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Rewiring the State and fiscal devolution

New PM Andy Burnham has called for good growth in every postcode. The Rewiring the State paper positioned devolution as a fundamental part of delivering on this agenda, and this was reinforced by the Budget and accompanying Fiscal Devolution Roadmap. In combination, these promise more powers and spending freedoms for existing Strategic Authorities, and the continued expansion of Strategic Authorities across England.

The Fiscal Devolution Roadmap includes greater and more consistent local retention of the revenue from business rates and, for the first time, retention of a share of income tax for elected mayors. The intention is to move away from grant cycles by giving local leaders longer term funding certainty, provide greater flexibility in how that funding is used, and increase incentives for local growth by enabling local retention of a share of the proceeds of that growth. The Government has also allocated £285m for Good Growth Funds although, given the commitment to spread this across England, the more significant figure may be the £1.5bn borrowing facility announced for Mayoral Strategic Authorities.

There is much detail to work through in the forthcoming Rewiring the State Delivery Plan and Spending Review, but the overall direction of travel is clear: existing strategic authorities will have more freedoms to address local priority issues and will share in the (fiscal) rewards of doing so.

Alongside the creation of new devolution agreements across England, this provides a fresh opportunity to think about how the (still relatively limited) public resources available to local leaders are best used to support economic growth.

Our experience in supporting local economic growth

We have considerable experience of advising on and evaluating the consequences of local decision making from our work with Combined Authorities and Local Authorities across several policy domains, and indeed a track record over previous decades from work with Regional Development Agencies and sub-regional bodies such as LEPs.

A high profile example is our evaluation support to MHCLG for devolved Investment Funds (known as gainshare in some places) which were a flexible source of funding agreed through Devolution, City and Growth Deals. Starting with Greater Manchester CA and Leeds City Region, and most recently expanded to York and North Yorkshire CA and East Midlands MCA, our work covers funds held by 12 Combined Authorities across England in addition to similar funds awarded to the Greater Cambridge Partnership, Glasgow City Region and Cardiff City Region. We also support Independent Economic Reviews, strategy development, training and capacity building, as well as business case and appraisal processes across the country.

From this experience, we have identified a series of strategic issues facing leaders in developing Investment Strategies and deploying their local funding. These are overarching issues that should shape the mix of project ideas put forward in subsequent business cases. They apply most strongly to flexible funding streams which is particularly important as this type of funding looks set to grow further under the Burnham government.

Using devolution to maximise alignment and impact

Integrated Settlements provide funding to Mayoral Strategic Authorities but offer only limited flexibility and have a strong focus on specific policy domains. The Budget and Roadmap present fiscal devolution as a way to increase flexibility. Local leaders should therefore think about how best to maximise impact from their different funding streams, including the fit between more and less flexible resources.

The flexible funds come with a strategic choice. Should the funding be used generically to support the full range of priority areas identified by the Strategic Authority, or targeted at specific priorities? This targeting could be: thematic in terms of activity type, such as business support projects or transport interventions; a sector based targeting that is place-agnostic; a geographic focus to deliver a range of different measures to regenerate a particular place; or a combination of sector and geographic targeting through Science Park or Innovation District models.

The first option of not targeting the funding is likely to result in a portfolio of small, disparate projects that may not reinforce each other or lead to agglomeration benefits. Where institutions are new and partnerships not yet fully mature, we have seen examples where there was a pressure to spread investment thinly as a way to develop or enhance partnerships. However, this approach does not necessarily fit well with a long term ambition to generate growth by supporting the most impactful projects.

Even thematic targeting does not necessarily guarantee a coherent package of projects. For example a programme solely focussed on transport could include upgrades to a train station in one part of the geography, a new relief road in another part, and park and ride infrastructure in a third. All three are transport interventions, but differences in activity type and delivery geography may mean the opportunity for a collective impact that is more than the sum of its parts is lost. This approach also relies on the rest of the economy to be functioning well to achieve the largest impact from the thematically targeted funding.

A key devolution benefit should be that local leaders can ensure investments are joined up to maximise impact. This includes aligning flexible funding with wider responsibilities and powers around transport, skills and business support for example. This could be by supporting a range of different types of interventions that target a particular place within the Strategic Authority geography, or several interventions to support a specific sector across the entire Strategic Authority geography. Ideally these local investments should align with national investments into the same place/sector to deliver further impact.

In our experience, these are the joined up, strategic investments that local leaders should be targeting. This requires strong and capable leadership given the inevitable trade-offs involved in decision making.

Identifying appropriate targets

Through our work on devolved Investment Funds and wider projects, we have seen multiple approaches to this, such as local leaders using capital and revenue funding to support the needs of a key cluster across a city region, or bringing forward a coordinated package of infrastructure investments to open up sites and enhance connectivity to existing key assets.

If local leaders do pursue this joined up approach, what sector and/or place should they target? There is no one size fits all answer as this depends on the unique characteristics of each local economy. Decisions should be informed by a robust evidence base on local challenges and opportunities, as well as the strategic priorities of the Strategic Authority and key stakeholders.

After the most promising targets have been selected, there is still much work to do. The overarching strategies must be converted into ideas for specific actions, ideally by drawing on robust evaluation evidence on ‘what works.’ This should inform strong Business Cases - potentially using the new guidance on place-based business case approaches - with these subject to proportionate appraisals.

Concluding thoughts

Generating good growth in every postcode is a nationally important mission. The initial fiscal devolution announcements are an important step towards this. Local places now have a more important role than ever and so the quality of leadership teams and the (funding) decisions they make will be crucial.

In developing Investment Strategies and Economic Growth Plans, places should aim to maximise the alignment and impact of their investments, avoid the risk of spreading the jam too thinly, and ensure investment decisions reflect local opportunities and challenges. Delivering against this is easier said than done, but local leaders have a responsibility to residents and businesses to use public money wisely to generate good growth for all.

Please contact us if you would like to discuss SQW’s work in developing evidence bases for Investment Strategies and Economic Growth Plans, support with business case development or appraisal processes, or evaluation to find out ‘what works’ and why.