SIGOMA vice-chair responds to Gordon Brown's devo report

Posted on January 09, 2023

How far does Gordon Brown’s recent report on the UK’s future go towards providing Labour with a coherent response to levelling up? The answer is: quite a long way. However, there are still a number of serious gaps and contradictions that need to be addressed. In fairness, Brown approaches the problem of levelling up through the lens of constitutional change and does not pretend to solve all the economic problems or give all of the detail. On the other hand, he does, rightly, accept that there is no point in constitutional change unless there are genuine economic and social benefits. So it is worth spending some time on the economic part of the report, and not getting waylaid by the proposed abolition of the House of Lords which has, inevitably, gained most of the attention.

Brown takes as his economic starting point regional ‘clusters’ of connected industries. This is sensible: clusters of mutually supportive enterprises create jobs, spending capacity, a focus for education and skills and most of the factors which underpin levelling up. Brown also provides a coherent list of the key factors which support clusters – research and development, finance, skills training and transport infrastructure.

Unsurprisingly, given the focus of the report, it also proposes a socio-economic governance framework, the second prerequisite for levelling up. It suggests a ‘double devolution’; first at the sub-regional level, overseen by mayors and supported by budget devolution; and second at the neighbourhood level, where more localised plans and projects would directly and visibly affect people’s lives.

Brown foresees responsibility (and presumably budgets) for skills training, which is the key lever in levelling up and currently managed through a chaotic hotchpotch of schemes, being devolved to the sub-regional level.

There are gaps in the vision, however, which need to be filled:

There will need to be national oversight for the plethora of plans/clusters envisaged, as well as some agreed framework to guide new investment and development both in terms of the geography and of the sectors they support. In short, the role of the centre will have to be more than what the report describes as ‘overseeing the equitable distribution of resources’. For example, what approach would be taken to the proposed Oxford-Cambridge arc, which could well increase national GDP considerably but is likely to exacerbate the regional divide? The same applies to the development of the fintech sector, which is increasing the magnetic pull of London but which is a major driver of growth. There are still deeper tensions that devolution will have to overcome – for example, on targets for house building. Housebuilding targets should be centrally prescribed as per Labour party policy, but in theory, this does not chime with localised decision-making.
These sectors will need to be supported by finance, R&D, and skills, with the Business Bank and regional investment and infrastructure banks filling the role. But again, much will depend on the level of incentives and willingness to take risk on the part of the banks and the state. Many regional development strategies in the past have relied on relocation, or inward investment start-ups on the back of generous state support. Some have succeeded, such as Toyota and Nissan; some have failed spectacularly, like DeLorean. With the announcement of hundreds of clusters, there is bound to be enormous competition in a system which will not be geared to making often finely balanced decisions, leaving the process open to abuse. The key will be to build up the supporting infrastructure – physical, yes, but mainly human – carefully, and not to expect quick fixes.
Having stated that funding for deprived areas is insufficient, the report’s main thrust is to devolve tax-raising powers. This is all well and good, but if there is a paucity of spending power in an area, devolution will have little economic impact. Moreover, it leaves the better-off areas with their greater tax-raising capacity in a position to widen the gap even further. Under these circumstances, financial autonomy will be regressive and widen economic disparities. In part response, the report proposes embedding equitable funding into statute, getting rid of competitive bidding, matching old European Regional Funding levels and directing the business and infrastructure banks towards deprived areas. This is laudable. Nevertheless, the report is somewhat coy about the fact that existing mainstream resources will have to be redistributed, some areas will lose out, and hard decisions will have to be made to face down the reaction. This is nowhere more true than in local government, where 10 years of redistribution from poor to well-off councils needs to be reversed. However, the report contents itself with a bland statement about providing ‘long-term stability’ for local councils.
This brings us onto the key question. The redistribution of existing resources will help, but it will, at best, just about sustain existing spending in deprived areas. The problem, though, is on the scale of that posed by German reunification in the 1990s, to tackle which €3tn was spent over 20 years. And even if we accept a more modest plan than Germany, the sources of the substantial new investment required are not addressed in the report.

There are in fact two sources of additional finance: first, to tax more. There are hints, not in this report but in other Labour statements, that unearned income will be targeted. However, that, too, may be only enough to sustain enhanced current services. So we are left with the second source, borrowing, which risks impacting the bond market unless the markets can be persuaded that the borrowing will be for investment with a defined payback (as opposed to give-away tax cuts). I am assuming that Labour’s promised £28bn a year on green energy investment will be paid for from borrowing; it is all very vague and needs to be firmed up. Yet more investment still, over a sustained period, will be required if devolution and levelling up are to be more than a token gesture.

So, in conclusion:

the report provides much of the framework for a coherent policy on levelling up, until now lacking in the approaches of both the Tory government and Labour.
it advocates double devolution to the two requisite governance layers: subregional sector planning and local place planning. However, it does not address the necessity of a central planning mechanism and a level of central direction.
the proposed support for clusters/sectors, including training, finance, R & D, infrastructure, is well-defined.
while it is absolutely right to focus on clusters and sector specialisms as a key factor in stimulating growth, to unleash large numbers of these onto the national system is going to produce some serious logistical challenges
the report does not address the fact that effective regeneration will mean redistribution of resources, and create losers as well as winners
it does not address where the long-term additional funding will come from to make levelling up and devolution effective.

The report is, nevertheless, an important contribution – not only to an improved constitution, but to a more equal balance between the regions, and hopefully to the growth needed to finance the project. It now needs to be built upon and refined into a policy which stands a chance of being implemented. I just hope there is the political nerve to do it.

Read the article on the Fabian Society website here