Ed Balls and Dan Turner on the long shadow cast by political centralisation

FIFTY YEARS ago the world economy reeled from a quadrupling of oil prices and the collapse of the Bretton Woods system of fixed exchange rates. The United Kingdom’s response to the turmoil of the 1970s stood out from those of other developed countries in two ways.

The embrace of free markets, high interest rates and a soaring exchange rate by Margaret Thatcher’s Conservative government meant that large parts of the UK outside London deindustrialised at the fastest rate in western Europe. A paper we co-wrote with Anna Stansbury of the Massachusetts Institute of Technology and published earlier this year found that only the experience of eastern Europe during its post-communist transition is comparable to the economic shift that gripped Britain’s regions in the 1980s.

The counterpart to the rapid decline of the north and Midlands of England, Scotland and Wales was the ascent of London and the south-east. Already Europe’s front-runner in knowledge-intensive services in the late 1970s, that corner of Britain was one of the best-placed in the world to take off. As a result, regional economic inequality has grown faster in the UK since then than in any other large member of the OECD club of rich and middle-income countries. The gap between London and the south-east and the rest of the country is now greater than that between western and eastern Germany or the north and south of Italy.

But there is a second, less well known part to the UK’s story. As the central state withdrew from its role guiding the economy, it moved to centralise its role in British politics. Unlike in most other countries, economic decentralisation was not married to political decentralisation.

Ronald Reagan, America’s president in the 1980s, moved power from Washington, DC to the state capitols. His French counterpart, François Mitterrand, did the same from Paris to the regions. In Britain, by contrast, Thatcher abolished the metropolitan governments that could provide a base for her rivals on the left and sharply scaled back spending on regional policy.

This centralisation of governance in the 1980s has left British policymakers struggling to find either the political energy or the policy levers to counter this rising regional inequality. Politics over the past decade has responded: with a rise in separatism in the non-English nations, and a “geography of discontent”—places facing relative economic decline—large enough to swing the referendum on EU membership in 2016.

Drawing on close to a hundred interviews, including with three former prime ministers and six former chancellors of the exchequer, our new paper, “Why hasn’t UK regional policy worked?”, identifies a broad consensus on how the country has found itself in its current mess.

The centralising politics of the 1980s cast a long shadow. Local government was left hollowed out and struggling for legitimacy with delivery-focused New Labour governments, too. National spending on transport and innovation remained skewed to “safer bets” in the south-east.

With Whitehall lacking the confidence to release money and powers to the English regions, we instead saw a succession of short-lived regional initiatives, each uprooted before it had time to bed in: development corporations in the 1990s; Regional Development Agencies in the 2000s; Local Economic Partnerships in the 2010s. All the policymakers we spoke to lamented this policy churn and lack of consistency.

Sustained backing from senior politicians and cross-party support are essential to creating lasting reform. They helped ensure that the national minimum wage, Bank of England independence and increased funding for the National Health Service have all moved from being hotly contested to being subjects of broad political consensus in recent decades.

Both ingredients have been absent when it comes to regional policy. Since 1979, when Thatcher took office, prime ministers and their chancellors have never been fully unified in their view of what is needed to support England’s regions and empower the UK’s other nations. Instead, “levelling up” has too often reverted to centrally administered pots of cash, allocated by national civil servants, and responding to party-political need rather than economic necessity.

The good news is that this may be changing. Since the late 2000s, starting under Labour and accelerated by the Conservatives, a new approach to reform has quietly transformed English regional government: dealmaking between coalitions of local governments and central government, driving local reform by decentralising spending and and power. Powerful “metro mayors” in Greater Manchester and the West Midlands now command the same credibility as the devolved governments in Cardiff and Edinburgh, having built up their power bases incrementally and by consensus.

Difficult decisions remain on spending and taxation, as well as on mandating reform where local politics cannot deliver. Devolution in the UK—an unusually densely populated country with wide income disparities between places—is necessarily difficult. Shifting tax-raising to local government risks entrenching inequality. But our interviewees are cautiously optimistic that the country may have stumbled upon a formula that works: high-status political jobs in the English regions and non-English nations, finally creating the conditions for a virtuous circle of decentralisation.

As political parties gear up for a general election, they should heed the conclusion of the leaders we spoke to across all major parties: now is the time for political bravery, to broker a cross-party, long-term consensus on the future of the nations and regions of the UK. This will mean taking risks and experimenting in different ways of governing the country. But failing to change would mean carrying on with the dismal record of the past 50 years. Britain can do better than that.■

Ed Balls is a former British cabinet minister. Dan Turner is policy adviser to the South Yorkshire Mayor. The papers and interviews referenced in this article can be found here.

This article is part of a series on the British political system, examining the forces shaping the country’s future. Read our guest commentaries on the political constitution and House of Lords reform.