reforms in future years, strengthening both local and central government’s ability to manage fiscal devolution effectively.
More broadly, the UK needs to think long-term about the direction of devolution. Do we want another decade of incremental and piecemeal change, or a deliberate approach guided by a clear vision?
To support this choice, we propose the creation of a Tax Devolution Commission to review the tax code and identify which taxes could sensibly be devolved in the long-term, and which should remain centralised. The Commission could provide an authoritative basis for reform and avoid the cautious incrementalism of previous decades.
To meet the need for longer-term equalisation of living standards between different places, the government should consider the role of legislation in equalising living standards between different regions.
Ultimately, creating a fairer economy requires rewiring the state, embedding a genuine commitment to devolve meaningful power and fiscal control to local places. The Government must build on the momentum created by the Devolution & Community Empowerment Bill to seize the opportunity presented by this Parliament and make real progress.
More than a decade ago, the Communities and Local Government Committee concluded in a report that “fiscal devolution in England is an idea whose time has come”. Despite some progress since the publication of that report in 2014, the UK remains profoundly centralised, and the Treasury continues to hold a tight grip over the national finances.
In an interview for this report, Nicola Sturgeon commented about intergovernmental arrangements that “the formal arrangements are there; whether or not these get utilised is entirely down to mindsets, personalities and relationships.”
The same holds true for fiscal devolution: progress will require political will. It is long past time for the Government to choose between maintaining a highly centralised state or building a fairer, more equal country where every place has a genuine share in national prosperity.