Three things that must happen for devolution to be a success: economic development, revenue generation, and democracy

R. J. Higginson, CC BY SA 3.0

The leader of Birmingham city council this week argued for the creation of a “West Midlands sovereign wealth fund” – an idea that would see money raised from local government pension funds invested in housing and other local projects.

It’s exciting to see proposals like this that seek to tackle shortfalls in public infrastructure and housing investment, through creative long term use of public sector assets. Using assets as a way to generate long term revenue appears to be a much more efficient use of resources, than selling them off outright.

It also provides an opportunity for local communities to have a much more direct connection, as citizens represented by local government, both to how investment is prioritised, and how revenue is re-spent, than they do when major infrastructure investment is led purely by the private sector.

From our regular engagement with people working to improve local economies across the UK, it’s clear there’s an eagerness to connect their community focussed strategies into the regional level of economic development.

But there’s a recurring problem that the priorities of local communities – be it individuals’ prosperity, a more democratic decision-making process or the sustainable use of resources – don’t match up with the regional pursuit to rapidly increase their national growth contribution.

It must be possible to not just to overlay regional and city growth strategies with the kinds of socio-economic outcomes that matter most to communities, but to design regional economic strategies that deliver good community level economic outcomes in the first place.

Today we launch a new paper that argues devolution – done properly – offers an opportunity to pursue a new kind of regional economic development, and a new kind of economic governance.

But to make good on this promise, it has to be better equipped to do three crucial things:

1. Stimulate the kind of economic development that will improve the prosperity of all communities within the devolved areas

Economic strategies that seek primarily to increase a region’s contribution to national growth, as measured through ’gross value added’ (GVA) – focus on the production of goods and services – usually, high-end growth industries – and the infrastructure or business support that facilitates this.

Yet these strategies do not necessarily help achieve any of the following objectives: a more equal distribution of wealth across the population; greater diversity of small and large businesses or sectors; high local investment from money spent in a local economy; strong flow of local population through local education and training into local jobs.

Rather than pursue those aims separately, through training and skills, business development or poverty-reduction programmes, they could be much more efficiently tackled if they were treated as an integral part of the regional economic strategy itself.

2. Generate greater levels and control of revenue and capital for regional government

Current devolution agreements see retention of tight central controls over the grants paid to new combined local authorities, as well as over the levels of borrowing they are permitted.

This undermines the possibility of new, larger urban authorities being able to use any expansion of their tax base – for example through new powers to retain business rates – as leverage for ambitious regional development plans, paid for initially through borrowing. To fulfil many of the promises of devolution, some further relaxation of borrowing requirements, matched by greater flexibility in setting local tax rates, is crucial.

3. Create meaningful democratic structures

Democracy is a missing link in the new devolution debate. It is essential that the Department for Communities and Local Government (DCLG) and groups of local authorities proposing devolution deals consider how to engage citizens and increase accountability, especially with deals being made on an ad hoc basis and the role of elected members at each level varying from place to place.

Clearer accountability structures would show where responsibility lies between combined authorities, local authorities and central government, and how citizens can hold each set of leaders to account. More meaningful structures for citizen participation could be built into the design and delivery of services, and the development of strategic visions and budget-setting, with clear channels of influence to policy making and accountability ties to representative institutions.

This would enable us to move away from the current situation where central government, which is supposed to be transferring power away from itself, paradoxically ends up with more power because of its role in granting concessions and monitoring devolution agreements.

Aspiring for an approach to devolution that does this is not wishful thinking. Devolution deals that fail to deliver on these aims risk moving our economy, and governance structures, in the opposite direction. We will be building on this body of work examining devolution from a number of angles, over the next year, so keep an eye out for more.

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Note: this post originally appeared on the Crick Centre for the Understanding of Politics blog. It represents the views of the author and not those of Democratic Audit UK or the LSE. Please read our comments policy before posting. 

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Rachel Laurence is the Senior Co-ordinator of the New Economy in Practice team at the New Economics Foundation, and works on connecting the diverse elements of NEF’s work to support a movement towards systemic economic change at local and regional level. This programme of work focusses on how the economy works, and can be transformed, at the hyperlocal, wider local, and regional level. It encompasses research on existing and emerging good practice; development of new models and approaches; and working with local and regional partners to connect and build capacity.