Devolution and local government: Empowering local authorities and addressing financial sustainability

Phillip Woolley
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The UK has a highly centralised political and administrative structure compared to the rest of Europe and the developed world. In recent years, many high-profile governance failures have highlighted over-centralisation as a primary contributor to under-performance and stasis in public service delivery and administration.

The UK also has one of the most regionally unequal economies globally. The local tax system, already under strain, is arguably no longer sustainable, and local authorities need greater power to set revenues locally. Devolution covers 48% of England’s population, 54% of its economic output, and 26% of the land area. However, while evident, decentralisation efforts have often been slow and inconsistent. 

Labour’s devolution plan

Devolution is central to Labour’s plans for economic growth and governance reform. The Labour Party’s manifesto, divided into five ‘missions,’ includes devolution of power as a sub-criterion under the first mission: Kickstart economic growth. Labour views greater decentralisation as a key driver of economic growth, intending to achieve this through: 

  • Introducing landmark devolution legislation: The Take Back Control Act aims to transfer power out of Westminster. 

  • Deepening existing devolution settlements: Combined Authorities will gain new powers, and devolution will be widened to more areas. 

  • Reviewing governance arrangements: This will unblock decision-making power and provide greater flexibility with integrated settlements. 

  • Introducing statutory local growth plans: Local leaders will work with major employers, universities, and industry bodies to produce long-term economic growth plans aligned with the national industrial strategy. 

  • Reverting to multi-year funding settlements: This will end wasteful competitive bidding, provide capacity and support to councils, and overhaul the local audit system. 

  • Using the National Industrial Strategy: This will drive growth in the devolved nations. 

Devolution prominently features Labour’s priorities, such as making Britain a clean energy superpower, partnering with local authorities to install clean power projects, and involving communities to ensure local benefit. The Warm Homes Plan will partner with combined authorities and local governments to roll out grants and low-interest loans for energy improvements. The ‘Serving the Country’ priority focuses on governance reform, including resetting relations with devolved governments, strengthening the Sewel Convention, and involving devolved governments in trade negotiations and structural funding decisions. 

A clearer framework for devolution: Take Back Control Act 

Labour intends to pass the landmark Take Back Control Act to establish new frameworks for local leaders to request, negotiate, and take on new powers over economic policymaking. This legislation will provide local authorities with guaranteed constitutional autonomy, ensuring that powers cannot be arbitrarily removed by central government.  

It will set out new powers for mayors over transport, skills, energy, and planning, aiming to rejuvenate high streets and generate growth for every town and city. Additionally, all combined authorities will be required to adopt Local Growth Plans. 

‘Turbocharging’ economic regions through local growth plans 

All combined authorities and counties with devolution deals will have a statutory obligation to develop 10-year Local Growth Plans.  

These plans will identify economic clusters and outline strategies to build on local advantages through devolved powers. Local leaders will collaborate with major employers, universities, colleges, and industry bodies to develop long-term plans that align with the national industrial strategy, focusing on place-based economic development. 

Widening devolution through new devolution deals 

Every part of the country without an existing deal will be encouraged to propose new deals based on sensible geographies. The ambition is to equip towns and cities to pursue growth, create jobs, and improve living standards. New powers over transport, adult education and skills, housing and planning, and employment support will be accessible. Labour commits to ensuring strong governance arrangements, capacity, and capability to deliver, with central support where needed. 

Fixing local government finance 

A critical aspect of successful devolution is addressing the financial sustainability of local governments. The current system of local government taxation is under significant strain and is increasingly unsustainable. Labour’s devolution strategy includes: 

  • Multi-year funding settlements: Moving away from competitive bidding will provide stability and predictability for local authorities. 

  • Local revenue-raising powers: Empowering local authorities to set and manage local taxes will enhance financial autonomy. 

  • Integrated funding streams: Aligning transport funding with wider funding streams to ensure efficient resource allocation. 

  • Resource allocation: Ensuring equitable distribution of funds to address regional disparities and support local economic development. 

Local government need the right funding and powers to make decisions and take action effectively. Central government must clarify the expected benefits and provide adequate support to ensure the success of devolution initiatives. 

Grant Thornton’s perspective 

The benefits of widening and deepening devolution to local government are substantial. Tailoring public service provision and resource allocation to local needs and priorities improves efficiency and value for money. Decentralisation can drive economic growth, promote efficiency, and enhance accountability. However, devolution must be accompanied by appropriate funding, governance structures, and accountability mechanisms for it to succeed. 

Labour’s proposed multi-year funding settlements and the end to competitive bidding will bring much-needed stability to local government finances. Combined Authorities will welcome changes to decision-making barriers, particularly in areas like housing. The Take Back Control Act will place devolution on a firm legislative footing, reducing vulnerability to shifting priorities in Westminster. 

Devolution must be tailored to local needs, requiring flexibility and collaboration between central and local governments. Success hinges on a well-defined local vision supported by comprehensive data and evidence-based decision-making. The challenges include the risk of fragmentation, loss of central government accountability, and the need for a balanced devolution of money and power. 

First 100 days priorities 

  • Expanding devolution: Prioritise expanding devolution to England’s remaining large urban areas such as Southampton and Stoke-on-Trent, and continue working to deliver county devolution outside of the metro areas - delivering those that are in train and bringing others forward 

  • Prime Minister-Metro Mayors Summit: Hold a summit within two months to signal that metro mayors are important strategic partners. 

  • Resetting relations with devolved governments: Travel to devolved capitals within the first weeks of office to signal a reset in the approach to devolved nations. 

By addressing these priorities, the new government can set the stage for successful devolution, drive economic growth, and improve public services across the UK.