The productivity issue in the UK is often framed as an issue driven by economic outcomes. This idea neglects some of the more complex structures that exist and contribute to the economic gaps in the UK. Professor Dave Richards, Professor Patrick Diamond and Dr Anna Sanders outline how government policy in the UK is too centralised and top-down, which creates a structure that is inherently dismissive of local needs and circumstances. Is this British state and its associated institutions appropriately equipped to deliver devolution deals?

• Tackling the productivity puzzle will not work through alterations to the industrial base and economy alone.
• A new framework is needed in which processes of decision-making can be arrived at from de-centred forms of network governance.
• The necessary changes are halted by a lack of funding and an inappropriate government structure.

The dominant, yet problematic framing of the productivity puzzle in the UK is as an economic issue. This approach glosses over a wider set of complex, political challenges concerning the nature of UK governance. As Boris Johnson observed when setting-out the government’s levelling up agenda: ‘… It is not just that this country is the most economically imbalanced – it is the most centralised … For many decades, we relentlessly crushed local leadership’. The corrective identified in the February 2022 Levelling Up White Paper is wholesale: ‘a new model of government and governance of the UK … rewiring Whitehall … A devolution of decision-making powers to local leaders where decisions are often best taken’. This is a familiar refrain flagged by past governments. But so far, it has not led to the abandonment of what fifty years ago was described as the UK’s centralised ‘power-hoarding’ tendency.

Key to the levelling up agenda is a commitment to a range of investment, productivity and growth strategies in response to both short-term drivers – most notably the COVID-19 pandemic and Brexit, and longer-term pressures arising from the UK economy’s relatively poor productivity performance and deep spatial inequalities. For example, in 2019, gross value added per head of population was £49,325 in London while for the north[1]east, the figure was £20,118.

The UK’s system of governance and anaemic productivity

But is the UK’s system of governance as much part of the problem as the solution to anaemic productivity? There is a critical view that government policy in the UK has consistently been too centralised, ad hoc, top-down and dismissive of local needs and circumstances. Johnson echoes this view: ‘Government is there to provide a strategic lead but that requires consistency from government – not chopping and changing – in the last 40 years we have had 40 different schemes or bodies to boost local or regional growth … and yet none of these initiatives have been powerful enough to deal with the long term secular trends – de-industrialisation or the decline of coastal resorts and that basic half-heartedness has been coupled with an unspoken assumption by policy makers that investment should always follow success.’

A command and control model overseen by Whitehall, invariably driven by short-term political interests and therefore subject to continual churn, is not an effective mechanism for addressing what has been labelled the UK regional-national economic problem. Moreover, the issue of endemic centralisation exposes a critical dilemma that our project for The Productivity Institute seeks to address, framed around this question: Is the British state and its associated institutions appropriately organised and equipped to deliver on a devolved and variegated economic strategy that seeks to address the UK’s relatively poor productivity performance?

Tackling the productivity puzzle

The research seeks to illustrate that tackling the productivity puzzle will not work through alterations to the industrial base and economy alone. It requires a fundamental reassessment of the role of local governing and economic institutions to allow them to tackle the distinct and varied productivity problems that they face in terms of their locality. A theme crucially identified in the Levelling Up White Paper: Standard economic theory does not assign these institutions much of a role in explaining patterns of growth. Institutions are typically assumed to be an organisational “veil” that can be looked through when explaining the fundamental drivers of growth, rather than a key determinant or driver of economic health. Our argument then is simple but fundamental; the arrangements and quality of public institutions and governance are a crucial piece to solving the UK’s productivity puzzle.

UK governance arrangements have historically entailed a system of elite government legitimised through mechanisms of accountability and elections. Such a system may have been viewed as effective in delivering policies based on equity, such as the NHS and the post-war welfare state, or in the perceived national interest, such as an economic policy that privileged London over regional and industrial economic interests because local and sectional interests could be managed by a dominant centre. Yet even then, the centre struggled to make much discernible impact in improving UK growth and productivity performance.

In the last decade, governments have sought to address the issue of under-performing UK productivity through a range of initiatives focusing on the issue of variable, regional economic performance including, in turn: a new localism and post-bureaucratic state; the ‘rebalancing’ agenda; the ‘Northern Powerhouse’ and city-region devolution; and more recently its ‘levelling up’ and post-COVID-19 ‘build back better’ vision.

The need for a new framework

A new framework is needed in which processes of decision-making and policy implementation move beyond a government-centred approach to account for more complex, de-centred forms of network governance. This is one of the most significant debates confronting UK public policy, focused on the development of network governance and how it has led to both an erosion of state capacity and attempts to reconstruct it in the light of the pandemic.

Over recent decades, the shift to multi-level governance, devolution and the pluralisation of policy-making and delivery has effectively created a hybrid system: a strong core underpinned by notions of indivisible parliamentary sovereignty, alongside a system of fragmented policy delivery relying on a myriad of public and private bodies, agencies and devolved institutions. In various ways, both Brexit and COVID-19 have revealed the growing role of the public, voluntary and private sectors in the provision of collective goods. It highlights the complex networks required for policy implementation in the UK, particularly England, which has been at the forefront of creating a highly variegated mix of state, network and market approaches to deliver public goods and services.

As the Levelling Up White Paper correctly identifies, local agencies and decision-making processes are sclerotic, often contradictory, with overlapping responsibilities and ill-defined powers. One part of the issue is that at the local level, there is not the funding, governance structures or authority to develop the sorts of changes in training and infrastructure necessary to improve productivity at the local level. Effective, legitimate, democratically accountable institutions have all too often been absent from the governance landscape, underlined by the recent track record of Local Economic Partnerships (LEPs). Despite frequent and consistent calls for a new localism, and the development of regional devolution, key powers and financing remain centralised, particularly in England.

The Levelling Up White Paper should on one level be applauded for identifying the scale of the problem regarding UK governance and having ‘Local Leadership’ as one of its 12 missions. Its headline recommendation involves expanding the metro-mayor model [for England] though a flexible, tiered approach. The incentive is that: ‘those authorities with stronger decision-making structures will secure greater powers’. Yet wholesale reform not only requires the bolstering of powers downwards, but also overhauling the scale of powers and centralised decision-making claimed by the Westminster government. The concern remains that Treasury resistance over a loss of financial control will temper any meaningful recasting of central-local power relations. ‘New localism’ will remain immured by the shadow of Whitehall if the policy priorities of the centre and central Treasury control remain unfettered. This requires upwards-facing reform of the Whitehall Model and rethinking the top-down, fiefdoms approach government departments command over their functional policy domains – yet on this, there is silence.

Policy recommendations

• Tackling the productivity puzzle requires a fundamental reassessment of the role of local, but also central, governing and economic institutions to tackle distinct and varied productivity problems.
• A new framework is needed in which decision-making and policy implementation account for more complex, de-centred forms of network governance.
• Currently there is not the funding, governance structures or authority to develop the sorts of changes in training and infrastructure necessary to improve productivity at the local level.
• The Levelling-Up White Paper should on one level be applauded for identifying the scale of the problem regarding UK governance and having ‘Local Leadership’ as one of its 12 missions. Yet, wholesale reform, not only requires the bolstering of powers downwards, but also overhauling the scale of powers and centralised decision-making claimed by the Westminster government.

This article was originally published in On Productivity, a collection of thought leadership pieces and expert analysis addressing the gaps in economic performance across the UK, published by Policy@Manchester.

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