Written Evidence submitted by researchers from The Productivity Institute: Professor Patrick Diamond (Queen Mary University), Dr Jack Newman (University of Manchester), Professor Dave Richards (University of Manchester), Dr Anna Sanders (University of York), and Professor Andy Westwood (University of Manchester) [FFL 045]
This evidence submission comes from research conducted to date on the project ‘The UK Productivity-Governance Puzzle’. The project asks whether the UK’s governing institutions are fit for purpose in the 21st Century, specifically in terms of their capacity to tackle the UK’s productivity puzzle. The project sits within The Productivity Institute’s ‘Institutions and Governance’ theme. The Productivity Institute is funded by the Economic and Social Research Council.
In our initial stage of research, we considered whether the UK government is learning the lessons spelt out in its Levelling Up the United Kingdom White Paper [LUUKWP], which highlighted the failure of previous administrations to address spatial inequalities in the UK. We identify contradictions between the findings of the LUUKWP and government policy over the last year. The way in which levelling up has been funded demonstrates that central government has been repeating the very pattern of short-termism and ad hoc decision-making that was identified in the LUUKWP as the fundamental error of past approaches. We also considered the longer-term history of policymaking in this area and identify a continual churn of short-term policies over decades, driven by a centralising mind-set, invariably implemented in an incoherent and fragmented fashion.
As an exercise in lesson-drawing from the UK’s history of regional policy, the LUUKWP thus appears to have fallen-short. It has been particularly hampered by the political instability that continued for much of 2022. The Government recognised in the LUUKWP that wholesale reform of UK governance is necessary to address the failure of successive governments to tackle regional and local inequalities. Despite that, the mix of policies and institutional reforms in the LUUKWP merely threatens to create new layers of complexity at the local and regional level, refusing to address the pervasive culture of centralisation. As with past reforms, change is focused on the sub-regional and local level, while central government is left largely intact. This suggests that attempts to distribute funding towards places in need are unlikely to translate into lasting or significant policy outcomes, especially in terms of productivity growth.
Centralisation
A rhetorical gap has been exposed between the promises of the Johnson administration to devolve power to ‘left behind’ regions and places, and the substance of policy enacted since, both by Johnson and his successors. The approach reflected the long-held view in British politics that the centre in Whitehall ‘knows best’. The process of bidding for central funding pots is at the heart of a top-down approach in which the needs of local places are diluted and distorted through the requirements of bidding.
The LUUKWP identifies past policies as being too centralised, ad hoc, top-down, and dismissive of local needs: ‘[Efforts] have tended to be short-term, lacked scale and coordination’. In a recent policy report, The Politics of Productivity: institutions, governance and policy, we identify that these weaknesses in the UK’s political system limit its capacity to tackle the productivity puzzle. In a recently published academic paper, A place-based system, we show that the consequences for devolved and local governments is an inability to intervene effectively in the key drivers of productivity.
None of the reforms so far proposed by the government challenge the dominance of Whitehall departments. In another recent paper, English Devolution and the Covid-19 Pandemic, we highlight that financial control remains heavily centralised in the Treasury. Local authorities are unable to borrow levelling-up capital, or to issue bonds while their tax-raising powers are heavily circumscribed by the centre. The backdrop is the centralised fiscal system operating in England. This leaves local places, especially those outside the big metro MCAs, with little chance of meeting local needs using centrally distributed funding.
Underinvestment
There is also a broader problem about the basic levels of investment. The Treasury response throughout 2022 has at best been lukewarm about levelling up, making clear that no additional money would be available. Jeremy Hunt’s Autumn Statement confirmed that DLUHC budgets would be constrained for the remainder of the Parliament, and likely be subjected to significant cuts in the future. We therefore contend that “‘wicked problems’ resulting from years of fiscal consolidation have never looked so stark”
There are indications that while the Treasury approves of devolution to city-regions, which its internal analysis indicates lead to favourable economic agglomeration effects, Treasury officials are much less sympathetic to devolution to counties, towns and rural areas where the economic growth impact is harder to quantify. Therefore, the disadvantages faced by these areas is further exaggerated by the centralised funding system.
Uncertainty
We have identified a troubling turbulence in the levelling up agenda over the last year. The initial approaches advocated by Liz Truss indicated that the levelling up (and growth) agendas would be subject to wholesale change. The committees and structures that underpinned the long-term missions in the LUUKWP were disbanded, as were specific targets and actions reflecting different departmental priorities. Over the last six months, Sunak has confirmed his commitment to the previous approach, but it was revealing that levelling-up was only briefly mentioned once in Sunak’s New Year speech. Sunak instead focused on ‘innovation’ as the priority for growing the economy.
Amidst this seemingly accelerating political instability, local places are facing uncertainty on foundational questions about funding levels and the future of the levelling up agenda. This not only undermines the capacity of the system to match funding with local needs, it also skews the advantages in favour of the larger, well-connected authorities, who have advanced information about developments and the resources to effectively target funding opportunities.
The competitive bidding system is part of a broader trend of short-termist and ad hoc policymaking in the UK’s regional policy, as outlined in our Politics of Productivity report and a report from the LIPSIT project on Delivering Levelling Up. This policy area has a long history of policy churn, where whole policy agendas are regularly scrapped and replaced. The Levelling Up Agenda is the latest iteration, but it follows a long history of similar overlapping agendas.
In addition to these short-lived government-wide agendas, there has also been significant churn within specific funding streams and the regular reconstitution of the institutions designed to deliver them. The inefficiencies of the bidding system must be understood within this broader context of unstable policy agendas, institutions, initiatives, and funding.
We regard this approach to policymaking as a laboratory of ‘hyper-activity’, conditioned by incrementalism and short-termism. Our analysis shows the huge range of competitive funding pots and associated initiatives in this area across Whitehall. Since 2010 alone, these include:
This level of policy churn creates huge challenges for local places, as they try to keep abreast of the latest developments at the centre. The nature of the competitive bidding system means that local places develop strategies on the basis of the funding pots available. As a result, these local strategies are built on top of an unstable and fragmented foundation of constantly shifting funding streams. Such bidding processes also mean that decisions about local priorities are being taken by civil servants at the centre, a clear-cut case of central over-reach. This has a cost in terms of the quality of local policymaking, especially over the long term, but it also has an efficiency cost, as local places must spend significant time and resources trying to maximise their funding from this bewildering landscape of competitive pots. There is a widely reported estimate that each bid cost an average of £20-30k.
The effect of this centralised approach to funding local places is to under-utilise local knowledge and local leadership, ensuring that local government continues to lack ‘power, capacity, and capability’.
As argued in one of our project reports, Levelling Up, Local Growth and Productivity in England, “it is clear that this approach is proliferating as a policy mechanism of choice and that the process itself creates problems, undermines local institutions and increases dependency on central government role for local economic strategies”. England still lacks crucial building blocks for substantively addressing spatial inequality, notably local institutions with decision-making autonomy and budgets to support infrastructure investment, skills and R&D.
In a recent report, On Productivity, we argue that there is a clear link between centralisation and policy churn. The LUUKWP highlights that spatial policy in the UK has been characterised by damaging policy churn over recent decades. Yet there are currently no attempts to solve to the endemic problem of short-termism in Whitehall. The instability of both regional and industrial policies in recent years – and especially in recent months – only serves as a reminder of how problematic such flux is at the local and institutional level.
The absence of effective joined-up policymaking has been a longstanding problem of the Whitehall organisational model, which is focused on institutionally demarcated departments. The LUUKWP identifies Whitehall silos as a key challenge given departments’ long-standing track-record of operating as self-contained ‘baronial’ fiefdoms: ‘In the UK, where policy is often set centrally, silos can hinder coordination…historically, joining up policies in line with the needs of places has been unusual’ (p.111).
Given the difficulties of cross-sector policymaking at the centre, the streamlining of funding requires that funds are devolved directly to subnational institutions, rather than going via Whitehall departments. As one of us argued in a recent paper, on The UK and the Pandemic, “the coordination problems arising within the UK pandemic policy response reflect long-standing issues within central government, UK IGR and English central-local relations”.
Local knowledge and leadership which are held to be fundamentally important for levelling up are unlikely to flourish given that fiscal autonomy is so constrained.
Current proposals for reform almost exclusively by-pass questions of how to reform central government in Whitehall. The strategy continues the familiar approach of grafting change on top of the existing Westminster model. This is both insufficient and fails to identify the system-wide changes the Government has claimed are necessary to effectively address spatial economic inequality.
Ironically, post-Brexit government instability has intensified with an unusually high turnover of occupants in No 10, the Treasury and individual departments (most, including DLUHC, BEIS, DoT and DFE have had four of five Secretaries of State since June). This situation has led to greater flux and policy churn at the centre.
A number of criticisms of past government policy approaches emerge from the LUUKWP: the absence of data to understand the impact of ‘place-based initiatives’; a lack of ‘comparative UK wide data’; alongside ‘poor institutional memory’ in central government regarding the effect of previous initiatives. Collectively, these problems contribute to a policymaking environment that is underpinned by too little transparency and accountability, hampering effective lesson-drawing.
One of the big challenges for measurement is territorial coherence. If different policy levers cover different territorial formations, it is very difficult to link policy interventions to outcomes, especially given the widely recognised need for cross-sector policymaking to achieve levelling up. The LUUKWP acknowledges the trade-off between ‘functional economic areas’ – the basis for most devolution deals to date - and those ‘that are locally recognisable in terms of identity, place and community’. Practically, it is difficult to reconcile these different aims. There are inevitable trade-offs between imposing institutional boundaries and ensuring the overall coherence of new arrangements as they emerge.
A vitally important aspect of lesson-drawing is the need for independent analysis and scrutiny in the policymaking process. The LUUKWP acknowledges the importance of external challenge, but then recommends appointing a Levelling Up Advisory Council that – like the short-lived Industrial Strategy Council that preceded it - palpably lacks political independence. There are few accountability mechanisms to apply pressure if progress on the agenda stalls or goes into reverse.
At a detailed level, none of these reforms, including the LUWP, offer a coherent approach to how to coordinate and resolve conflicts between regional and local institutions (for example, city-region mayors; devolved governments in Scotland and Wales) and the centre. That is remarkable given the recent experience of managing Covid-19, where disputes regularly erupted between the Westminster Government and the Scottish and Welsh First Ministers, as well as city-region mayors in England. English local government (like the devolved institutions) has no recognised status within a written constitution. These organisations can be restructured or even abolished at Westminster’s behest. There is no formal requirement to regularly consult LAs, nor are there any established conflict resolution mechanisms. The issue of overlapping jurisdictions remains unaddressed and meaningful devolution both of resources and accountability still appears far away. Important questions remain unanswered: how will devolution apply in two-tier counties where powers are divided between county councils and lower-tier districts? How will smaller regions without major cities address pervasive socio-economic inequalities? And what mechanisms exist to resolve conflicts between regional and local actors, and the centre?
For funding to focus on these different tiers of government, there is a need for a more comprehensive and consistent framework on the functions and remits of different layers of government, so that these institutions are able to work together, rather than continually jostling for funding, and in some cases for their ongoing existence. This is prime example of why the problems with the funding system need to be considered alongside the wider problems with the UK’s multi-level governance structures. There is an imperative to create a more decentralised and coherent system capable of ensuring longer-term stability.
February 2023