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London knows best: How the dead hand of Whitehall strangled Britain
‘The centre has not delivered' admits Labour, while The Economist calls for the government to 'Free the North'. But does anyone have the courage to end the capital's disastrous hoarding of power?
By Joshi Herrmann
David Higham was born and brought up in Bolton, leaving school in 1969 to study PPE at Oxford. By the time he left to go to university, most of Bolton’s textile mills had closed or been repurposed as hubs for the mail order business, and local slum clearance left large stretches of urban wasteland.
His was an upwardly mobile family from working class roots, typical of the post-war period, but he remembers his father being made redundant twice and his uncle and cousin moving to Slough in search of work. “It was difficult to grow up in Bolton in the 1950s and 1960s without being aware that the North West was an area that had seen better days,” he told me.
Higham is the kind of guy who remembers the exact names of government white papers he worked on in the 1980s; the kind of guy who would do an Oxford PhD on the 1967 devaluation of sterling; the kind who can authentically claim to have cared about the economics of regional inequality since he was a teenager. He remembers a master at school giving a talk that cast London as a vampire, sucking the blood out of the rest of the country. That made an impression on him.
When he became an academic economist, the jobs were mostly in the South. When he joined the government as a civil servant in the Department of Trade and Industry, the role was in London, an accommodation with the vampire accepted by him – and generations of graduate northerners — as a fait accompli handed down by the gods of economic geography. If you grow up in the most centralised developed economy on earth, don’t be surprised if the job you want is in the political centre.
“The only way you are going to make a change is if you rewire the economy and the governance structure of England,” he told me when we discussed that centralisation on the phone this week. He believes that until we have strong local, well-funded government again, we will continue to waste the talent of large swathes of our people. “If you keep doing what you've always done, you will get what you've always got.”
Free the North
The front page of this week’s Economist shows the Angel of the North taking off with the help of a rocket booster under the headline “FREE THE NORTH”. In its lead editorial, the magazine highlights the “huge imbalances” in Britain’s economy, noting that “London is as rich as Paris, but metropolitan Birmingham or Leeds is nowhere near as rich as Lyon or Toulouse.”
Some of the reasons for that stretch back centuries – to do with how unusually early England became a centralised polity compared to countries like France or Germany. Some have to do with political decisions made over and over again in our lifetimes. As the editorial recounts: “Between 2000 and 2019, the government devoted £10,000 per Londoner to economic development, science and technology, and transport. The equivalent figure for residents in the north-east and north-west hovered at around £5,000.”
Or as a great new paper by the consultancy Metro Dynamics puts it: “Successive governments of different political colours have overseen a widening of the spatial inequalities that are such a distinctive and unwanted feature of the UK’s economic geography.”
“Spatial inequalities” might sound rather abstract, but what we’re really talking about is the kind of widespread poverty you simply do not expect to find in a wealthy and highly developed country. Research by the University of Sheffield found that we are more inter-regionally unequal than 25 of the countries in the Organisation for Economic Co-operation and Development (OECD), ahead of only Slovakia and Ireland. And a new report published by the Labour Party this week notes that in terms of GDP per capita, “half the UK population live in areas no wealthier than the poorer parts of the former East Germany, poorer than parts of central and Eastern Europe, and poorer than the US states of Mississippi and West Virginia.”
That Labour report – grandly titled a Commission on the UK’s Future – was the work of former prime minister Gordon Brown and a committee of experts, and it amounts to a sweeping blueprint for how to transform Britain’s governance and kickstart its economy. Its recommendations aren’t officially Labour policy yet, but the party’s leader Sir Keir Starmer was there with Brown at the press conference on Monday, at which most of the media attention was taken up by the commission's recommendation to abolish the House of Lords.
Brown’s plan for how Labour could shake up the governance of England is potentially much more significant. What’s the idea? Hand control back to the communities whose ability to govern themselves has been methodically stripped back over the past century. Brown talked about "removing the dead hand of centralisation", proposing to empower metro mayors like Andy Burnham, give local authorities more sustainable funding and put state institutions like Job Centres under local control.
“Successive UK governments have clung to the long out-of-date notion that ‘Whitehall knows best’ and over the last decade Whitehall has driven an effective takeover of more public services, with top-down reorganisations of England’s schools, NHS, and justice systems,” the report explains. Starmer made clear he was fully on board with that analysis, telling the audience in Leeds: “Britain is one of the most centralised systems in Europe and the centre has not delivered.”
The recent upsurge in enthusiasm for regional economics (Boris Johnson’s “levelling up”, Labour’s new report, that Economist front page) reflects a growing awareness about how bad things have become. But they also suggest that some politicians and commentators have realised that this is the big one. This is the elephant in the room – the thing we need to fix if we want the kind of high-growth economy that can drive up living standards and fund the quality of public services that we expect but currently are not getting. As Brown’s 155-page document puts it: “The shocking economic imbalance between the different parts of the United Kingdom is at the heart of why we are failing to reach our country’s economic potential.”
A Damascene conversion
“I thought it was astonishingly strong – probably the most robust and sensible set of proposals that I've seen an opposition suggest in the past 30 years,” says Mike Emmerich, a long-time Mill reader and former Downing Street policy advisor. Emmerich worked in the Treasury and the Number 10 policy unit in the years of New Labour – when he had me over for lunch recently, I spotted an old photo of his Downing Street leaving do on the wall, featuring a very chunky 90s-style desktop computer and a grinning Tony Blair.
When he saw the proposals Brown unveiled on Monday he was “staggered and really quite gratified”. He recalls frequent debates with Brown’s aides about whether it made sense to disperse the notoriously centralised power of the British state. “His people used to argue tooth and nail against the kind of things he was saying yesterday,” Emmerich told me when we chatted on Tuesday, describing Labour’s record in England during its last period in office as “pretty much relentlessly centralist”.
The people who worked in Brown’s orbit would argue that they believed in handing power to regional assemblies and regional development agencies — a short-lived attempt at devolution in England that still left a lot of power for the centre. “The budget attached to [New Labour’s] regional growth initiatives never approached what it had reached in the 1960s or 1970s,” writes the economics journalist Duncan Weldon in his recent book Muddling Through, “and the policy approach was inconsistent.”
“His people used to argue tooth and nail against the kind of things he was saying yesterday” - Mike Emmerich
There was a reasonable argument for New Labour’s centralising instinct – Blair and Brown saw their main priority as fixing the national institutions after years of under-investment in schools and hospitals, and Emmerich says there is “a strong argument they made a good fist of it.” Those close to Brown argued that if you want to deliver consistent public services across the country, you can’t leave them in the hands of local government. Plus of course, localism means you have to put up with councils doing things you disapprove of — like digging Britain’s first new coal mine in decades.
Devolvers like Emmerich have always argued that the benefits of allowing local leaders to solve their own problems in the communities they know best tend to outweigh the risks. And he can’t hide his delight that the party that now seems likely to form the next government has come to that realisation too. “I think it shows a maturity that comes from a long period of reflection,” he tells me.
Emmerich grew up in South Manchester – living in Whalley Range when his German hotel manager father was doing well and then on Chorlton’s Merseybank Estate when the family’s finances took a turn and they were forced to live “at the tender mercies of the council”. He’s fond of quoting Sir George Bain, the first chairman of the Low Pay Commission, who once said on Desert Island Discs: “Nothing puts fire in the belly of a young man like coming from a downwardly mobile family.”
Manchester in the 1970s “seemed to be a pretty dark place,” Emmerich told me in an interview earlier this year. Like Higham, he saw the decline of the region’s industry happening around him. By the time he left school in 1982 (“extremely bad timing”), many of the factories that had been mentioned as potential future employers by a careers advisor at school were on their last legs or had shut down entirely. “The economy was in nosedive,” he remembers. “Not the sort of bad recession we’re heading into now, but worse, one that killed much of what remained of Manchester’s two hundred-year-old industrial base.”
Like Higham, he became an economist, and when he ended up in the Treasury, his background acted as a motivator. "I felt like I came from a city, and a part of the country, that had been left to rot a bit,” he told me. He says it shaped the kind of work he wanted to do when he left government – running the New Economy think tank in Manchester, taking a central role in negotiating Greater Manchester’s devolution deal with George Osborne and then founding Metro Dynamics, whose economic expertise is much sought after by local leaders. “I’ve spent a career, nationally and locally trying to do something about the toxic economic legacy that was at work as I began my adult life,” he says.
Around the same time that the young Emmerich left Manchester, one of Britain’s leading academic economists left too. Diane Coyle, now a professor of public policy at the University of Cambridge, grew up in Ramsbottom, where her father and uncles all worked in cotton mills. They managed to find jobs when the mills closed, but many of their former colleagues didn’t. "The policies at the time did nothing for them,” Coyle told me when I interviewed her for a Mill podcast earlier this year. “And then that [unemployment] got embedded and it's really difficult to get out of it".
The Thatcher government believed in the “miracle of the market” – or more specifically, that if you gave unemployed people a small “Enterprise Allowance” they would set up a thriving business. But the theory was flawed from the outset. First, Coyle says, you need people to have the skills and training to make a success of a business – whether that means training to be a plumber or learning accountancy skills. And secondly, they need a thriving local economy if their business is going to be a success. Neither was in place after de-industrialisation.
She’s similarly dismissive about the levelling up efforts made by the current government. "What levelling up efforts made by this government?” she asked me on the podcast. “What has there been that you could point to?” I mentioned funds like the Towns Fund and the Levelling Up Fund, but she had put me on the spot and I felt slightly embarrassed to be playing devil’s advocate with someone who probably had spreadsheets open on her screen right now that would destroy the argument that giving £20m to help renovate Carlisle Market Hall was going to have any transformative economic benefit. “There's been no serious money, and the cheaper way of doing it is devolving powers, and there's been no devolution,” she said. And so we moved on.
Not rocket science
Emmerich, Higham and Coyle have several biographical details in common – they are all economists who grew up in the North; they have all worked in government; they all subscribe to The Mill – that make them particularly well qualified to guide us on the question of what we’re supposed to do about regional inequality. "It's not rocket science — it's money and power,” Coyle told me when we spoke. “And all of that has been sucked out of other parts of the country and withdrawn to London over time.” She’s not quite calling London a vampire, but it’s close enough.
"What levelling up efforts made by this government? What has there been that you could point to?” - Diane Coyle
On the question of money, Coyle worked on an influential paper with Dr Marianne Sensier, an economist at the University of Manchester, in which they looked at the benefit-cost ratios for public transport projects across the country. “There were a lot of high ones in the North and moderate ones in the south or around London, and the ones that got approved were the ones around London,” she recalls.
Chipping away at regional divides will require “significant investment” in the things that prevent people from getting better jobs and living better lives. With colleagues, she has developed the concept of a “minimum basic offer” – the idea that everybody should have access to a minimum level and standard of transport and communications networks, public services and local amenities, no matter where they live. That’s an important way of thinking about growth because of how these different factors interact to keep people poor.
As Emmerich points out, poor education and training leads to low-paying jobs, which leave people in inadequate housing, which has a direct impact on health. “Social and economic determinants account for some 50% of health outcomes,” he says. “And poor health outcomes weaken economic growth and prosperity through higher fiscal costs and lost taxes.” The Metro Dynamics paper, explains this in cold economic terms. “The size of the prize for health improvement is big – reducing the gap between health outcomes between the North and rest of England alone would generate an extra £13.2bn in GVA [Gross Value Added – a standard measure of the value of goods and services produced in an area] and swell the Government’s tax take by some £5bn.”
The paper suggests three big things we need to get right if we want an economy that doesn’t let down a huge proportion of its workers: “a serious productivity strategy, fair and sufficient funding, and proper devolution.” Gordon Brown’s report has proposals in all three areas, and it makes a direct link between the concentration of political power in London and our poor economic outcomes, concluding: “It is our view that this economic imbalance itself is exacerbated by the gross over-centralisation of the UK state – a system of government where power and control are hoarded by a few people in Whitehall and Westminster.”
Having said that, its recommendations on what powers to devolve to local leaders are still vague and it leaves open the massive question of how to turn England’s confusing patchwork of local government (combined authorities, unitary councils, mayors in some places and not others) into something more coherent, like the structure suggested this week by the economist Andrew Sissons.
Higham says getting this bit right is crucial, and he should know. In the 1990s, he was the lead economist in the government unit that worked on Michael Heseltine’s influential Competitiveness White Paper and in 1996 he moved back to his roots to work in the recently formed Government Office for the North West. “The Coalition’s decision in 2010 to abolish Government Offices (GOs) and Regional Development Agencies without even a token attempt to capture the knowledge and experience of staff was nothing more than political vandalism,” he wrote in a blog this week.
He says we need to strengthen combined authorities like Greater Manchester but also add a layer of local government that sits above that at a regional level. “You cannot plan transport in the North West, housing in the North West, regeneration in the Northwest at the level of Greater Manchester or the Liverpool City Region,” he says. “You have to have something that brings in Lancashire, Cumbria, Cheshire. And that's a tricky thing.”
Emmerich – who was influential in the negotiation to give Greater Manchester a mayor and a narrow range of new powers – agrees the geography will need to be clarified. “I don't like the patchwork of government we have in this country, and arguably the devolution I was involved in has made that worse,” he told me. “But it was about the first step in a journey, and it was about creating a counterfactual of devolved political power,” – an example that showed things don't need to be run from the centre.
‘They can add up but they can't multiply’
After Starmer and Brown had finished their sunny, optimistic speeches on Monday, they got a question from Beth Rigby, the political editor of Sky News, that rather popped their balloon. "At a time when people are struggling to pay their bills, feed their families and are striking over pay settlements, you've produced a 155-page report talking about devolution, constitutional reform and abolishing the House of Lords,” she told Starmer. “This might look to many people as completely out of touch.”
Starmer’s face visibly dropped as he waited for Rigby’s question: "Can you give me one thing in this report that would improve people's lives from day one of a Labour government?” When the Labour leader didn’t give her that one thing, she came back, more scathing this time. “It’s just so amorphous,” she said about the commission’s report. The BBC’s political editor Chris Mason came in next, and had similar concerns, asking Starmer what he would say to people “who hear this and just think it's a bit high-minded and academic".
In one sense, they were understandable questions in the midst of a cost-of-living crisis. But as an example of how the Westminster media relentlessly pushes our politicians to focus on quick fixes and short-termism, Rigby’s question could hardly be improved upon. By this point, Starmer took the bait. "Whenever any politician sets out an answer to the underlying issue in the medium to long term, every journalist says: ‘Well I want an answer to what's going to happen in the next few weeks’. And we go on and on and on.”
Starmer acted out a fictional dialogue between a journalist and a politician to make his point:
Journalist: “What are you going to do about the NHS winter crisis?”
Politician: “Well, we need more people in the NHS.”
Journalist: “Don’t want that answer, that will take too long. What are you going to do this winter?”
Starmer was in his groove and the hand-picked audience members behind him were starting to enjoy it. “And then we go on. Spin forward 12 months. Next question.”
Journalist: “What are you going to do about the NHS?”
Politician: “We need more people.”
Journalist: “Don't want that answer, that's medium term. What are you going to do this winter?”
The fictional dialogue was about health, but of course, it could easily have been about renewable energy or transport infrastructure or devolution. For some reason, Britain is addicted to short-termism in both government and business — a chronic disease that has proved utterly debilitating. “In the short term politicians overestimate their influence but in the long term they underestimate it,” writes Weldon in his brilliant book. “It is very rare that a long-standing economic problem has an easy, quick fix.” Britain’s most long-standing economic problems — shockingly low productivity and staggering regional disparities, issues that are of course closely related — will require genuine patience and seriousness of thought about the design of the state, even if that is considered academic, amorphous and out-of-touch by the impatient producers of the Westminster soap opera.
"Whenever any politician sets out an answer to the underlying issue in the medium to long term, every journalist says: ‘Well I want an answer to what's going to happen in the next few weeks’. And we go on and on and on.” - Sir Keir Starmer
Whether Starmer will put any of Brown’s proposals in his manifesto, or actually implement any of them were he to make it to Downing Street, is an open question. It’s very easy to be radical about constitutional reform in opposition, but it tends to drop down the list of priorities when parties get into government. He is surely right, though, to point out that if we want to transform this country’s economy, we need to be thinking beyond the horizon of policies that will pay off for voters “from day one” of a new government.
Coyle says we need the kind of vision that the Victorian city fathers had, when they were planning for many decades ahead. "They intended that these would be great cities 100 years from now. And that's the kind of time horizon they had,” she says. “We've got the horizon of the next tweet."
What all three economists have in common is a belief that devolved powers will need to be accompanied by massive, previously unimagined levels of investment — sustained for long enough that it makes a real difference and “crowds in” money from private investors alongside it. All of them mention the colossal sums of money that were spent to close the gap between the two sides of Germany after the collapse of the GDR, which cost an estimated £71 billion every year between 1990 and 2014. “For comparison, the UK’s levelling up fund is £4.8 billion in total,” noted the Centre for Cities think tank. Emmerich et al don’t expect that level of spending to be replicated here, but they agree that without committing “a very large pot of money over a long period” (Higham’s words) we can’t expect to solve the biggest structural flaw in the British economy.
“An incoming Labour administration needs to decide how revolutionary it wants to be,” says Higham. “If you keep delaying that, you are not going to get real change.” Coyle thinks we need to invest enough to provide the “minimum basic offer” and mentions New Labour’s enormous investment in London’s schools as an example of how this kind of spending can drive astonishing results – the “London education miracle” as the subsequent improvement in educational quality has become known.
What has prevented British governments since the 1980s from making any serious effort to unlock the economic potential of the rest of the country? “One of the problems with people in the Treasury or the Department of Transport thinking about that investment is that they can add up but they can't multiply,” Coyle told me when we spoke. “What I mean by that is that they add up what's already there, but they can't see the potential for non-linear increase in these opportunities in the depth of the labour market.”
“I don't pretend that this is easy — we can't spend billions now because we don't have it,” says Emmerich, who by nature is an arch pragmatist. “But in two years, if we have a credible government and credible proposals, we can start on this journey.”
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