Despite devolution deals continuing to make headlines, the United Kingdom remains one of the centralised states in the western world. Here, Dr Su Maddock makes the link between effective regional governance, inclusive growth, and the innovations and negotiating capacities that are essential to meeting the challenges of Brexit.

• The UK’s regional economic inequalities, rather than rates of immigration, are driving the conditions that led to the Brexit vote
• Local authorities and city regions are delivering exciting innovations in local governance, despite dramatic spending cuts
• Progressive change cannot be realised within a prevailing Whitehall culture of centralisation and stubbornness
• We must learn from other European countries and build inclusive economics and regional devolution into our politics

In 2016 the British people voted to leave the EU. This was a cry for help from those in despair rather than the voice of conviction. Regional inequalities and a radical decline in services are worse in the UK than in other OECD countries (see the 2014 Adonis Review [.pdf] for a fuller discussion) and the current economic model leaves the regions severely disadvantaged. It is national economic model which is causing hardship, not immigration.

The challenge for the government is to rebalance the economy and find a more sustainable route to social and economic stability. The question is how to kick start such a model? National politicians could learn from leaders in small countries and cities who are forging more inclusive economies.

This is within a difficult environment: local councils are struggling with dramatically reduced finance and the abolition of the Regional Development Agencies. The Adonis Review argued convincingly that Local Enterprise Partnerships (LEPs) are no substitute, with much less investment, poor strategic leadership and executives mesmerised by grand schemes.

In 2011-12 the UK government investment in economic development in London was 88% more than in the Southwest and 108% more than in the West Midlands. Government spends 157% more per head on transport in London than it does in the North and 259% more than in the South West, despite the main Devon and Cornwall line falling regularly, into the sea.

As part of the Labour Party’s 2013 policy review, the Leese Report called for properly funded, decentralised services and the powers to raise income and taxes to support transformation. The Adonis Review recommended that local councils should be able to determine their own tax base and greater devolution of funding to the Combined Authorities.

City Innovation and New Economics

In spite of reduced regional investment and local government cuts the Combined Authorities in Manchester, Liverpool and Leeds are developing economic strategies which could provide a footprint for the future. It is civic leaders who are tackling inequalities, housing shortages, transforming services and investing in digital and physical infrastructure.

Local Authorities with local partners, including business and the universities, are agreeing place-based strategies that bring key agencies and business together. They are developing new ways of working and driving alternative economic models that value social assets as well as wealth creation.

Transformational change is also taking place in smaller cities such as Swindon and in university towns, where the economy is buoyant such as in York, Bristol, Reading and Exeter.   Nottingham is now a system leader in low-emissions and universities like UCL and the Open University are developing integrated and sustainable systems for energy and waste

Bristol soon to be combined authority where the Mayor Marvin Reese very committed to tackling inequalities and a more inclusive local economy that values the social infrastructure of child and social care and has set a Women’s Commission.

The challenge for local leadership is to widen economic strategies and embrace building local resilience, skills and regional supply chains and agree new forms of governance to guide political decision-making.

Most local councils now accept that building the capacity for service innovation necessitates a transformation of corporate services in finance, digital, human resources and performance management, because these are the systems that need to change to support the integration of services. This transformation includes developing new ways of measuring social, environmental and economic outcomes.  If corporate systems are not aligned to service innovation then the latter remains piecemeal and easy to undermine. Similarly, Digital strategies cannot be stand-alone they need to dovetail with innovation strategies and business planning. Digitalisation is essential for connectivity but, as Robin Hambleton recently argued, it is not a panacea, new technologies are market driven and need harnessing to social and economic priorities.

Civic leaders recognise the need to engage with communities to co-redesign services and housing.  Some have set up their own policy units to champion inclusive growth and to provide politicians with research and intelligence. The Inclusive Growth Analysis Unit (IGAU) has consulted widely on what inclusive growth in Manchester might look like. The IGAU’s Professor Ruth Lupton, IGAU says that unfortunately the business sector remains sceptical about the model which is welcomed by public and third sectors.

Whitehall systems thwart Local Innovation

Most agree that the Combined Authorities should persist with social and economic reform even if their plans do not chime with the government’s short-term business growth model. In spite of devolution agreements the Combined Authorities remain subject to top-down constraints, short-termism and financial constraints.  This is a problem.

The impact of government’s performance management on local services should not be under-estimated; and affect procurement, audit and research I first drew attention to how short-termism and tight targets undermined the trust and relationships that service innovation and partnership development in 2002.  Ultimately, government will need to recognise the consequences of thwarting civic leaders  and systemic innovation in cities.  If the Combined Authorities only measure success through a Whitehall lens they will undermine the local relationships that underpin inter-agency working and the capacity to respond to challenging conditions.

The struggle for who defines and drives transformation is dependent on both the strength of local leaders and the openness of Whitehall officials.  An Inclusive economic model has to be aligned to the scale and pace of locally determined, place-based strategies.

The efforts of civic leaders are likely to fail without commensurate change in Whitehall. The success of the regions and cities depends on government creating economic and governance frameworks that support a more equitable distribution of government investment and, devolution strategies that are not centrally driven.

Ultimately an inclusive economy is dependent on locally-driven devolution and a new settlement between government and the Regions.  The Cities provide an early footprint based on community resilience and economic activity as a strong foundation for a more sustainable national economy. The challenge to ministers and civil servants is to respect cities and develop a governance framework that nurtures, values and responds to devolved policy-making.

The RSA in a recent report is arguing for further devolution of power and a new Social contract between central and the combined authorities. An inclusive national economy is integrally linked to fully devolved powers and budgets and a necessary rebalancing of the state and place-based economic, industrial and social reform strategies. This demands radical change in Whitehall and within parliamentary politics.

Regional governance, national interest

Underpinning inclusive economics is a need for Whitehall:

• to recognise the scale and pace of place-based development and greater flexibility in centrally driven performance management
• to value the social infrastructure (child and social care and personal support) and building connectivity and capabilities as well as wealth generation
• develop more egalitarian settlement between Whitehall and Devolved Cities & Regions
• a fairer redistribution of devolved funding to the regions

Those countries where national politicians have more respect for the role of local leaders and value of cities and local economics, such as Denmark or the Netherlands tend to value people and the strength of collaboration and is underpinned by a greater respect for negotiation and regional governance, although this too has been undermined by austerity measures.

The fact that Whitehall lacks collaboration and negotiation capabilities is a problematic for both Devolution and Brexit. National politicians and civil servants could learn from small countries where leaders debate and cooperate.

Erna Solberg, the Norwegian prime minister said that the UK is more likely to end up with Hard Brexit because politicians and civil servants lack negotiation skills and mistake stubbornness for strength.