Devolution to the counties: Too important to ignore

The growing list of problems at the government’s door has prompted comparisons with the 1970s. At the time, journalists and academics asked if Britain had become “ungovernable.” There are similarities; two overstretched governments, lurching from one crisis to the next, pulling levers that no longer work more out of habit than ideological conviction.

Central government finds itself overextended by Brexit, while unable to sustain our social and economic model with the shrinking resources available. While some would have us revisit the market shock therapy of the 1980s, there is a more palatable alternative—in the form of local government.

In the city-regions, a powerful cadre of Metro-mayors are ready to remake their local economies. The two-tier local government—the hangover of clumsy reforms in 1974—has been almost entirely abandoned, and deals to devolve powers and budgets signed.

In the counties, however, it is a different story. Two-tier local government persists, with both county councils and district councils nominally in charge. Partly as a result, devolution has stalled. This imbalance is now becoming a serious problem. In our recent report “Devo 2.0: The Case for Counties,” we argue that the devolution agenda must be extended, by embracing reform of local government at County level.

As things stand, devolution deals must contend with 5-12 lower-tier district councils, as well as the upper-tier county council. Each body seeks to maximise spending power and minimise political liability. Every local stakeholder needs to be kept on board throughout the negotiations with central government—but the uncertainty is often not worth the risk, and agreement on any devolution deal becomes impossible.

This state of affairs is unsustainable in the long-term. Political power for some parts of England, but not others, is liable to lead to political favouritism and resource inequality. If the government is serious about local industrial strategy, it needs a local state which can develop the entrepreneurialism required. Businesses need a partner who can make credible promises and deliver on them.

The two-tier system is also failing in its fundamental responsibilities, and nowhere more so than in housing. To give an example, county councils must provide free home-to-school transport for all eligible children who live further than walking distance, at a cost of around £1,500 per head per annum. Their incentive is therefore to ensure new homes are built close to existing schools. But it is the district councils who decide on planning permission, meaning those who drive cost have no responsibility for picking up the tab, with predictable effects.

What would a better structure look like? One requirement should be removing these split incentives—to have unitary local government, so that investments are captured as savings later on.

The second requirement should be for local government to be at a relatively large scale. Work by the OECD found that for every doubling of the number of local governments for a given area, productivity drops by 6 per cent. These findings apply to the English counties. Larger councils also benefit organisationally from having the capacity to respond and adapt, being able to pay senior staff more, and develop larger and stronger core policy teams. Commercially, more buying power means more leverage in the market.

Governments tend to shy away from centrally-imposed local government change because of its potential for short-term stink and only long-term payoff for the regions involved. So to deliver the change needed, the Department for Communities and Local Government should provide incentives. That means making good on the promise to publish a common devolution framework. Councils which reformed themselves would be guaranteed to receive the relevant devolved powers—removing current uncertainty.

Local government reform can seem at times an inward-looking preoccupation. But the issues at stake are those at the top of the political agenda since the Brexit vote—regional inequality, inclusive growth, and the “left-behind.” County reform and devolution might not be a glamorous solution. But institutions and incentives matter, and that’s why it might just work.