Smart Devolution to Level Up

SMART DEVOLUTION TO LEVEL UP Discussion paper This discussion paper lays out an assessment that the full potential of government's key strategic agendas around net zero and levelling up cannot be achieved if driven from the centre.

It proposes a series of practical steps to devolve power and resources, alongside new approaches to accountability, in order to unlock the promise of rapid transformation for communities.

This document is intended to facilitate discussion on this topic and we welcome feedback.

March 2021

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THE COMMISSION FOR SMART GOVERNMENT The Commission for Smart Government is an independent initiative to consider how to make public administration more effective. The Commission is a project of GovernUp, which is an independent, non-party research initiative that offers evidenced-based solutions for all political parties to adopt. The 12 workstreams are: Assessment

What have been the standout successes and failures of recent public administrations, and what can we learn from them?

Best Practice

What are the examples of best practice in the UK and around the world from which we can learn?

Talent & Competence

How do we equip civil servants with better skills, recruit and remunerate to attract the best and incentivise success, and share knowledge?

Project Management

How do we ensure government has the right skills and systems in place to commission and manage big projects successfully?

Finance

How do we ensure stronger financial management, strip out cost and drive efficiency?

Structures

How should we improve the current Whitehall structure, with its small yet overlapping centre and siloed departments, to make decision-making more effective and less bureaucratic?

To what extent should we devolve more power and decisionmaking to local bodies, and how can this be achieved while maintaining a proper role for the UK Government?

How can we make the system, including ministers and civil servants, as well as agencies, regulators and arms-length bodies, more accountable?

Devolution Accountability Technology

How can we deploy technology more effectively and rapidly to improve public services?

Data

How can we ensure that decisions are evidence-based and informed by data?

Ministers

How can we make ministers and advisers more effective in their jobs?

Appointments

How can we ensure that the appointments system attracts the best and aligns with the Government’s priorities?

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COMMISSIONERS Michael Bichard

Deborah Cadman Camilla Cavendish Suma Chakrabarti

Ian Cheshire Phaedra Chrousos Chris Deverell Jayne-Anne Gadhia Martin Gilbert Verity Harding Nick Herbert Margaret Hodge Husayn Kassai Daniel Korski Paul Marshall John Nash Mark Rowley Gisela Stuart Jacky Wright

Lord Bichard KCB is a crossbench peer in the House of Lords and chair of the National Audit Office. He was formerly Permanent Secretary at the Department for Education and the first Director of the Institute for Government.

Deborah Cadman OBE is Chief Executive of the West Midlands Combined Authority.

Baroness Cavendish of Little Venice is a former Head of the Number 10 Policy Unit.

Sir Suma Chakrabarti KCB was until recently the President of the European Bank for Reconstruction and Development. He was formerly Permanent Secretary at the Ministry of Justice and the Department for International Development.

Sir Ian Cheshire was the Chairman of Barclays UK plc until 2021. He was formerly the Government Lead Non-Executive Director 2019-2020.

Phaedra Chrousos is the Chief Strategy Officer for Libra Group and a former commissioner for the US Technology and Transformation Service.

General Sir Chris Deverell KCB MBE is the former Commander of UK Joint Forces Command.

Dame Jayne-Anne Gadhia DBE FRSE is a businesswoman and the founder and Executive Chair of the start-up Snoop.

Martin Gilbert is the Chairman of Revolut and the co-founder and former CEO of Aberdeen Asset Management.

Verity Harding is a Visiting Fellow at the Bennett Institute for Public Policy, Cambridge University, where she is on secondment from her role as Global Head of Policy and Partnerships at DeepMind.

Lord Herbert of South Downs CBE PC (Chair) is a former Conservative minister.

Rt Hon Dame Margaret Hodge DBE MP is a Labour Member of Parliament, a former minister, and the former Chair of the House of Commons Public Accounts Committee.

Husayn Kassai is the co-founder and CEO of Onfido.

Daniel Korski CBE is the co-founder and CEO of PUBLIC and a former Deputy Head of the Number 10 Policy Unit.

Sir Paul Marshall is Chair and Chief Investment Officer of Marshall Wace LLP and a former Lead Non-Executive Director at the Department for Education.

Lord Nash is a businessman and Government Lead Non-Executive Director. He is a former minister.

Sir Mark Rowley QPM is a former Assistant Commissioner of the Metropolitan Police.

Baroness Stuart of Edgbaston PC is Lead Non-Executive Director at the Cabinet Office and a former Labour MP and minister.

Jacky Wright is the Chief Digital Officer for Microsoft US.

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Contents Foreword ............................................................................................................................5 Executive Summary...........................................................................................................6 Summary of Recommendations .......................................................................................9 Establishing the problem................................................................................................ 11 The centre is trying to do too much ......................................................................... 11 Local adaptations and innovations are overlooked ................................................. 12 Westminster cannot hold public trust alone ............................................................ 14 Government’s stalled devolution agenda ..................................................................... 15 Whitehall’s barriers to devolution............................................................................. 15 What would ‘smarter devolution’ look like? ................................................................ 17 Smart devolution and net zero .................................................................................. 17 Smart devolution and levelling up ............................................................................. 19 Devolution – A Longer-Term Settlement ................................................................ 21 Call for responses............................................................................................................ 22 Authors ............................................................................................................................ 23

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Foreword Whitehall has been circling the issue of devolution in England for years. Despite governments of all colours talking about the importance of ceding further autonomy to local areas, a lasting settlement has proven elusive. Why, now in the wake of the biggest national crisis in generations, do we need to revisit this issue? Because this past year has demonstrated the instability of the status quo. Achieving levelling up ambitions, and meeting net zero targets are – quite simply – impossible without taking a different approach.

This is not a zero-sum game. It is not the case that empowered cities and regions means a weaker Whitehall. On the contrary, by giving local leaders greater powers and resources, and changing our approach to support and accountability, we can build greater shared capacity to deliver national agendas.

We shouldn’t for a moment underestimate the scale of these challenges. In the West Midlands we have committed to reaching net zero by 2041, and detailed analysis on our routemap estimates this will require more than £15bn of activity over 20 years across domestic and commercial retrofit, reducing industrial emissions, greening our transport system, and changing how we use land. And levelling up has been made even more difficult by Covid in our region, where our immediate future will be characterised by high levels of unemployment, exacerbated health inequalities both between ethnic groups and across our geography, and the impact of structural inequalities on our communities. These challenges cannot – and should not – be addressed entirely from the centre.

My hope is that this discussion paper provides the Government with a practical route forward.

The forthcoming Devolution White Paper will need to address broad questions on structures, powers, resources, and accountability – but we don’t need to do everything at once. By focussing on the contribution of devolution to the Plan for Growth and Ten Point Plan, we can adopt a phased approach to a new settlement grounded in the immediate priorities of Number 10.

The objective of the Commission is to identify how government can become more effective and more accountable: allocating resources more efficiently, designing and executing policy so that structural investment and public services are more keenly focused on the needs of users – be they citizens, communities or businesses. Entering into a more strategic relationship with localities and regions is an essential part of the solution.

Deborah Cadman OBE, Chief Executive of West Midlands Combined Authority

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Executive Summary This paper is not the first to call for greater devolution in England. In the last few decades think tanks and academics, backbenchers and select committees, Ministers and Prime Ministers have argued for more power to be held nearer to communities. Yet in practice, little has been achieved. We now find ourselves with a half-baked solution: the devolution genie is out of the bottle following reforms since 2010, but new institutions give regional leaders platforms without real powers.

This could be a moment for real change. Achieving net zero carbon by 2050 and ‘levelling up’ are daunting objectives, especially when placed in the context of recovery from the Covid 19 pandemic. A phased process to devolve powers and resources, aligned to these strategic agendas and with new approaches to accountability, is vital for successful delivery.

The Government’s current approach is not realising the potential of devolution. In response to Covid 19, the instinct of Whitehall has been to grip the levers of power ever tighter, in the belief that large-scale problems require centralised management. This approach has also bled into the Government’s plans for economic growth, with national competitions and funding pots forming the centrepiece of industrial strategy, often superseding funds that were previously held locally or regionally.

By confusing control with agency, Whitehall does too much and achieves too little. No.10 struggles to steer departments that maintain scopes and responsibilities out of step with those commanded by central government departments in comparable countries. Our national capacity to deliver, through shared systems and distributed leadership, is overlooked.

Crucial innovations at a local level are missed. Throughout our response to Covid 19, new approaches to supporting the vulnerable came from hyper-local organisations, often working closely with local government. Danny Kruger MP argued that the pandemic proved a “wholly new paradigm is possible in which community power replaces the dominance of remote public and private sector bureaucracies”.i The new products and services that will define our post-Covid economy will also emerge from interactions between firms, universities, and anchor institutions in places, and yet the economic development resources sitting within our regions are steadily reducing.

A centralised approach also erodes trust in government. ‘Take Back Control’ was not a mantra focussed only on Brussels, but spoke to a broader sense of powerlessness and frustration with how government works. When it comes to challenging national agendas like decarbonisation, trust especially matters. Citizens are going to have to make difficult trade-offs in the coming years – investing up front in retrofitting their homes, changing behaviours, getting out of their The Commission for Smart Government is powered by GovernUp, an initiative of The Project for Modern Democracy, a company limited by guarantee no. 8472163 and a registered charity in England and Wales no. 1154924. Privacy Notice.

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cars, and retraining away from industries that have strong cultural roots. Trusted, visible, and accountable leaders are key, and they cannot all sit in Westminster.

Devolution offers an opportunity. In shifting power and responsibility down to regional and local government, Whitehall can focus on a core set of strategic activities and No.10 can have a more effective grip on departments. By creating systems that have a greater capacity for experimentation and learning, we can support and identify new innovations to improve our society and economy. And through empowering local leaders, we can build a system where citizens have greater faith in government and become partners in reaching shared goals.

This opportunity has been recognised by the Government – Michael Gove argued in his Ditchley lecture that “we need to look at how we can develop an even more thoughtful approach to devolution, to urban leadership and to allowing communities to take back more control of the policies that matter to them.”ii Gove particularly highlighted local experimentation – providing the 50 US Governors as examples of “public policy innovators” – and the need to “bring government closer to people” through “not just a wider spread of decision-making across the country but a broader and deeper pool of decision-makers.”iii Devolution is, at its core, about power. But it is wrong to imagine it as a zero-sum game – a tug of war where if localities are to be more empowered, the centre must necessarily be weakened.

The approach we outline increases power for localities and regions, but it also crucially gives central government greater ability to deliver on its agenda through a stronger leadership and delivery capacity across the system. A phased transition can also help to tackle the self-fulfilling prophecy that limits devolution – that local and regional government can’t be trusted because they lack capacity and capability.

Achieving ‘smarter’ devolution cannot happen all at once. The Devolution White Paper will need to set out a long-term vision for structures, resources, powers, and accountability, underpinned by spending decisions to be taken later this year. Yet there are practical initial steps that this Government can take to move towards this new settlement – in both its plans to reach net zero and its recently published Plan for Growth.

Plans to reach net zero should form a centre piece of the ‘levelling up’ agenda – creating new green jobs in the Midlands and the North and unlocking investment in new infrastructure.

Concrete steps to devolve powers can be key to supporting the Ten Point Plan for a Green Industrial Revolution, aligning new resources and powers to carbon reduction plans agreed between metro-mayors and the government. New accountability models could be trialled to support delivery, such as metro-mayors reporting directly to Parliament and answering to regional versions of a Public Accounts Committee made up of councillors, MPs, and other relevant parties.

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The Government’s ‘Plan for Growth’ rightly sets out the ambition that “every region and nation of the UK has at least one globally competitive city”. Delivering on this goal requires strong governance in city-regions, supported by fiscal devolution and changes in cross-institutional working.

Devolved powers against the three pillars in the Plan for Growth of infrastructure, skills, and innovation can also accelerate progress.

This phased transition to empowered localities and regions focussed on shared national agendas is the smarter devolution we advocate. In many ways, it follows the changes in production we’ve seen in the international economy in recent decades. The strongest firms have moved away from Fordist production lines towards networks of empowered teams, harnessing distributed ingenuity and insight.iv Those with the best corporate culture, like Toyota and Costco, have built trust by focussing on relationships between workers and their teams and reducing the authority of a central HQ.v It is also an approach backed by John Allan, Chair of Tesco and the newly-formed Covid Recovery Commission, who has stated that “the [recovery] challenge is also a structural one. The UK has one of the most centralised systems of government anywhere in the western world. It is apparent that to address inequalities at a neighbourhood level will require more local oversight.” vi In seeking to face 21st century challenges, our system of government needs to adopt this modern approach. Otherwise, we face being left behind by other nations whose government machinery provides a better platform for innovation.

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Summary of Recommendations Immediate steps to support the Ten Point Plan for a Green Industrial Revolution through devolution: •

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Point 4: Accelerating the Shift to Zero Emission Vehicles - Devolution of portions of the Office for Low Emission Vehicles EV Charging fund to localities and regions to accelerate rollout and support local coordination of planning and public transport infrastructure.

Point 7: Greener Buildings - Devolving energy levies, such as the Energy Company Obligation (ECO), to accelerate progress on retrofit and align activity with local and regional powers around planning and homebuilding.

Point 10: Green Finance and Innovation - Supporting upskilling and retraining for green jobs by devolving responsibility and funding for adult and young people’s Careers Service, budgets for 16-18 technical provision, traineeships, and T – levels, responsibility for Apprenticeship employer grants, and co-commissioning of apprenticeship capacity with the National Apprenticeship Service.

Point 10: Green Finance and Innovation – Supporting the creation of lead markets by introducing local regulatory ‘sandboxes’ to encourage policy experimentation in areas like future mobility (for example, greater flexibility over highways, vehicle licensing, public transport franchising) and industrial decarbonisation (for example, greater flexibility over business licensing and taxation, state aid, social value in procurement).

Broader steps to support Ten Point Plan for a Green Industrial Revolution through devolution: • • • • • •

Develop regional carbon budgets, supported by the Climate Change Committee, in places with well developed governance and delivery records.

Produce regional carbon reduction plans to support these budgets, and align devolved powers, resources, and accountability mechanisms.

Form cross-institutional teams between local, regional, and national partners, as well as universities and anchor firms, to support delivery of these plans.

Introduce new models of accountability to monitor delivery, such as a regional PAC-style body made up of local councillors and MPs. Make metro-mayors directly accountable to Select Committees and Parliament where national funding pots or powers are devolved in line with Net Zero ambitions.

Create place-based ‘Centres for Climate Data’ within regional universities to support evidence-based policy to reach net zero, and provide independent models to inform regional carbon budgets and strengthen accountability.

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Steps to support the Plan for Growth and Levelling Up agenda through devolution: •

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Build the capacity of Mayoral Combined Authorities to deliver core elements of the levelling up agenda in infrastructure, skills, and innovation through streamlined funding pots and fiscal devolution.

Broaden the focus of the Beyond Whitehall programme to create greater shared capacity in places – including shared commercial teams, digital platforms, and skills and training programmes between central government, local government, and other public sector bodies.

Accelerate the delivery of transport infrastructure by granting powers, functions, and duties equivalent to TfL to MCAs with well-developed transport functions, and by streamlining Transport and Works Act Orders.

Accelerate urban regeneration by creating a single disposal regime for all public sector land and property assets, including HMG estate, under the authority of metro-mayors (building on the One Public Estate programme).

Target the uplift in public R&D funding to 2.4 per cent of GDP by 2027 outside the Golden Triangle.

Devolve portions of R&D funding to MCAs through Innovation Deals.

Develop a sustainable financial position for Local Authorities to ensure growth is inclusive.

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Establishing the problem “There’s the efficiency argument – that in huge hierarchies, money gets spent on bureaucracy instead of the frontline. There is the fairness argument – that centralised national blueprints don’t allow for local solutions to major social problems. And there is the political argument – that centralisation creates a great distance in our democracy between the government and the governed.” vii David Cameron, The Observer (2010) The challenges posed by England’s over-centralisation have been highlighted in numerous reports and studies.viii In recent years, focus has particularly shifted to the way that our centralised settlement limits delivery – looking at either past delivery failures or present-day challenges.ix This paper suggests that the centralised approach to delivering on strategic agendas is limited by three key problems: an overloaded centre, overlooked local innovations, and the underappreciation of public trust.

The centre is trying to do too much “The parts of government that seemed to respond so sluggishly, sometimes it seemed like that recurring bad dream when you are telling your feet to run, and your feet won’t move.” x Boris Johnson, ‘Our New Deal for Britain’ Speech (June 2020) By many measures the UK is one of the most centralised countries in the world. As a percentage of total tax, only around one in every four pounds is spending controlled at the sub-national level – half as much as in the USA, and a third as much as Canada.xi In terms of revenue-raising, the UK has by some margin the least local taxation of any similarly-sized country, with only around five per cent of all taxes raised locally compared to 29 per cent in Germany, 37 per cent in the USA, and 50 per cent in Canada. Even heavily centralised France raises 13 per cent of its taxes sub-nationally.xii England is also highly unusual in its political and administrative centralisation. Major elements of transport, housing, skills, education, and business support are still delivered from Whitehall. Even where central government does not deliver these services, they exercise control by adopting a project-by-project approach to funding sub-national activity. The administrative burden of this bidding system is felt by both the funders and the applicants.xiii

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This leaves Whitehall in an anomalous position compared to the central civil services of similarly large and complex countries: not so much an administrative core as an all-encompassing edifice of command-and-control.xiv There is far less clarity about the principles that underpin how power is distributed in England than the more systematic approach used by the UK’s devolved nations or within (to take one international example) the ‘cooperative federalism’ of the German system.

In Germany, the Länder enjoy significant autonomy and can exercise a veto in many policy areas.

These federal states have the power to legislate by default unless specifically reserved to the centre by law.xv Importantly, power is centralised in Whitehall but decentralised across it - creating the perverse situation where Whitehall is all-powerful in relation to local bodies, but No.10 is weak in the face of other parts of Whitehall.xvi Departments buckle under the weight of the responsibilities they hold, absorbing the time of Permanent Secretaries and Ministers and serving as the focus of Parliamentary scrutiny.

The UK’s Covid response is a key example of this challenge. Initial attempts at full scale command-and-control were either unsuccessful (centralised PPE procurement and distribution) or were quietly dropped (the idea of MHCLG food parcels being delivered directly to people’s doors). xvii Deborah Cadman, Chief Executive of the West Midlands Combined Authority, and a Commissioner for the Commission for Smart Government, reflected that “national institutions attempted to hold control over enormously complex systems, where the key was rapid response and local insight… [which] meant that resilience and patience was strained.”xviii The approach to vaccines indicates a more promising model – securing supply through a small and empowered team at the centre, and then distributing through a network of embedded and trusted institutions (the NHS and social care system).xix

Local adaptations and innovations are overlooked ‘[During the Pandemic] we have seen tremendous examples of innovation, flexibility, and can-do spirit from charities and social enterprises’ xx Boris Johnson, Response to Levelling Up Communities (September 2020) Delivering national strategic agendas like net zero and ‘levelling up’ means translating them into complex realities on the ground. Any one issue within these broader agendas involves coordination across many policy domains – for example, work on the future of our high streets will mean coordinating business support, access to finance, transport, cultural investment, planning, housing, local public transport, public health, and more.xxi The Commission for Smart Government is powered by GovernUp, an initiative of The Project for Modern Democracy, a company limited by guarantee no. 8472163 and a registered charity in England and Wales no. 1154924. Privacy Notice.

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Improving outcomes in these complex environments requires recognising how widely distributed and varied relevant knowledge is, and the priority of experimentation so that locally adapted approaches can emerge.xxii Because they have ‘skin in the game’, local actors are often more strongly incentivised to find solutions to persistent problems, and more likely to adapt broad central policy into something that is workable on the ground. For genuine innovation and resilience to emerge, variation must be allowed to occur. xxiii Government driven solely from the centre makes it harder for locally rooted public servants and communities to innovate and experiment. Local insight is lost as decisions filter up to Ministers, often through proposals, submissions, and business cases. Active experimentation is limited at multiple stages - resources aren’t held on the frontline to begin experiments, those who are able to observe their success aren’t empowered to influence future policy, and the system does not effectively identify and disseminate what works. Collaboration is made more challenging as horizontal relationships are ignored in favour of vertical relationships with ‘home’ departments.

Danny Kruger’s report on the community response to Covid highlighted that many of the crucial innovations and adaptations needed to deliver on central policies during the crisis emanated from community groups themselvesxxiv and from the local authorities that moved quickly to collaborate with them.xxv Community businesses and community-owned assets were also shown to provide foundational resilience to support this hyper-local innovation.xxvi Future economic growth will also depend on clusters of high-skilled workers, firms, and universities that drive innovation and boost productivity.xxvii Studies on the success of Silicon Valley over Route 128 in the 1980s point to dense networks and porous institutions that drive resilient and sustainable growth, and how local actors responding rapidly to challenges and opportunities create globally competitive clusters.xxviii New economic thinking on complexity points to the importance of tacit knowledge in developing new products and services, and highlights the success of city regions that can nimbly identify and support transfer of these capabilities to adjacent industries.xxix This approach in the US has been described as ‘New Localism’, with growth in cities like Pittsburgh and Indianapolis founded on local partnerships between the public, private, and third sector.xxx Complexity-rooted approaches to economic development known as ‘economic gardening’ have also seen sustainable growth in smaller towns such as Littleton, Colorado.xxxi The key to these success stories are that they are not driven from the centre – they rely on complex networks of actors rooted locally, and economic governance at the city-region level that can adapt to local circumstances and support these ecosystems through investment in skills, infrastructure, and public services.xxxii More devolved systems also show a greater ability to coordinate horizontally, sharing new innovations and tackling challenges that manifest across borders. The Commission for Smart The Commission for Smart Government is powered by GovernUp, an initiative of The Project for Modern Democracy, a company limited by guarantee no. 8472163 and a registered charity in England and Wales no. 1154924. Privacy Notice.

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Government’s paper on Germany particularly highlights this strength, and Geoff Mulgan describes it as the essential “mesh” that has enabled effective pandemic response, pointing to forums like the Council of Australian Governments (COAG).xxxiii Yet the limited extent of local powers and responsibilities means that the UK equivalent of these forums – Core Cities, the M9 group of Mayoral Combined Authorities, and the LGA – spend too much of their time lobbying Government and highlighting challenges seen on the ground to be addressed by those at the centre.

Westminster cannot hold public trust alone To many, Whitehall and Westminster feel increasingly distant. In seeking to build trust, the Government has increased expectations of their own ability to deliver for all communities – through schemes like the Future High Streets Fund fronted by Government Ministers, and pledges on the number of hospitals or schools to be built. Yet it is implausible to expect strong trusting relationships to exist directly between individual citizens and the central state as an isolated actor.xxxiv The more organic scale for the emergence of trust is between individuals and the institutions that shape their local areas. These are interactions which can benefit from local history, place-based identity, and a strong local social fabric – which, as highlighted by Onward, has become frayed in recent decades.xxxv At this scale, objectives and approaches can be effectively co-produced, giving people a meaningful stake in decisions and outcomes. This transition can be about more than handing powers to metro-mayors or Local Authority leaders – embracing innovations like the ‘street votes’ concept recently suggested by Policy Exchange for addressing the UK’s planning challenges.xxxvi This trust is crucial to delivering on the Government’s agenda. For example, reaching national net zero targets will require behaviour change by members of the public and local businesses leaders which will often place them at real personal risk. Local leaders, both elected officials and public servants, will need to work closely alongside communities to support them in making that change and accepting the level of risk it places upon them. Empowered and trusted local institutions are also a key part of the psychology of place that has driven the ‘levelling up’ agenda.

The feeling of being ‘left behind’ partly stems from a frustration that decisions are made elsewhere, which won’t be addressed by making better, more benign decisions from a distant location.

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Government’s stalled devolution agenda Initially, the Government’s ‘levelling up’ agenda emphasised power as a core element of addressing regional imbalances, with the Prime Minister stating that the Government would “give greater powers to council leaders and to communities” and “level up the powers offered to mayors”.xxxvii In reality, little emphasis has been placed to date on the potential of devolution or decentralisation.

The approach of tethering discrete devolution ‘deals’ to the creation of directly-elected mayors as a source of accountability has often added to the complexity of local governance without greatly enhancing autonomy or the ability to vary approaches in order to deliver on outcomes.

That these regional voices have sometimes produced challenges to the centre’s authority has also played a role.

The Government’s current approach brings together a range of discrete funds requiring Whitehall sign-off, and without any meaningful devolution or centralisation. Currently, local and regional actors are coordinating their bids into the Future High Streets Fund, Towns Fund, Intracity Transport Fund, Community Renewal Fund, and Levelling Up Fund. Whilst the past decade saw the Local Growth Fund and Transforming Cities Fund, these were at least devolved fully to regional bodies and not approached on a project-by-project basis. The long-promised Devolution and Local Recovery White Paper has been repeatedly delayed – drawing concern from many quarters, including the business-led Covid Recovery Commission.xxxviii The ‘Beyond Whitehall’ programme to relocate parts of the civil service reflects a recognition that government’s approach needs to change, and initial announcements of the new Treasury Campus in Darlington and a second headquarters for MHCLG in Wolverhampton have built some early momentum. xxxix This project has the potential to make a difference – if it is partnered with a commitment to more collaborative working with other tiers of government and a decisive shift toward growing the diversity of those involved in decisions.xl The Commission’s forthcoming paper on Civil Service talent and competence will set out further details on the opportunity presented by the Beyond Whitehall programme.

Whitehall’s barriers to devolution While notable consensus seems to exist around England’s relative over-centralisation and the need for further devolution, this has been a policy area where Westminster’s actions do not match its words.xli Devolution in England proceeds in a halting deal-making process which, though sometimes reflective of the bespoke needs of regions, attaches enormous conditions to what should be an incrementally phased and principle-driven approach, based on the building shared The Commission for Smart Government is powered by GovernUp, an initiative of The Project for Modern Democracy, a company limited by guarantee no. 8472163 and a registered charity in England and Wales no. 1154924. Privacy Notice.

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capacity to deliver on strategic agendas. Three key barriers in Whitehall explain this gap between ambition and reality: “Councils aren’t up to it” First, and perhaps most importantly, the centre has doubts about the competence and capacity of local institutions. Concerns about capacity are understandable: local government budgets were heavily squeezed in real terms in the years following the financial crisis and have remained constrained ever since. Questions over competence, however, are over-generalised from a small number of examples of failure, as the positive experience of local responses during the pandemic indicate.xlii Ending a culture of underinvestment and placing more revenue-raising powers directly in the hands of councils would end the circular argument and allow the building of confidence in the capabilities of localities to take on more power.

“We have to get a grip” Second, the centre confuses delivery-focus with micromanagement. By specifying and checking outputs, organising all resourcing and funding from the centre, and establishing repetitive processes built around a purely vertical accountability model, it believes that it can ensure better outcomes. The reality is that in many cases the best approaches will be different in different places, and most regularly realised by granting meaningful operational autonomy to those with the best understanding of local circumstances. The centre also biases the wider system toward a one-size-fits-all approach by taking a narrow perspective on efficiency and value for money.

Treasury led processes can give the illusion of financial grip through familiar methods and calculations, but ignore the realities and nuances of places. As recognised in recent Green Book reforms, local approaches can deliver considerable value for money, as they are more likely to be directly tailored to the real scale of service need and to realise the proper value of distributed assets.xliii “We need the political win” or “If something goes wrong, we’ll get the blame” Third, the centre assumes all the risk and reward from delivery, which sets up perverse incentives. Accountability under the current system flows upwards. When delivery results in success, actors at the centre are strongly incentivised to claim credit – even when success is driven not by central design but by local adaptation. This is exacerbated by the need for a steady flow of specific, announcement-worthy ‘wins’ to support media planning. Flexible and devolved pots do not produce these simple narratives to be shared with constituency MPs. And when implementation in a particular place runs into difficulties, it is the overarching policy design – and the officials and ministers who introduced it – that gets called into question, wholesale. This The Commission for Smart Government is powered by GovernUp, an initiative of The Project for Modern Democracy, a company limited by guarantee no. 8472163 and a registered charity in England and Wales no. 1154924. Privacy Notice.

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leaves ministers and civil servants understandably worried about giving away power whilst they hold accountability, either in effect or in the eyes of the public and press.

What would ‘smarter devolution’ look like?

Delivering on strategic agendas through devolution requires a programmatic response – combining a range of policy steps sequenced across different departments and multiple administrations. Some of these are structural, and will need to be addressed through the Devolution White Paper and a multi-year Spending Review. Some actions can be taken through existing programmes such as Beyond Whitehall and Treasury’s Plan for Growth. Other steps could be taken immediately as part of a phased implementation to a new devolved settlement, focussing on major strategic challenges like net zero and levelling up.

Smart devolution and net zero The transition to net zero is a central policy challenge for this Government. Devolution can play a key role in delivering on the Government’s Ten Point Plan for a Green Industrial Revolution, through both immediate discrete steps to accelerate progress and broader steps to devolve resources and powers in line with new accountability frameworks.xliv Some immediate steps to support the Ten Point Plan: •

Point 4: Accelerating the Shift to Zero Emission Vehicles – The roll-out of Electric Vehicle charging infrastructure is constrained by a funding bottleneck in BEIS and a lack of capacity regionally and locally to coordinate planning, transport infrastructure, and commercial negotiations.xlv Devolution of portions of the Office for Low Emission Vehicles £200m EV Charging fund to localities and regions could accelerate progress and support local coordination to overcome barriers.

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Point 7: Greener Buildings – The centralised approach to rolling out retrofit through the Green Homes Grant has yielded minimal progress, given the limited consumer demand and constrained contractor market.xlvi Devolving energy levies, such as the Energy Company Obligation (ECO), would accelerate progress on retrofit and align activity with local and regional powers around planning and homebuilding.

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Point 10: Green Finance and Innovation – Supporting the creation of new green jobs will mean rapid upskilling and retraining that is responsive to the unique industrial base of cityregions, and driven by employers. Delivery could be accelerated by devolving responsibility and funding for adult and young people’s Careers Service, devolved budgets for 16-18 technical provision, traineeships, and T – levels, responsibility for Apprenticeship employer grants, and co-commissioning of apprenticeship capacity with National Apprenticeship Service (all currently held by DfE). These could be guided by local private-public partnerships, such as the local Digital Skills Partnerships established across the UK.

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Point 10: Green Finance and Innovation – Creating lead markets in new green technologies will require some areas to adopt new approaches that are currently restrained by national regulatory frameworks. Local Regulatory ‘sandboxes’ could be introduced to encourage policy experimentation in areas like future mobility (e.g. greater flexibility over highways, vehicle licensing, public transport franchising) and industrial decarbonisation (e.g. greater flexibility over business licensing and taxation, state aid, social value in procurement).

A broader step across all ten points could see central government work with regions that have well-developed governance models to develop regional carbon budgets, supported by the Climate Change Committee. These budgets could feed into carbon reduction plans, and government could align devolved powers, resources, and accountability mechanisms to these plans. Crossinstitutional teams could be formed between local, regional, and national partners, as well as universities and anchor firms, in a similar model to the London Challenge. xlvii New models of accountability could be introduced to monitor delivery against these regional carbon budgets. Regional PAC-style bodies made up of local councillors and MPs could scrutinise the metro-mayors who would hold responsibility for these plans, working closely with existing Overview and Scrutiny committees. Metro-mayors should also be held accountable directly by Select Committees and Parliament where national funding pots or powers are devolved. A range of other steps could bolster this accountability – legal challenges could be made to local or regional leaders if decisions are taken that do not show regard to carbon budgets or plans, and new regional progress reports could be issued by the Climate Change Committee.

A bolder version of the Beyond Whitehall programme might also see the creation of place-based ‘Centres for Climate Data’ within regional universities charged with bringing together information to inform decisions on net zero and produce independent models and predictions to inform regional carbon budgets and strengthen accountability. Relevant data could cover private and public emissions, utilities rollout and repair (particularly energy and fibre), planning, transport,

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public health, and supply and demand in key parts of the economy (for example domestic heat pumps, retrofit firms).

In the transition to a more devolved system, and consistent with the risk-based approach advocated elsewhere by this Commission, government may legitimately take different views in different places about devolving powers. However, there should be clear support from across the system to communities and institutions that wish to take on more powers in building capacity and capability to open up pathways for more local control. This deliberate and phased approach would build the capacity of local and regional bodies whilst also increasing trust in central government to enable longer term changes.

Smart devolution and levelling up “The last few decades have seen increased prosperity in London and the South East, but without commensurate improvements in the rest of the UK. The primary objective of this government is to change that, ensuring no region is left behind as we achieve greater economic prosperity.”

Build Back Better: Our Plan for Growth (March 2021) Devolution will be central to supporting this Government’s ambition to level up – as noted above, economically successful cities around the world are supported by strong local and regional governance. Studies indicate that strong civic leadership was particularly important in cities that recovered from periods of economic and social depression, such as Columbus, Ohio and Louisville, Kentucky.xlviii The Government has a network of institutions across the country able to deliver on core elements of their Plan for Growth. The M9 (shortly to be M10) network of Mayoral Combined Authorities has a track record of delivery in transport, housing development, and adult skills, and can take on greater responsibilities to support the Government’s ambition to have at least one globally competitive city in every region. Local Authorities are positioned to make sure this growth is sustainable and inclusive, building on a foundation of strong public services and resilient communities.

To be effective, these institutions need to be placed on a sustainable financial footing. Fiscal devolution is key, but does not necessarily require a ‘big bang’ reform to the tax system. There have been calls for locally-raised taxes, such as Vehicle Excise Duty, Air Passenger Duty, and Stamp Duty to be retained locally – yet these steps would likely benefit London and the South East far more than the North and Midlands. A more productive focus would be on devolving any The Commission for Smart Government is powered by GovernUp, an initiative of The Project for Modern Democracy, a company limited by guarantee no. 8472163 and a registered charity in England and Wales no. 1154924. Privacy Notice.

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new taxes created to respond to the modern economy – for instance, an online sales tax could be collected by HMRC and then devolved to Local Authorities as a revenue stream for regenerating high streets and town centres. As noted by Onward and other think tanks, Council Tax and Business Rates also need reform in the medium term – once reformed, portions could be retained by Combined Authorities to support the delivery of infrastructure projects and economic growth.xlix Greater capacity can also be built by better joining up central and local government. The Beyond Whitehall programme has started to move in this direction, but should be bolder than the relocation of civil servants. Shared commercial teams, digital platforms, and skills/training programmes could be introduced between central government, local government, and other public sector bodies. For example, a regional pathfinder of a public service talent development scheme between the civil service, local government, NHS, police, fire service, and other bodies could produce a cohort of locally embedded public servants with an understanding of the interdependencies between organisations.l Alongside this, immediate steps could be taken to devolve powers under the three core pillars of the Plan for Growth: •

Infrastructure – Accelerating the delivery of transport infrastructure by granting powers, functions, and duties equivalent to TfL to MCAs with well-developed transport functions, and by streamlining Transport and Works Act Orders. Accelerating urban regeneration by creating a single disposal regime for all public sector land and property assets, including HMG estate, under the authority of metro-mayors (building on the One Public Estate programme).

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Skills – As outlined above in relation to the Ten Point Plan, utilising local and regional relationships between employers and local government to target employment support, careers services, technical education, and adult skills.

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Innovation – Addressing regional disparities in innovation funding by targeting the entirety of the uplift in public R&D investment outside of the Golden Triangle (as recommended

by Onward).li Devolving portions of this funding to MCAs through Innovation Deals, to support Local Industrial Strategies and overcome piecemeal approaches like the Strength in Places Fund (as recommended by Nesta).lii

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Devolution – A Longer-Term Settlement The Devolution White Paper will need to build on these initial steps and set out a vision for a new devolved settlement. This will need to cover four broad areas: Structures – The Devolution White Paper should set out a clear and consistent framework of institutions at multiple spatial levels. Whilst divergence should be possible in the activities and approaches of different areas, the ‘rules of the game’ should be clear to allow a national strategic direction to be followed. This requires steps to enshrine subsidiarity by setting out clear roles and responsibilities for Parish/Neighbourhood Councils at the hyper-local level, Metropolitan, District, and Unitary authorities at the local level, Combined Authorities at the regional level, and ‘Powerhouses’ or Partnerships at the pan-regional level.

Resources – Government needs to shift from national funding competitions on individual projects to devolved, flexible, and long-term pots based on outcomes, reducing the administrative burden on central government and facilitating innovation at a local level. Significant steps should be taken towards fiscal devolution, ensuring that more taxes are raised and retained within an area to be spent by local and regional governments on the barriers identified to broader national agendas (following initial steps outlined above).

Powers – The Devolution White Paper should take steps to push decision-making and delivery power down to the lowest effective level, particularly in transport, skills, education, housing, health, criminal justice, and economic development. New or empowered institutions may be required to build capacity and enable hyper-local organisations to take on these new responsibilities effectively.

Accountability – An accountability system needs to be introduced that ensures leaders deploy power and resources in line with mandates from citizens. This should include elements of accountability between localities and central government departments, through data-driven performance reviews. Doing this effectively will require significant investment in the data collection and analytical capacity outside of Whitehall. New forms of horizontal accountability will also need to be developed and strengthened. Without this, all parts of the system look towards the centre, furthering the burden of administration and ignoring other key voices, most crucially those of the public.

Steps to strengthen horizontal accountability could include the introduction of a national body to evaluate the performance of local and regional institutions and support political scrutiny by councillors and local MPs, as well as public scrutiny through the press. Steps should also be taken to shift Parliamentary accountability from departments (either Perm Secs or Ministers) to local The Commission for Smart Government is powered by GovernUp, an initiative of The Project for Modern Democracy, a company limited by guarantee no. 8472163 and a registered charity in England and Wales no. 1154924. Privacy Notice.

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institutions (either Chief Execs or Mayors/Leaders). Metro mayors and other local leaders should be brought in front of select committees on devolved funds and projects. A clearer process should also be introduced for monitoring levels of risk across the system and rapidly intervening where there is institutional failure – at present, this is a functional gap in the system.

Call for responses We welcome your feedback on the analysis laid out in this paper, and on the suggested steps to be taken. In particular, we are interested to gather views on the following questions: ● How can devolution support the delivery of core Government priorities like reaching net zero and levelling up? ● What are the barriers to devolving more power, and why have they been so difficult for successive governments to overcome? ● What initial concrete steps could be taken to realise the potential of devolution? How could these pave the way for a longer-term shift?

Please send your feedback to commission@governsmarter.org

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Authors Adam Hawksbee is Head of Policy at the West Midlands Combined Authority. He was previously a Research Fellow at the Bloomberg Harvard City Leadership Initiative, and a Kennedy Scholar at the Harvard Kennedy School of Government.

Dr Simon Kaye is Senior Policy Researcher at New Local. He has previously worked as Research Director at the Project for Modern Democracy and as an academic at the Department of Political Economy, King’s College London.

i

Danny Kruger, 2020, Levelling up our communities: proposals for a new social covenant (UK Governmentcommissioned report) ii Michael Gove, 2020, The Privilege of Public Service (Ditchley Annual Lecture) iii Ibid. iv W. Edwards Deming, 2000, The New Economics for Industry, Government, Education (MIT Press) v Zeynep Ton, 2014, The Good Jobs Strategy (New Harvest) vi John Allan, 2021, Chair’s Introduction, in Levelling up Communities (Covid Recovery Commission) vii David Cameron, 2010, This is a government that will give power back to the people (The Guardian) viii See, for example, the final report of the RSA Inclusive Growth Commission, 2017, Making our Economy Work for Everyone ix See, for example, Institute for Government, 2020, Whitehall Monitor 2020; Anthony King and Ivor Crewe, The Blunders of our Governments (2013) – particularly Chapter 21, ‘ The Centre Cannot Hold’; Demos, 2020, Achieving Levelling-Up x Boris Johnson, 2020, Our New Deal for Britain xi IPPR North, 2019, Divided and Connected, p. 23. A great deal of public money is, of course, spent locally – but via inefficient infrastructure arranged by central government departments. xii Philip Booth, 2015, Federal Britain (Institute for Economic Affairs), p. 18 xiii See, for example, Urban Transport Group, 2020, The Local Transport Lottery; Localis, 2014, To bid or not to bid: calculating the costs of competitive funding processes; Abigail Taylor, 2019, The realities, challenges and strengths of the external funding environment at LEP level (Smart Specialisation Hub) xiv See comments by Sharon White, HMT, 2015, and former Government minister Nick Raynsford xv See Martin Wheatley’s 2021 research note on government in Germany and its performance during the pandemic: Germany: Federal, state and local, and the response to coronavirus, Commission for Smart Government xvi Commission for Smart Government, 2020, ‘What’s Gone Wrong with Whitehall’ xvii See the Nottingham Trent C19 National Foresight Group findings, as reported by Dan Peters, 2020, Local areas left in the dark by government (The Municipal Journal) xviii Deborah Cadman, ‘A New Relationship with Whitehall’ in Reform, 2020, Building a Resilient State xix Tom Sasse, 2021, EU vaccine debate highlights UK success – and need for diplomacy (Institute for Government) xx Danny Kruger, 2020, Levelling up our communities: proposals for a new social covenant (Government-commissioned report) xxi Nick Plumb, 2020, What next for the UK’s High Streets? (Power to Change); Centre for Cities, 2019, What’s in store? xxii Randle, Plimmer & Lowe, Keep it Local Principle One, Locality; Hilary Cottam, 2018, Radical Help (Harper Collins) xxiii Simon Kaye, 2020, Think Big, Act Small (New Local) The Commission for Smart Government is powered by GovernUp, an initiative of The Project for Modern Democracy, a company limited by guarantee no. 8472163 and a registered charity in England and Wales no. 1154924. Privacy Notice.

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xxiv

Tiratelli & Kaye, 2020, Communities vs. Coronavirus (New Local) Kaye & Morgan, 2021, Shifting the Balance (New Local) xxvi Power to Change, 2020, Reflections on community business resilience and research during a pandemic xxvii Michael Porter, 1985 (this ed. 2008), Competitive Advantage: Creating and Sustaining Superior Performance (Free Press); Roberto Unger, 2019, The Knowledge Economy (Verso); Jane Jacobs, 1970, The Economy of Cities (Vintage) xxviii Annalee Saxenian, 1996, Regional Advantage (Harvard) xxix See Harvard Growth Lab’s Atlas of Economic Complexity; Brookings Institute, 2019, Growing cities that work for all xxx Bruce Katz, 2018, The New Localism: How cities can thrive in the age of populism (Brookings Institution Press) xxxi Liz Farmer, 2014, Economic Gardening is Growing, but what is it? (Governing) xxxii Dani Rodrik, 2019, Building a Good Jobs Economy (Working Paper) xxxiii Geoff Mulgan, 2020, The case for mesh governance xxxiv This was a core criticism of the coalition government’s ‘Big Society’ project: by partnering fiscal austerity (which local authorities arguably felt the brunt of) with a drive for community empowerment, it effectively sought to bypass local institutions and establish an unworkable-at-scale relationship between central government and local communities. See, for example, Howard Gibson, 2015, Between the state and the individual (Citizenship, Social and Economics Education) xxxv To realise these benefits, effort may be required to restore the social fabric in some places, as part of the ‘levelling up’ agenda. See Tanner et al., 20202, The State of our Social Fabric (Onward) xxxvi Hughes & Southwood, 2021, Strong Suburbs (Policy Exchange) xxxvii See the Prime Minister’s speech at the Manchester Science and Industry Museum, 2019 xxxviii Covid Recovery Commission, Levelling up Communities, p. 11 xxxix Sarah Nickson, 2020, Clear objectives will help make relocating civil servants a success (Institute for Government) xl Hollingsworth & Hawksbee, 2021, Beyond a Whitehall lift and shift: Making a success of public sector relocation (Centre for Cities); Institute for Government, 2020, Moving Out: Making a success of civil service relocation xli See Gash, Randall & Sims, Achieving Political Decentralisation (Institute for Government, 2014) for a discussion of this political consensus and an overlapping account of some of the barriers raised in this section xlii Kaye & Morgan, 2021, Shifting the Balance (New Local) xliii See Pollard, Studdert, & Tiratelli, 2021, Community Power: The Evidence (New Local) for a wider discussion of how these approaches can produce value for money, as well as efficiencies of other kinds that are sometimes not captured by conventional metrics xliv HM Government, 2020, The Ten Point Plan for a Green Industrial Revolution xlv Birkett & Nicolle, 2020, Charging Up (Policy Exchange) xlvi Colm Britchfield, 2020, The government should fix the failing Green Homes Grant (Institute for Government) xlvii Marc Kidson and Emma Norris, 2014, Implementing the London Challenge (Institute for Government) xlviii Urban Institute, 2018, Inclusive Recovery in US Cities; Joseph Rowntree Foundation, 2010, Phoenix Cities: the fall and rise of great industrial cities xlix Blagden, Groom & Tanner, 2020, Levelling up the tax system (Onward) l Hollingsworth & Hawksbee, 2021, Beyond a Whitehall lift and shift: Making a success of public sector relocation (Centre for Cities) li See Onward’s work on innovation policy lii Forth & Jones, 2020, The Missing £4 Billion: Making R&D work for the whole UK (Nesta) xxv

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