LONDON: Ashington is an old coal mining town in the North East of England that fell by the wayside during the deindustrialisation of the Margaret Thatcher era.
Its last pit closed in 1986 and its largest employer, an aluminium smelter, shut down in 2012.
Just 20 miles from the thriving city of Newcastle, but without a train link since 1964, the town went into decline and its neighbourhoods are now among the poorest 5% in England.
For Britain’s new Prime Minister, Andy Burnham, towns like Ashington will be the test of his vision for “growth in every postcode” of the country.
To get there, he believes the United Kingdom needs to end “40 years of neoliberalism” and what he and other critics disparagingly call trickle-down economics.
Instead, he will rebuild the economy “from the bottom up” by giving power away in a devolution revolution – the driving principle behind a politics he has called Manchesterism, named after the city where he was mayor for nine years.
Fiscal devolution is well advanced in the nations of Scotland, Wales and Northern Ireland but not in England.
Burnham will address that, albeit stopping short of giving English regions the same broad tax-raising powers.
Currently, local windfalls tend to end up back in Westminster, where the money is then dished out again in the form of grants.
Burnham’s changes are designed to incentivise growth by letting regions keep their gains.
Despite these aspirations, the evidence suggests that devolution is no panacea.
Scotland, the United Kingdom’s most devolved area, has grown more slowly than England since the 2008 financial crisis.
Despite raising the top rate of income tax to 48% from 45%, and spending more on health and education, outcomes in those areas have been worse than in England. Much the same story can be told of Wales.
Yet, there are models of English devolution that have proved successful. Burnham’s Manchester is one, although a more comprehensive model is – ironically – closer to the Westminster power base Burnham wants to demote. It’s Sadiq Khan’s London.
Evidence and opportunity
Burnham’s central theory is supported by studies from Harvard and the Organisation for Economic Cooperation and Development (OECD), showing that devolved powers to regional government put economic levers – transport, housing, skills and investment – into the hands of those who know what works, instead of remote bureaucrats hundreds of miles away.
As the most centralised of all 38 OECD economies, with only 5% of taxes and 20% of spending decisions controlled locally, Burnham sees the United Kingdom’s handicap as an opportunity.
Britain’s second-tier cities, after London, “tend to underperform relative to international peers of comparable size and density”, the OECD said in its survey of the United Kingdom last month.
Fix those regional inequalities and a prize awaits. A recent joint study by Harvard and King’s College London, co-authored by Labour’s former Treasury Minister Ed Balls, found that bringing the United Kingdom’s second cities up to the standard of western European peers would add £70bil (US$93bil), or 2%, to national output.
The Centre for Cities think tank said that if the eight largest underperforming urban areas were raised to the average gross domestic product per worker, output would be £47bil higher.
For the ruling Labour Party, economic rewards promise political ones as well.
Accelerating regional growth would raise living standards for voters in “left-behind” regions, the old Labour heartlands that have swung to Nigel Farage’s right-wing Reform UK. Devolution is the latest in a decade of attempts to “level up” the regions, this time through power rather than hand-outs.
Last Friday, Britain’s new Prime Minister announced the broad outline of his plans.
“Central government must become smaller”, according to a statement from the Cabinet published that day. Powers, resources and functions will be transferred “so that decisions can be made locally”.
Local business rates
Regional grants will be replaced, over the next two years, with a share of local business rates and income tax, as well as an entirely new local tourist tax so “that where a region grows its tax base, it benefits from the increased receipts”.
There will be a distribution mechanism for poorer areas that have suffered historically from a shortfall in investment.
Funding freedoms will come with greater responsibilities for education, employment, health, transport, policing and housing, with new deputy mayors to meet the expanded brief.
The cost threshold for local transport projects without central government sign-off will raise to £500mil from £200mil. Beyond that, much of the detail is yet to come.
Work had already begun before Burnham took over on July 20. The tenet of “devolution by default” that he’s espoused, which inverts the principle that ministers justify a transfer of powers to the regions, pre-dates his premiership, as does the commitment to hand over a greater share of central tax revenues.
Former Chancellor of the Exchequer Rachel Reeves had already set in train the process of giving regions more financial control.
Delivering the annual Mais Lecture in March, she announced a locally-run “visitor levy” and planned to share revenue from income tax and business rates.
Both proposals had been slated for the autumn budget she now won’t get to deliver, a Treasury official said, speaking privately.
Legislation enshrining “devolution by default” came into force in April with former Prime Minister Keir Starmer’s English Devolution and Community Empowerment Act.
Andy Street, the former Conservative West Midlands mayor who collaborated with Burnham in his Manchester days, wants the new Prime Minister to go further.
Prosper UK, the Conservative Party movement he co-founded this year, has called for local authorities to keep a cut of stamp duty, airport passenger duty, vehicle excise duty and even the value-added tax.
The Centre for Cities would add corporation tax receipts to the list.
John Healey, Burnham’s chancellor, is bought in. “The people who best understand what skills employers want, what transport an area needs and where investment can make the biggest difference are those who live there,” he said last week as the government announced that English metro mayors will retain control of some business rates from 2027 and a portion of income tax from 2028.
Healey has long been a believer in the power of devolution. In a 2021 interview for a Harvard study on regional divides he said that, for a government to be “serious about the economic and social development of the city regions,” it must hand over “the decision powers, the funding streams, the policy instruments.” — Bloomberg
