29 September 2017

How devolution can defeat poverty and unlock productivity

By Patrick Spencer

This weekend, the Conservative Party will convene in Manchester for their annual conference. Amid the humdrum of gossip and conjecture, conference remains a good opportunity to engage in a meaningful policy discussion and announce forward-thinking proposals for the new political year.

One area in dire need of attention is the devolution agenda, launched under the coalition but far from complete. Devolution has increasingly become a by-word for an alternative to government bureaucracy. Resentment for Whitehall and bureaucratic mismanagement is now embodied in a policy agenda that was beginning to gather significant pace during David Cameron’s premiership. Metro mayors, city deals, unitary authorities and Local Enterprise Partnerships were all promising ideas, conceived to place more power in the hands of local officials and businesses.

But more needs to be done. Devolving power to local authorities can both help local communities develop their own competitive advantage and also serve as a powerful tool in the government’s effort to tackle poverty.

In my Centre for Social Justice report on productivity I identified a huge regional divide between London and the rest of the UK. Average per head productivity in the north is less than half that of London. A worker in the north-west earns 75p for every £1 earned in London. While the Chancellor is rightly worried about the productivity gap between the UK and Germany, of equal concern is the growing gap between different parts of the country.

The more you dig into the data, the starker this regional inequity becomes. Fewer students in the north and midlands achieve an A* to C grade in their maths and English GCSEs (the basic level of academic attainment). Before costs associated with housing are taken into account, the child poverty rate is four percentage points higher in Yorkshire than it is in London. More than ten times as many private equity and venture capital investments are made in London compared to the north east, and combined investment in infrastructure across the north is roughly a third of the total invested in London.

The government could stop this divergence by allowing regions and local communities to establish a competitive advantage in the industries in which they are world beaters. The West Country would be able to continue building on its strength as a hub of high-value manufacturing. The aerospace industry would be able to thrive across the west midlands and up to Sheffield. The Cambridge based biotechnology industry would be able to capitalise on university funded research. This should be combined with funding powers for local government to build local infrastructure projects and attract major employers. US state governments spend billions in subsidies for multinational corporations to set up in their cities, why shouldn’t Manchester, Bristol or Glasgow be allowed to do the same?

Devolution isn’t just good for productivity growth, it can be good for poverty reduction too. The best solutions to social breakdown are local. US Empowerment Zones and French Enterprise Zones have wide-ranging powers to increase employment in poor communities and among long-term welfare recipients. A US programme designed to move families out of poor neighbourhoods found the earnings potential for affected children skyrocketed in the long run. Programmes to tackle obesity and over-eating were successfully administered at the city level in the Netherlands. Glasgow Police achieved huge success reducing gang related violence by establishing a dedicated unit led by local officers with local knowledge.

Glasgow, with high heroin addiction levels, is different to County Durham with above average unemployment rates, which is different from Birmingham where gun crime is a major problem. Devolving power, responsibility and autonomy to mayors, councillors and local officials will help them put in place policies that best fit with the needs of local residents.

As the Conservative Party descends on Manchester, it would be a perfect time for the party to rally around this policy agenda. The CSJ’s report makes several policy recommendations that will aid the devolution agenda, including allowing councils to set business rates, expanding and empowering Enterprise Zones, consolidating all regional growth funding silos into a single pot, and allowing LEPs more financial power to attract big employers. Enacted all together, these policies can tackle both and poverty sluggish productivity growth across the UK.

Patrick Spencer is Head of the Centre for Social Justice's Work and Welfare Unit and author of the report 'Productivity: The Great British Breakthrough'.