Here’s how to power up local government: put a Treasury in every region
Establishing Treasury-like agencies at the regional level would be a platform for genuine devolution and a more equal relationship between central and local government
England has three main modes of local and regional government. I am not talking about levels of authority or jurisdictional boundaries, although the modes do align with geography to some extent. I mean instead the dominant features of governance: the kind of problems institutions focus on, and the norms of policy practice that arise as a result. The third is probably not what you think, and in this post, I argue that we need both more and less of it.
Public services versus economic development
The first mode is public services delivery, grappling with the classic dilemma of maintaining volume and standards within restricted budgets, while private sector partners fail to produce promised benefits.
The second mode is supporting economic development, using targeted public funds and planning powers in the hope of ‘unlocking’ private sector investment and job creation at the micro level. From well-funded regional development agencies sitting alongside local authorities, and then local enterprise partnerships with fewer resources but more policy authority, to city-regional mayoral bodies that institutionalise ‘boosterism’ but remain an awkward presence in most places (and often have limited mandates due to low turnout), this mode has become a bigger part of the local government landscape.
Some places are getting more powers related to the first mode too. The combined and mayoral authority model has facilitated the devolution of some (poorly funded) NHS services, and a partial reclamation of public transport provision from the failing private sector/central government constellation.
I used to think that it was a problematic that the second mode seemed to be competing with first for the soul of local government, partly because the first is being starved of resources (to the point of widespread local authority insolvencies), and partly because the second is associated with new forms of central government conditionality. I tend to share Jack Shaw and Patrick Diamond’s concern about reorganising local government around the objective of delivering local economic growth, not least because aligning sub-national governance with large ‘functional economic areas’ detracts the vital ‘place-making’ role of local authorities.
Generally speaking, however, I’ve changed my mind: local government should be responsible for both public services and economic development, because government should, well, govern.
And the local or regional level is often the most spatially appropriate level for these functions to operate. The problem is not that they co-exist, but rather that they co-exist very messily, under austere conditions, as different actors with competing authority and inadequate powers jostle for prominence across both modes with little incentive to manage trade-offs and develop synergies. And that’s because there’s another mode in the mix.
The third mode
The third mode of local and regional government in England is a familiar one, because it is the same one that dominates governance at the national level. The UK’s Treasury-centred constitution means the country’s economic and finance ministry exercises just as much authority over how localities are governed as it does over the Whitehall machinery in central government, cutting across the first and second mode with inexplicable swagger.
In recent years, it has taken an axe to local government budgets with little attempt to understand the consequences. It has been instrumental in the recentralisation (and marketisation) of public services such as secondary education, maintains authority over the minutiae of infrastructure spending in all areas, and micro-manages local authority budget allocations.
Similarly, the Treasury remains the key player in the design and oversight of the city-regional combined and mayoral authority models. It has done so to facilitate its favoured approach to funding local economic development – local government bodies competing for discrete pots of funding – while restricting efforts by junior Whitehall departments to support local industrial strategies.
The good, the bad, and the very bad
Treasury-centred governance has advantages. The department is an effective co-ordinator and standard-setter across Whitehall. It ensures that economic growth is prioritised within policy decisions. Its staff are very good at what they do.
There are serious disadvantages too. The Treasury is almost relentlessly focused on the short term at the expense of supporting a coherent economic strategy, not least because it is organised around delivering budget wheezes biannually. The department’s decision-making is opaque, with officials rarely engaging with stakeholders.
And it has a chronic lack of expertise in many of the policy areas where it acts as supervisor. The flipside of having staff who are very good at being Treasury officials is that they are often not very good at anything else. I wince every time I hear that another local or mayoral authority has taken on a Treasury secondee in the mistaken belief this will improve their governing capacity. Policy work at the local level is a different beast, yet status-hungry local leaders often appreciate this the least.
The insistence on – but impossibility of – micro-management from Horse Guards Parade has another consequence. Financial mismanagement in local government is not an aberration of Treasury control, but instead enabled by an over-centralised model whereby the department allocates funds to mayors who play the Treasury’s game to win money pots, but then escape effective scrutiny in how they are managed.
This risks what Labour MP Andy McDonald described as ‘industrial-scale corruption’ in the case of the Teesworks freeport scheme (although note that an independent commission – albeit appointed by Michael Gove, ally of Teesside mayor Ben Houchen – concluded there was very poor financial management but no evidence of criminality). Jennifer Williams of the Financial Times has pursued the Teesside story doggedly, but with UK journalism no less London-centric than politics, most scandals never come to light.
Devo-what?
What do we want? Devolution! When do we want it? Several centuries ago! For many critics of centralisation, the solution is obvious: devolve more policy powers to local and regional government. Any old powers will do. Rewrite the constitution. Pre-austerity funding levels must of course also be restored.
I do not disagree with this perspective. But it’s not as simple as it sounds. Local government structures are designed around the existing array of responsibilities, and capacity to take on a great deal more cannot be assumed. That’s why even Labour metro-mayors in most areas have embraced dead-end ideas like investment zones, which involve local authorities relinquishing powers in the hope of persuading large corporations to relocate some operations to their region.
Furthermore, demanding more money alongside more powers leads inevitably to questions around fiscal devolution that we simply are not ready for. The notion that the London economy subsidises the rest of England is nonsense – London’s prosperity is a product of a national growth model in which provincial economies play a vital role – but is harder to argue against when local authorities are given greater powers to develop their own economic strategies.
Devolution advocates get this, obviously: hence the proposal to restore budgets rather than, say, localise corporation tax. But it means that the decentralisation agenda rests upon the continuing centralisation of fiscal policy. There can be no devolution blueprint; it needs to advance by confronting pragmatically the real-world political and economic structures it seeks also to disrupt.
The five great challenges the next government will face – adapting industry to decarbonisation, increasing productivity, rebuilding public services, fixing a dysfunctional housing market, and forging a new settlement with the EU – will only be met successfully through action at the national level. Local and regional government can be a partner in devising and delivering national plans, but many areas will sometimes have to accept the subservience of their residents’ immediate interests to those of the population as whole.
As such, every now and then, there is a backlash against the notion that devolution should be a centre-left ambition. A recent polemic in Progressive Review, for example, argued that devolution is a threat to the welfare state. The problem for this perspective is that the status quo is obviously not an option: you have to be wilfully blind not to see the political and ideological barriers to progressive statecraft that exist within the current configuration of the British state.
Too much Treasury, not enough Treasuryness?
There are three main reasons the Treasury adopts the manner of disapproving parent regarding local government. First, it believes it has a monopoly of expertise on economic growth. Second, it has a constitutional responsibility to protect the public finances, leading to all proposals for new spending to be subject to value-for-money tests that are too narrowly drawn.
Local government is seen as a problematic variable in both domains – but I would argue this is circumstantial rather than inherent. The problem, really, is the third reason: the Treasury is just too far from local government, both geographically and institutionally.
If this factor can be mitigated, I think the first two would be softened too. The Treasury needn’t agree in full with how local governments seek to grow local economies to recognise that this aim is being prioritised, and it can recognise the credibility of value-for-money assessments upheld in other parts of government.
Neither of these shifts entail the Treasury moving quietly aside, because that is never going to happen. They involve the Treasury getting closer to local government. I’m not talking about moving a few workstreams to Darlington, which has been a pointless distraction. I’m talking about a more regularised form of interaction between the Treasury and local government, facilitated by the creation of Treasury-like agencies in every area.
This does not have to mean an expansion of the existing Treasury’s workforce and geographical footprint, like a rebooted Government Offices for the Regions (abolished by the coalition government in 2011). It would ideally be a bottom-up process anyway, with local government creating functions that the Treasury can recognise as representing an essential Treasuryness in every area, facilitating a mutually beneficial form of co-operation and a platform for genuine devolution – potentially including additional tax and borrowing powers – that is more likely to align with the Treasury’s abiding objectives. (The Institute for Government’s proposal for Devolved Public Accounts Committees — holding mayors to account in the same way the Treasury is held to account by the national Public Accounts Committee — would help too.)
There is a very practical dimension to my proposal. It seems likely that a Labour government will accept Gordon Brown’s recommendation that the various central government funding pots should be consolidated into block grants for regions, allowing local leaders to match money to priorities. But the complexity of funding streams is a product, at least in part, of the complexification of local and regional governance processes. Block grants need a place to land.
An open marriage
I have always been sceptical that the Treasury needs to be broken up: ‘Treasury says no’ is too often a convenient excuse for policy failure in other parts of government. We do not need to take away the Treasury’s ability to supervise other departments from both an economic and fiscal perspective: the same mode of governance would still exist, even if more dispersed across Whitehall. There is clearly value in questions of economic performance and public finances sustainability being assessed alongside each other (although I agree with Patrick Dunleavy that the Treasury does not currently do this very well).
There is a close-to-zero likelihood of a break-up happening anyway. What we need to do is make sure the Treasury has the correct approach to its supervisory functions. Political leadership is the main driver of this – the notion that Treasury mandarins routinely over-rule powerful ministers like the Chancellor of the Exchequer or Chief Secretary is a bit of a myth.
But institutional arrangements do matter. The far more radical transformation in this regard would be for the marriage of economic and fiscal policy to remain within a single institutional architecture, but for local and regional government to formally contribute to how these powers are exercised.
Top-down accountability processes are not going anywhere, but a decentralised Treasury network can strengthen bottom-up accountability too, inching England towards federalisation.
My main concern here of course is ensuring that local government becomes more effective as part of the journey to greater devolution. All the raw ingredients are already present. Recreating the Treasury at the sub-national level would be an opportunity for the best policy staff to develop their careers, and play vital co-ordinating roles, rather than languishing in under-powered corporate policy teams, or the silos created by generations of policy churn.
If the idea jolts, it shouldn’t. It has been a key element of Scottish devolution. And it is the system that has sprung up in Greater Manchester as it pioneers budgetary and fiscal devolution within England, with the combined authority playing a Treasury-like role across the region’s local authorities, under a de facto partnership arrangement between the directly elected mayor and Manchester City Council.
The point is not simply to reassure the Treasury so that other areas can match Greater Manchester’s pace. The nature of the centre/local relationship can move beyond one of superior and subservient, once credible and effective governance processes are established. Ideas such as universal basic infrastructure and universal basic services, for instance, articulate frameworks by which the centre ensures each area has the resources and powers to deliver specific priorities that are determined locally. A network of Treasury-like bodies across each region would be the ideal institutional environment for these frameworks to operate within.
This is not a panacea, rather a pragmatic approach to the urgent task of constitutional renewal. There would be contestation over how to institute local Treasury agencies due to the disorderly nature of local government structures. But the mess isn’t going to clean itself – this can be part of the antidote, facilitating co-operation within areas as well as a more collaborative relationship between centre and local.
A shorter version of this post was originally published by the Bennett Institute for Public Policy at the University of Cambridge