Why Andy Burnham’s devolution pledge will be tricky to deliver

The UK's Centralized Fiscal Landscape

The United Kingdom stands out among developed nations for its extreme fiscal centralization, with an estimated 95% of tax revenue flowing directly to Whitehall rather than remaining with local authorities. This contrasts sharply with countries like France and Japan, where significantly larger portions of tax revenue are retained locally. Historically, British devolution has been a piecemeal and often ineffective process, characterized by Westminster's firm grip on power and a 'begging-bowl culture' fostered by numerous ringfenced central government funding pots.

Andy Burnham's proposal to allow regional mayors to retain a share of locally generated income tax represents a fundamental shift from this model. Economists largely support the principle, viewing it as a crucial step towards addressing Britain's persistent regional inequalities. The Institute for Fiscal Studies suggests that retaining 6% to 9% of local income tax revenues could replace existing central government grants, providing a more stable and locally responsive funding stream for economic development initiatives.

Hurdles to Local Empowerment

Despite the theoretical benefits, the practical implementation of Burnham's devolution agenda faces substantial obstacles. A primary concern is the potential to exacerbate existing regional disparities; wealthier, faster-growing mayoral authorities like London and Greater Manchester are better positioned to benefit from retaining income tax, while slower-growing regions such as the West Midlands and South Yorkshire could fall further behind. This creates a risk of a self-fulfilling cycle of weak growth in less prosperous areas, limiting their investment capacity and perpetuating economic stagnation.

Furthermore, the capacity of local government across England has been severely eroded by years of austerity. The local government workforce has halved since 2009, leaving many councils lacking the staff and expertise to effectively manage new powers and funding. While some trailblazing authorities have developed sophisticated teams, the Organisation for Economic Co-operation and Development (OECD) warns that many others have limited technical expertise, increasing the risk of poor spending decisions. The article highlights recent financial mismanagement in places like Tees Valley and Birmingham as serious red flags, compounded by a broken local audit system that has seen only 1% of councils publish audited accounts on time.

The Promise of True Devolution

If successfully navigated, Burnham's devolution plans hold the potential for transformative economic benefits. Empowering local leaders, who are best placed to understand their area's specific needs and opportunities, could unlock significant productivity gains. For instance, the Centre for Cities estimates that integrating public transport networks in England's six largest cities outside London could connect 1.2 million more people to city centers, generating an estimated £17 billion in productivity. The OECD, while acknowledging the challenging starting point, has endorsed the devolution agenda, recognizing its potential to foster more dynamic and equitable regional economies.

However, realizing this potential requires significant foundational work. Repairing the damage from austerity, rebuilding local government capacity, and strengthening the local audit system are vital building blocks. The reforms are also a long-term project, with the income tax plan not fully effective until 2028 and dozens of new mayoralties still being established. The success of this ambitious agenda hinges on careful implementation, robust oversight, and a sustained commitment to empowering local communities to drive their own economic futures.