Special report: As devolution gathers pace, is Whitehall really ready to let go?

Written by Colin Marrs on 22 March 2016 in Feature
Feature

Passing powers from Whitehall to local areas is a key government goal. But do civil servants have enough understanding of what is happening on the ground to make the policy work? Colin Marrs talks to experts and officials to find out

At one time, no debate about the UK’s place in Europe felt complete without someone dropping the term “subsidiarity” into the conversation. Judging by the media coverage of the current Brexit debate, the word – ridiculed by some as an example of Eurocrat gobbledegook – has fallen out of fashion. In the meantime, the principle it describes – guaranteeing a degree of independence for a lower authority in relation to a higher one – is becoming increasingly relevant to English domestic policy.

Since 2010, the government has been busy decentralising power. Under the coalition, a patchwork of City Deals and Growth Deals saw bespoke packages of funding and powers devolved to local areas. More formal governance arrangements followed, via a clutch of combined authorities grouping together clusters of mainly urban councils. Some have criticised implementation as piecemeal, but the clear and gathering momentum towards decentralisation poses some big questions about the future shape of the civil service.

The government’s growing reputation for championing devolution may seem perverse to anyone who watched the coalition government’s hasty dismantling of existing regional governance structures – the Regional Development Agencies (RDAs) and government offices for the English regions. However, Dr Sarah Ayres, reader in public policy and governance at the University of Bristol, says: “Before 2010 there was a lot of talk about devolving, but really most big decisions went back up to Whitehall for sign off. There is now a genuine move to relinquish control.”


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Informal relationships

A key difference between the two approaches, Ayres says, is the development of a more informal culture in relationships between central government and local authorities. “The previous arrangements were very formulaic,” she says. “The RDA chairs used to meet every month with officials and the government set deadlines for the creation of regional strategies. Now there are lots of ad hoc meetings and conversations happening below the radar.”

But this model of “informal governance” brings new dangers, she says. “On the one hand it can lead to greater efficiency through more timely and streamlined decision making, based on high trust relationships. On the other, it may weaken transparency, accountability and legitimacy by undermining traditional, more formal, administrative structures.”

In line with the government’s flexible philosophy, the City Deals so far announced were negotiated one-by-one behind the scenes between officials and local politicians. They were announced in two tranches, and granted wildly varying powers and funding arrangements. The bewildering patchwork of resulting agreements was inevitable, given the previous failure of attempts to devolve power, according to Institute for Government researcher Joe Randall.

"There is now a genuine move to relinquish control" – Dr Sarah Ayres, University of Bristol

“If you were starting out from first principles, you wouldn’t dream of designing a system of governance based on a series of negotiated bespoke deals,” he says. “However, every previous government promised has devolution while in opposition and it never happened when they got to power. The only way that you could get it to happen was by getting departments to come together in an ad hoc way and agree each plan individually.”

And, the strategy has potential advantages, according to Andrés Rodríguez-Pose, professor of economic geography at the London School of Economics – not least in reducing the risks which stem from introducing new forms of governance. “If one of the pilot cities shows a particular approach doesn’t work then other cities can learn from that,” he says. “If something goes wrong in national government, it can hurt the whole country.”

Moreover, taking a cautious, incremental tack can help build demand and enthusiasm for devolution. “Devolution works best when there is bottom-up demand. England is not Belgium or Spain, countries where you have strong centrifugal movements,” Rodríguez-Pose says. “À la carte decentralisation ensures that you have local elites in areas which haven’t been given a deal who start saying ‘why haven’t we got these powers?’”

The patchwork strategy can present challenges for civil servants. With departments ceding different powers to different areas, the job of officials in the centre inevitably becomes more complex. “In the past, Whitehall hasn’t been particularly good at dealing with territorial complexity,” Randall says. “They are used to one-size-fits-all policies.”
 
Administrative burden

So far, the main focus of the new arrangements has been on transferring political decision making powers to local leaders. No real attempt has been made to create new legislative, administrative or delivery bodies, and delivery of services remains firmly with existing departments and agencies. However, the new political structures could begin to create pressure for new bureaucracies, according to Andrew Carter, deputy chief executive of think tank Centre for Cities.

“I think the regional politicians will quickly feel frustrations stemming from the distinction between making a decision and seeing it enacted,” he says. “They will want to get more control to ensure that when they pull a lever, things change on the ground. Some of this will be rebadging of existing departments and bodies which are already delivering things like skills or housing benefits locally,” he says.

“We want to see local areas owning policy," – Tom Walker, DCLG/BIS Cities and Local Growth Unit

Tom Walker, director of the Cities and Local Growth Unit, jointly owned by the Department for Local Government and the Department for Business, Innovation and Skills, is clear that devolution is not likely to stop at the political level. “We want to see local areas owning policy, undertaking service delivery and making funding decisions,” he says.

“As part of our discussions on transferring powers, we have been clear that places need to establish strong and effective governance arrangements locally to ensure that they can deliver. As places implement their deals and embed their new powers, we may well see changes in the machinery that underpins delivery, with more existing at a local level.” However, he warns: “I would expect this to take place within the spirit of public service reform with simple arrangements put in place rather than complex bureaucracies.”


Economic drivers

With such radical change on the horizon, it is worth pausing to ask what devolution is actually for.  Launching the first round of bids for City Deals in 2011, deputy prime minister Nick Clegg said that allowing cities to shape their own destiny could “get the national economy growing”. The then minister for cities Greg Clark backed up the point, outlining his desire to make cities “motors of our economic recovery”.

However, Rodríguez-Pose says there is little evidence from international studies that devolution actually boosts gross national product. “There are lots of good points about decentralisation – people tend to be happier, have a better perception of policies developed by local governments and political participation increases. However there is no evidence it helps economic growth – if anything it is the opposite,” he says.

The jury is also still out on whether government procurement is more efficient if handled at the regional rather than national level. The answer is not simple, according to Rodríguez-Pose. “Some projects – particularly big infrastructure investment – need large populations to make sure they work, and a big central authority to undertake them. However, in other cases, such as in welfare, delivery can be carried out better at a local scale.”

Carter adds that the civil service should not worry that the country is losing out on economies of scale by allowing more procurement to happen locally. “If we were genuinely harvesting economies of scale at the moment, then such concerns might be valid,” he says. “But national government is segmented and dislocated and efficiencies of scale are theoretical rather than practical.”

Moreover, devolving responsibilities can actually reduce risk in some areas, he argues. “When national government takes a punt on a large project, the cost of failure can be enormous. I am not saying the West Midlands or Sheffield are going to be any less likely to make mistakes but they would be different mistakes on a smaller scale.”


Show us the money

One challenge to boosting growth can arise from the mismatch between responsibilities ceded by government and the amount of accompanying funding passed down. “The temptation is to devolve more powers and authority and fewer resources, Rodríguez-Pose says. “You end up giving local bodies unfunded mandates and they end up having to provide the same services with fewer resources, which doesn’t work very well.”

In October, chancellor George Osborne laid out plans to allow local authorities to retain 100% of the business rates they raise. However, this move was matched by cuts to central government revenue grants. Business rates retention only balances this cut in cash terms and is a net loss of funding after inflation. Furthermore, the figures are based on optimistic growth assumptions by the Office for Budget Responsibility. Only combined authorities will have any control over raising business rates, and tight conditions will apply: the money must be spent on specific infrastructure projects and businesses must agree.

Carter says the current tax system needs to change more quickly as the relationship between taxpayers and decision makers evolves. “Taxes, including income tax, are all collected in a place, then sent to the government, churned through opaque formulae and returned to places,” he says. “However, we don’t advocate for full devolution – nowhere in the world has got that. There is always a blend between what is raised locally and centrally, but the UK is towards the centralised end of the spectrum currently.”

As the business rate restrictions show, the government is so far being extremely cautious about passing over tax raising powers to local bodies. In London, where devolution is more established, mayor Boris Johnson has already been calling for full control over council tax and stamp duty, as well as the ability to levy new taxes such as a tourist tax. Randall says: “It is clear at the moment that the big thing missing from the current approach is the fiscal side.”

"The big thing missing from the current approach is the fiscal side" – Joe Randall, Institute for Government

Part of the government’s timidity in this area is due to the current structures of accountability for public spending, according to Gillian Fawcett, head of the Governments Faculty at the Chartered Institute of Public Finance and Accountancy. “Accounting officers in departments still have a responsibility to account to parliament for how money is spent, and they need to provide themselves with assurance that money is being spent for the purposes it is meant to be,” she says.

Strengthening accountability at the local level is vital, Carter says, but he adds that there will always be a role for central government in providing assurance. “I can’t think of anywhere in the world where there is no central oversight of local government spending. Only a national civil service can offer that,” he says.

Oversight of public spending is crucial to the success of the policy, agrees Walker. “Departmental accounting officers will remain responsible for providing assurance to parliament for their departmental funds,” he says. “As such, one of the key considerations for departments involved with devolving budgets to local places will be to develop an assurance approach that provides flexibility while securing value for money.”


Treasury support

It is no coincidence that Osborne’s support for devolution has been vital in the progress made since 2010. Ayres says: “Departments are getting more used to the idea of letting go of some things, with those such as Transport much more comfortable with it than they were 15 years ago. However, bigger departments such as Health and Education are still very nervous. This is why it is important for the Treasury to force them to do it.”

Communities secretary Greg Clark, who moved to his current role after stints as financial secretary to the Treasury and cities minister, has been instrumental in pushing the devolution agenda forward within government, Randall says. “Experience from projects so far teaches us that having a strong ministerial team is key to successful policymaking,” he says. But Clark and Osborne’s are part of a team of devolution advocates that includes commercial secretary to the Treasury Lord O’Neill of Gatley, and DCLG minister for local growth and the Northern Powerhouse James Wharton, he adds.

Whether such strong support for devolution will remain after these politicians have left the stage is unclear. Advocates of the policy, however, believe the genie is out of the bottle and the momentum for greater decentralisation is unstoppable. Walker is convinced that profound effects in how Whitehall operates are inescapable. “Devolution is a fundamental change in the way the country is run, and clearly this will have implications for the way we, as civil servants, work,” he says.

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