Labour’s devolution revolution: Ambitious and risky but it makes a lot of sense

Despite the gloomy short-term economic outlook, there are signs that Labour’s growth-orientated reform engine is starting to crank up. The updated National Planning Policy Framework in now in place and the retitled Ministry for Housing, Communities and Local Government has unveiled its alternative to levelling up, with the publication of the devolution white paper, Power and Partnership, Foundations for Growth.

Keen readers might recall a column that I wrote on levelling up way back in 2022. I observed even then that the success of the policy hung in the balance.

Implementation failed when central government chose to level up through existing local government structures, micro-managing regeneration, for example, by using selective patronage and wasteful competitive bid processes. Ironically, levelling up highlighted just how centralised England has become.

Labour’s devolution vision is to redistribute power much more widely in order to realise local growth potential

The problems have not changed – but Labour’s policy prescription most certainly has. Labour’s devolution vision is to redistribute power much more widely in order to realise local growth potential.

The principle and preferred model of English devolution is well established, but the level of ambition for devolution is much greater and will be accompanied by a much wider and potentially much more consequential local government reorganisation.

Labour’s ambition is for universal coverage of England by strategic authorities (SAs) financed using a consistently applied funding model rather than ad hoc “deals”. Combined with the abolition of two-tier councils and planning reform, this adds up to a very big change indeed.

Although the range of devolved powers will vary, all SAs will have competences including integrated transport planning, skills, spatial planning and the management of energy transition investment. This is likely to involve a big shift of spending from the centre to the SA level.

The Greater Manchester Combined Authority, for example, was due to receive over £500m a year for capital spend under its original trailblazer deal. Their new settlement, due to be agreed in the comprehensive spending review, could see even more spending decisions delegated as an integrated, multi-year spending pot. The change could be transformational.

An expansion in the number of city region sustainable transport settlements, for example, could dramatically change the management and planning of local mobility investment – giving greater long-term certainty over spending and visibility of pipeline. Business rates retention could create a capital fund to support regeneration and smart procurement could enable SAs to facilitate spend through their local supply chain as well as adopting a programmatic approach to delivery.

As a prescription for addressing regional inequality and under-performance, the plans make a lot of sense

The proposals mean that existing mayoral combined authorities, including West Yorkshire, Liverpool City Region and Tees Valley, will get their integrated funding settlements and a wider range of devolved competences faster. For largely rural areas without an existing SA, the process to put a new foundation strategic authority in place will accelerate.

As a prescription for addressing regional inequality and under-performance, the plans make a lot of sense. Decisions will be taken locally based on a better understanding of the local economy and geography. However, new SAs, initially with limited powers, will need to be built from the ground up. This won’t be an easy process, even if reorganisation frees up plenty of central and local government talent.

The new organisations will need to be able to manage cross-regional tensions associated with the distribution of funding or the strategic allocation of housing. They will need to acquire strategic capabilities for activities previously undertaken nationally like managing complex funding programmes. Above all, SAs will need to quickly build their democratic mandate to make the difficult trade-offs needed to drive regional growth and to allocate a single funding pot.

For the foundation SAs in particular, the gestation process could be really challenging. Labour has the ambition to form new bodies serving a population of 1.5 million people. That is OK for the densely populated counties located on the periphery of London but could result in some awkwardly assembled SAs elsewhere across more rural counties.

Devolution will also take place alongside the abolition of district councils which will have a profound impact of the management of planning and local services. Ironically given the ambition for devolved power, ministers will have the power to direct the formation of SAs from the centre if there is no local agreement.

So, why do I think that these developments are positive, when they are likely to involve so much disruptive change? Firstly, the single-pot funding model will eliminate a great deal of waste associated with funding rounds, should create scale and will concentrate local minds on regeneration investments that really make a difference.

A strategic planning capability is absolutely necessary to facilitate the next generation of local plans to deliver ambitious housing targets

Secondly, SAs at all scales will have the potential for rationalising procurement – using the certainty of long-term spending allocations to build strategic relationships with their supply chain for programmes such as low-energy retrofit. My third reason is that the proposals are the missing link in Labour’s planning reforms.

A strategic planning capability is absolutely necessary to facilitate the next generation of local plans to deliver ambitious housing targets. However, none of these gains are given and all will be as a result of effective discretionary management. No pressure, then…

With local government in crisis, Labour’s devolution plan is ambitious and risky – placing an extra burden of responsibility on a sector that has long been starved of cash and resources. There is a lot of detail to work through in the proposals and, crucially, a local mandate to be secured by new SAs.

Devolution has clearly been a success in city regions. As part of the next phase, getting the funding and spending model right will help to position local government spend as a cornerstone of the construction economy.

Simon Rawlinson is a partner at Arcadis