‘‘Let’s make devolution work’

Andy Burnham’s economy speech last week was a big moment. After Labour’s long “hot essay summer”, here at last was an economic strategy that could reboot shared growth, from the visible economy of our high streets to the commanding heights of tomorrow’s industries.

The question now should not be whether devolution is a good thing. The real question is how to drive “devo-max” as hard and as fast as possible.

The economic logic is straightforward. The political economy emerging from the Tribune Group – what we might call Tribunomics, which Lou Haigh, Yuan Yang and others have brilliantly advanced in Renewal – starts from a simple proposition: governments should minimise the output gap holding Britain back. But Britain’s output gap is not evenly spread. Parts of London and the South East often run close to capacity, while too much of the Midlands, the North, Wales and our coastal communities remain well below their economic potential. Investment, productivity and labour market participation vary dramatically between places. If the challenge is regional, the response must be regional too.

READ MORE: ‘How Burnham’s devolution revolution can deliver for North Wales’

That means devolution cannot simply be about moving powers out of Whitehall. We have to devolve the power to build and shape regional economic institutions. This is the new statecraft: stronger regional states able to shape labour markets, mobilise investment, support businesses and create prosperity.

Four reforms would make that happen.

Last year, I asked Andy Burnham to appear before the Business and Trade Committee to explain where to start. The next frontier, he argued, is devolving responsibility for the labour market for young people. Why? Because Britain faces an age-old paradox: youth unemployment remains too high while employers cannot recruit the skills they need. That tells us today’s labour market institutions are broken.

Giving mayors responsibility for the entire journey from school into work for everyone under 25 – from technical education, apprenticeships and careers advice to employment support and key elements of social security – would be a breakthrough.

Instead of fragmented budgets spread across Whitehall departments and endlessly haggled over in bidding rounds, there should be one regional leader, one budget and one accountable plan for getting young people into work. These budgets should be combined into a single area-based settlement, in the way we envisaged when we launched Total Place back in 2010. What’s more, mayors should be able to keep a share of the money they save through better investment in prevention. Fifteen years ago, we recognised that public services worked best when organised around people and places rather than departmental silos. The next step is to apply that same logic to economic growth.

Second, we need to devolve the power to mobilise investment. Britain’s public finance institutions – the British Business Bank, the National Wealth Fund and UK Export Finance – are growing rapidly and now command more than £130 billion of financial capacity. They should be tasked with working alongside pension funds and new regional arms of the Office for Investment to build pipelines of investable, term-sheet-ready projects across our regions.

To complement this, business banking must return to our high streets. It has been hollowed out. Relationship managers have disappeared and lending decisions are centralised in London. The result? Around 380,000 businesses that want finance cannot get it, while small business access to overdrafts has collapsed from around £18 billion in 2000 to just £2.7 billion today.

So we should use the British Business Bank as the backbone of a new regional banking ecosystem, centred on Post Office Banking Hubs that convene the major commercial banks on the high street, quadruple state-backed lending guarantees to match US levels and, ultimately, introduce a UK Community Reinvestment Act to ensure banks invest in the communities from which they take deposits.

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Third, we must strengthen the capability of mayoral authorities. The message I hear consistently from mayors is that powers alone are not enough. Many lack the commercial and financial expertise needed to turn ambitious plans into investable projects. Whitehall should second or devolve specialists from HM Treasury, the Department for Business and Trade and the British Business Bank into mayoral authorities to build lasting capability in finance, planning, procurement and data. Civil service careers should now always include a spell in regional or local government. 

Finally, we need to redefine Whitehall itself. For decades Britain has tried to run local growth from the centre. Whitehall should become smaller, more strategic and more focused on what only national government can do: macroeconomic policy, national standards and economic security. Meanwhile, the Mayoral Council for England and the Council of the Nations and Regions should become real engine rooms that coordinate reform, unblock delivery, deconflict decisions and pump kinetic energy into inert bureaucracies.

Among my last acts as Chief Secretary to the Treasury in Gordon Brown’s government (before that note) was helping drive through the first major devolution settlement for Greater Manchester. At the time, getting Whitehall departments to agree was like pulling teeth. Since then, Andy Burnham has transformed that settlement into the Manchester model that has proved what determined local leadership can achieve.

The next stage is now clear. If Britain wants every region firing on all cylinders, we must devolve not simply the powers of government but the power to build new regional institutions of growth. Devolution must stop being seen as a constitutional reform and start being treated as an economic strategy.

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