Unbalanced Britain needs more devolution to manage Brexit

Throughout the 1980s, a war raged between Westminster and the rest of the country that has had lasting effects. Fearing councils under the control of Michael Foot’s Labour opposition, Margaret Thatcher stripped power from town halls in a sweeping political land grab that still marks Britain today.

During the 1970s and much of the 1980s, London’s economy had more in common with the rest of the country than today, and even grew at a slower pace than many other regions. But the big bang deregulation of financial services in 1986 under Nigel Lawson, then chancellor, helped London’s economy to boom — aided by fat profits from investment banks in the City. At the same time, the north’s industrial base came under attack from Thatcher’s reforms, leading the country’s manufacturing’s share of national income to fall from a quarter to just over a 10th today.

These two points might sound like ancient history. But they give clues useful for helping to explain the current unbalanced economic picture in Britain, and can be counted among the myriad triggers for the Brexit vote.

It’s little coincidence some of the biggest leave votes came from the former industrial heartlands of the north. Power has been sucked from these places, both political and economic.

In its latest health check on the UK economy, issued last week, the International Monetary Fund issued a warning that political power is more heavily centralised in Britain than many of its major economic rivals. It reckoned this as one of the reasons why some parts of Britain are economically weaker than London and the south-east.

After some progress in recent years with the creation of directly-elected mayors in places like the West Midlands and Merseyside, and projects like the Northern Powerhouse, the IMF suggested going further. In the fund’s typically overwrought language: “Continued decentralisation of governance arrangements could improve the responsiveness of policy to local economic conditions.”

Nowhere are the economic imbalances clearer than in the woeful productivity figures for many regions. Fresh data last weak revealed some parts of the country such as Wales and the north lag well behind London. They have more in common with parts of eastern Europe than the developed west when it comes to economic output per hour of work, which is key for boosting overall economic growth and rising pay.

Workers in Blackpool need to toil for a full working week on average to produce the same economic output their peers in London achieve by Wednesday afternoon. An analysis by the EU found the UK had the widest level of regional disparity across the 28-nation bloc. GDP per capita in west London was 8.6 times as high as in west Wales and the valleys.

All 21 cities and towns in the Northern Powerhouse region are below the European urban productivity average, while all but two — Leeds and Warrington — are among the bottom quarter of least productive places on the continent. Slow trains akin to buses on rails built to last no more than 20 years during the 1980s still chug their way between these places. No wonder productivity — which can be boosted by better transport links — is so poor.

Not without a hint of schadenfreude have some remainers been quick to point to the dire economic consequences for the leave-voting heartlands of the north-east, Cornwall, Wales and the Midlands. The loss of EU funding and greater trade barriers for car factories at Sunderland or Elsmere Port would hit those people harder than the so-called metropolitan elite, insulated and safe in London’s warm embrace. The government’s own secret economic analysis leaked to the press last month confirmed those fears.

But rather than criticising parts of the country for a collective cutting off of the nose to spite the face, a blueprint to fix the underlying issues would be more useful. The IMF’s idea of more devolution, not less — taking action to boost regional productivity to rebalance Britain — is a good start.

One of the best ways this could be achieved is through the devolution of the money promised by the Conservatives to replace European funding after Brexit, worth roughly €10.5bn (£9.3bn). The IMF pointed out that relatively low-income regions would be exposed to a loss of funding from these EU structural funds more than most.

Theresa May has promised a “shared prosperity fund” as a replacement, but details are scarce. The Local Government Association, which represents 370 councils in England and Wales, is becoming increasingly concerned about the lack of clarity about how Westminster plans to replace this money.

Meanwhile, among the rivalries erupting in the warring Conservative cabinet, there are tussles between departments about how the fund will be used. Vital questions need to be answered: how much of the money and how much control might local authorities get? Will regional mayors have a say? Some are prominent Labour party figures, such as Greater Manchester’s Andy Burnham, so the outcome is far from guaranteed.

Getting Brexit right will be hugely important for shaping the UK economy, but the bigger issue for the long run will be boosting productivity. With so much at stake for the regions of Britain, more devolution can help to fix this problem. Greater political division would be the consequence of failing to act.

As the government considers how best to take back control from Brussels, the best option wouldn’t be to hoard it in Westminster — but to give it away.