Levelling up? Start with Parliament - Professor Gerald Holtham

By Professor of Regional Economy, Gerald Holtham, 2023.

There is a new fashionable panacea for Britain’s economic ills: political devolution.  UK government is heavily centralized and this goes along with perhaps the greatest regional inequality in Europe (Italy is the only other contender).  Surely, it is argued, the two are connected.  By decentralizing power, letting local government keep more taxes, the UK can not only level up, it can even recover its economic dynamism and grow faster.

Politicians out of power often argue for devolution and when in office suffer a sudden decline in enthusiasm for the idea.  This time, however, the call for decentralization is so widespread that perhaps it will happen.  If so, it can be asserted with confidence that the results will be disappointing.  The UK does need levelling up and it needs political reform to achieve it – but something additional to that being proposed.

Lack of resources

The point about left-behind or run down areas is that they lack material and human resources.  Productivity and pay are low so the local tax base is small. They often suffer emigration of their most energetic or enterprising people who find better opportunities elsewhere.

Yes, local or regional governments will be in closer contact with the people and their problems.  They will be more motivated to tackle them than Westminster is and may well understand them better.  But they will be hamstrung by that very lack of resources.  And if they are allowed to keep more of their own taxes but simultaneously see reduced transfers from central government, they could well end up worse off.

Moreover, Party politics will bedevil the whole arrangement.  If central government is of a different Party from the regional government, it is not so interested in seeing the region prosper.  Who would get the credit and future votes?  A Conservative government in London is delighted to be able to point to the dire state of the health service in Wales (which has a Labour government) as evidence that the NHS is not better under Labour.

Wales received far more regional aid from Brussels than it does, or is likely to do, from Westminster, at least while the governments are of different Parties.  And that despite promises to the contrary at the time of Brexit.

If you want to forecast where the current government directs its regional or levelling-up support, don’t just look at indices of multiple deprivation; look at the Party affiliation of the recipient authority.  Will future governments be more altruistic?

Equality of access to centralised power

Devolution is a good thing, for democracy for local culture and self-respect.  But as an economic panacea, you can forget it.  The economic trajectories of Scotland and Wales since 1998  make the point clearly enough.  Relative economic decline reinforced by centralization of political power is not reversible by decentralization of politics alone.

No, what is needed too is greater equality of access to that centralized power.  For levelling up, the UK requires that resources of ingenuity and people as well as money are focused on left-behind areas – resources that they cannot marshal on their own.  If they get them, it could well benefit the whole country as depressed areas are reinvigorated. The regions’ own active involvement and governance, while vital, is not sufficient.

Poorer areas need more representation

The answer is to change the representation of localities in the British Parliament.  Currently, as populations move to the South East, the number of constituencies elsewhere is reduced.  Representation follows prosperity to the detriment of the left behind.

To take the Welsh example again, its MPS are dwindling from 40 to 30 so it will become an area of even greater indifference to the central government.  Constituencies should be determined on the basis of two factors, not one.

As well as population, income per head should be considered.  Poorer areas need more representation. Construct a standard by dividing the recorded population of each area by its relative income per head. Constituencies should be equalized by the resulting metric, not by population alone.

Would the North East be so neglected if it had more MPS and the South East had half as many?  Not likely.  Elected governments look to their own interests and investment follows the relevant votes.

The table below shows the effect of a moderate redistribution of seats within England to compensate for low incomes and a more radical change.

1 Population divided by the ratio of median household income to that of the poorest region
2 Population divided by the square of the same ratio

Currently London, the South East and the Eastern region have 215 seats, more than the North-East, North-West and Yorkshire and Humber put together (158).  The moderate reform would move them nearer to equality without reaching it.  The radical reform would see the North acquire more seats than the south-eastern area by 183 to 172.  Politics could not fail to respond.

The reform would result in constituencies with very different populations and some MPs would complain of an unfair distribution of workload.  This could be resolved by a more discriminating expenses system to even population-related pay grades.

More devolution would be beneficial but will achieve little economically unless the regions are reinforced by better access to central state power.  That requires a thorough boundary reform of Parliamentary constituencies.  You will be able to tell how serious politicians are about levelling up from their reaction to this suggestion.