Inside Devolution: What does it mean and will it happen?

Under the Conservatives devolution has had many faces.

From George Osborne we had the “Northern Powerhouse”, a project that has delivered great results for Greater Manchester, but never quite reached its full potential, and one that has seen the former chancellor still champion more than eight years later.

Under Boris Johnson we next had “Levelling Up” , a promise from the then-prime minister that still has question marks over its future and the commitment of anyone who isn’t Michael Gove, one of its main cheerleaders in government.

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The crucial test of how seriously the Conservatives still take devolution will be seen in the coming weeks with the “trailblazer” devolution deals of Greater Manchester and the West Midlands, most likely to be announced after next month’s budget.

There remains some scepticism within those involved in devolution over whether Rishi Sunak is committed to the process.There remains some scepticism within those involved in devolution over whether Rishi Sunak is committed to the process.
There remains some scepticism within those involved in devolution over whether Rishi Sunak is committed to the process.

This enhanced set of powers are set to be the blueprint for regions and their mayors in the UK, such as those in God’s Own County.

What will be in these deals?

Last summer’s “Give Back Control” report by the Onward think tank is a clear and exciting blueprint for fans of devolution.

Edited by Will Tanner, now deputy chief of staff to Rishi Sunak, with a forward from Michael Gove, later brought back as Levelling Up Secretary by the now-Prime Minister, and endorsed by George Osborne and the devolved mayors, there is a pretty strong case for saying this manifesto carries weight at the top of the Tory party.

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Key among the proposals is fiscal devolution. Essentially this is a shake-up of the local funding model and tax system which would mean areas have more control over taxes that are currently sent to and dictated by the Treasury.

This would see money raised in local areas, retained and reinvested by mayors, rather than sent back to Whitehall and then dished out in a series of pots or funds with various degrees of bureaucracy.

First we have the proposal of single settlements for devolved regions. This would see a shift from the focus on bidding for cash, to something approaching a Scotland-style devolution deal where the region gets a chunk of money with much fewer spending restrictions on what they can do with it.

Currently the “single pot” settlement for both regions mainly covers an investment fund, a transport grant and an adult education budget, with Greater Manchester also seeing a flexible element of a “local growth fund”.

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Any upgrade on this would see fewer restrictions on what mayors can spend their money on, moving towards greater trust and less oversight from the Whitehall machine.

Having greater control over skills, beyond that of adult training, is one of the most likely elements to be signed off, with powers to shape technical education and retraining key to regions shaping the workforce than local industry demands.

This single pot is the preferred choice of Andy Burnham, whose Greater Manchester Authority have asked for a flexible settlement in the next spending review, likely to be 2024 onwards.

The West Midlands also see this as a good outcome, but Andy Street, the region’s mayor, is also pushing for more, with greater control over taxation.

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The report by Onward, written by Andy Street’s former head of policy, Adam Hawksbee, calls for near-full business rates control, taxes on things such as pubs, factories and high street shops.

Mayors currently run pilot schemes which see them keep 100 per cent of business rate returns, rather than handing a cut back to the Treasury, worth between £10-15 million a year for mayors.

Making these pilots permanent and allowing mayors to adjust rates for different industries, such as local manufacturing that needs incentives to grow and reinvest are under consideration by the Treasury and are among the most likely tax powers to be devolved.

Michael Gove has previously made clear that he wants to see mayors given these powers.

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New taxes, two words that will make any Conservative MP instantly wet the bed, are also under consideration, but there is some scepticism to their effectiveness.

The political implications of “Tories: Putting Up Your Taxes” here leaflets dotted around during May’s local elections, naturally will play on Downing Street’s mind when weighing up whether to devolve such powers.

Beyond these ideas, one of the most radical proposals is to give mayors power to keep and reinvest 1p on the base rate of income tax, in exchange for less money dolled out from the Treasury.

Onward argues this could see £6 billion a year given to mayors, almost double the amount of the two rounds of the Levelling Up fund.

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This would be potentially the most revolutionary and welcome change in how devolution is done in this country, but this is unlikely to happen, at the very least in this budget.

Similarly, Andy Street has called for portions of VAT and corporation tax to be retained locally, another opening-up of the tax system which Treasury officials are likely to be reluctant to do.

Who could block these changes?

A problem remains that we are in a different financial situation to eight months ago, with the Treasury tasked with one central task: bringing down inflation.

Anything which sees less money coming into the Exchequer, be it tax cuts, extension of tax-relief such as the Super-deduction, or giving away a share of income tax to devolved regions are not high on the priority list.

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Those in the department are keenly aware of what tax cuts, or ceding tax control does if managed incorrectly, as they saw under Kwasi Kwarteng and Liz Truss.

Where Liz Truss may be somewhat correct is that there does remain an orthodoxy within Whitehall, and most specifically the Treasury, and that orthodoxy is opposed to devolving financial powers.

Many people are of the view that if the “Whitehall machine” of London-based civil servants, many of whom are still in post since the days of Blair, wanted to level-up the UK, or spread wealth and investment more equally, then that would have happened over the last 25 years, rather than seeing power slide inexorably towards the centre.

More recently we saw Michael Gove’s department banned from making spending decisions on new capital projects without permission from the Treasury, after Mr Gove announced £30 million to fund improvements to substandard housing.

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It may be surprising to find that although Michael Gove and Jeremy Hunt, two of the most senior ministers in the Government, are thought to be “fiscal devolution believers”, it is not guaranteed to actually happen.

Gove recently turned down a move to the Government’s new Innovation Department to remain at DHLUC, with levelling up and devolution seen as his legacy project which is unlikely to be significantly scaled back by any incoming Labour government.

Those around Hunt in the Treasury remain more opposed, and the Treasury’s best disciple of fiscal conservatism is arguably Rishi Sunak, the man who can make these proposals happen.

Understandably there are concerns about handing power away from Westminster.

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Those at the top of government are aware that there needs to be limitations in place to make sure that powers devolved to a Labour mayor in Manchester don’t see him take the credit when it goes well, and blame the Tories when it goes wrong.

This is set to be achieved through accountability from the newly-set up “Office for Local Government” which will scrutinise mayors and councils, along with an upcoming Devolution Accountability Framework that is set to be laid out soon.

What next for Yorkshire?

Once these trailblazer deals have been agreed, and further accountability established, then comes the turn of other regions, such as those in Yorkshire with a combined authority.

Local leaders in South Yorkshire see the region as one of the most viable for enhanced powers to be handed over, with its Advanced Manufacturing Park outside Rotherham, Olympic Legacy Park and numerous universities.

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Given Sheffield was chosen as one of 20 “regeneration zones” proposed by Michael Gove before they were scrapped and then rolled into the “investment zones” programme, it would not be surprising if South Yorkshire is chosen for the project, which will only make it more attractive for enhanced powers from Westminster.

The political capital to be gained from devolution is high, and further deals could well be announced before the next election.

Will it actually happen?

Sceptics in government do have concerns about the endpoint of the devolution project, lasting change that will likely outlive the Conservatives in office, but how profoundly so is up to them.

The question is whether Rishi Sunak is persuaded by the voices around him and feels he has the political headroom to go for something bold and radical in devolution.

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For many the jury is still out on whether Suank truly believes in levelling up and devolution as a project.

With the Tories going nowhere in the polls, and a budget looking set to be less than groundbreaking, the local elections could see a relative bloodbath that means “bold and radical” may end up looking more appealing to voters than managed decline.

There are only so many times the Government can feel the best policy they can do is: “The Government has announced today that it is getting on with the business of government to deliver on the priorities of the British people”.

With the next election set to happen in roughly 18 months time, and the trailblazers deals looking unlikely to make it into next month’s budget, there is a crucial window for devolution to be embraced, but time is running out for voters to see the benefits and sway their minds at the ballot box.

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For some, the budget provides the only chance to do something radical on fiscal devolution. If Downing Street sees it as a priority, then we could well see it appear, otherwise, it casts further doubt on whether Rishi Sunak’s heart is truly in it.