Economic Affairs Committee
Tuesday 30th June 2026
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15:15
15:15
Speaker 2
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Speaker 2
Well, welcome to the Lords Economic Affairs Committee. Fifth evidence session of our inquiry into the, um hot topic of fiscal devolution in England. Um and we're delighted to have two experts with us Doctor Jonathan Carl West, chief executive of the Local Government Information Unit, and Thomas Pope, chief economist at the Institute for government. We're very, very grateful for your time. Thank you so much for coming. Um, this is being broadcast on Parliament live TV, and a full transcript will be taken so that we can share it with you after the meeting to make any factual corrections.
Can I start by asking you a general question about the case for devolution?We're an economic affairs committee. Uh, but there are contending rationales for significant devolution. Do you think that, uh, questions of enhancing democracy, enhancing the power of local politicians is a good enough argument for devolution, irrespective of the case for it positively affecting economic growth and economic outcomes?Or do you not think that?Jonathan, maybe you could start with that.
Can I start by asking you a general question about the case for devolution?We're an economic affairs committee. Uh, but there are contending rationales for significant devolution. Do you think that, uh, questions of enhancing democracy, enhancing the power of local politicians is a good enough argument for devolution, irrespective of the case for it positively affecting economic growth and economic outcomes?Or do you not think that?Jonathan, maybe you could start with that.
15:16
15:16
15:17
Speaker 3
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Speaker 3
I think it is I think I think devolution, I think localism has a series of benefits. It has a democratic benefit. All things being equal, people decisions should be made by the people closest to them. But I also think it has a series of sort of public good benefits, um, social cohesion, democratic engagement, as I said, more efficient management of local public services. I think targeted prevention is incredibly hard to do. I mean, we have seen how hard that is to do from sort of siloed Whitehall departments.
So I think the case for democratic accountability is, is really strong. I don't think it's just a sort of soft add on to growth. The current system blurs accountability. Mayors and council leaders are held responsible for outcomes that they can't necessarily control. Citizens. Residents can't don't know who, who to point the finger at when things don't work in their own neighborhood. Is that the council?Is that the strategic authority?Is that government?Everyone blames each other.
All of that, I think, feeds into some of the kind of challenges around political, you know, declining trust in politics, political disengagement, political polarization that we're seeing accelerating around the country. And I think there's quite good OECD analysis to support that, that where you have own source revenue that strengthens transparency, reinforces democratic accountability. Interesting.
So I think the case for democratic accountability is, is really strong. I don't think it's just a sort of soft add on to growth. The current system blurs accountability. Mayors and council leaders are held responsible for outcomes that they can't necessarily control. Citizens. Residents can't don't know who, who to point the finger at when things don't work in their own neighborhood. Is that the council?Is that the strategic authority?Is that government?Everyone blames each other.
All of that, I think, feeds into some of the kind of challenges around political, you know, declining trust in politics, political disengagement, political polarization that we're seeing accelerating around the country. And I think there's quite good OECD analysis to support that, that where you have own source revenue that strengthens transparency, reinforces democratic accountability. Interesting.
15:18
15:18
Speaker 4
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Speaker 4
I suppose, but building on what Jonathan said, I would say that the cases are quite linked in that lots of the the ways in which you think that fiscal devolution might lead to better economic growth or better policy outcomes in various ways runs through that, that empowerment and strengthening of accountability of, of local leaders, where if you contending rationales that we may may get on to as to why and how fiscal devolution might be good for economic growth, whether you think it's because it gives local politicians a greater incentive to improve economic outcomes in their region, or if you think it's provides a level of long term certainty and greater flexibility about how to use money, allowing, therefore, mayors and other local politicians to do things differently, that that, you know, both of those rationales run through and empowerment principle.
We don't have a house view as to whether it's worth doing just, just on that basis. And as a think tank, that tends to focus on how to achieve the government's objectives. Government of the day's objectives. Most effectively, we would think about what is the government's rationale here. But I think the cases are very linked. And as Jonathan says, that lack of public trust in general, that democratic disengagement is itself bad for policy making, both nationally and locally.
We don't have a house view as to whether it's worth doing just, just on that basis. And as a think tank, that tends to focus on how to achieve the government's objectives. Government of the day's objectives. Most effectively, we would think about what is the government's rationale here. But I think the cases are very linked. And as Jonathan says, that lack of public trust in general, that democratic disengagement is itself bad for policy making, both nationally and locally.
15:19
15:19
15:20
15:20
Speaker 4
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Speaker 4
Yeah. I mean, a good, good evidence internationally that particularly fiscal devolution actually is associated with, um, stronger economic growth outcomes and also generally less inequality between regions. I think there are also reasons to think that that's not just a, a correlation. And there are.
15:20
15:20
Speaker 4
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Speaker 4
Yeah. I mean, a good question. I think there are, as Jonathan alluded to, good evidence internationally, that particularly fiscal devolution actually is associated with, stronger economic growth outcomes and also generally less inequality between regions. I think there are also reasons to think that that's not just a correlation. And there are some causal relationships. There. Um, so I think it's it's important therefore to see kind of the centralisation of our states, a long standing, um, a longstanding feature as something that has led to at least contributed to, even if it's not the only cause of that big difference between London and South East and the rest.
It's right to say that that dominance of one region over the rest is not shared by other countries. But we shouldn't overstate the sort of equality of other countries. It's not like in those other places where there's fiscal devolution, the differences between different city regions or different, uh, different regions, administrative regions are only marginal. There are still quite big degrees of, of inequality. And for that reason, there is, uh. Fiscal equalization and other mechanisms in place. So certainly the fact that London and the South East is at a different starting point means that we need to think carefully about the design of devolution and specifically fiscal devolution.
But I don't think it's a reason to to put it in the too difficult box.
It's right to say that that dominance of one region over the rest is not shared by other countries. But we shouldn't overstate the sort of equality of other countries. It's not like in those other places where there's fiscal devolution, the differences between different city regions or different, uh, different regions, administrative regions are only marginal. There are still quite big degrees of, of inequality. And for that reason, there is, uh. Fiscal equalization and other mechanisms in place. So certainly the fact that London and the South East is at a different starting point means that we need to think carefully about the design of devolution and specifically fiscal devolution.
But I don't think it's a reason to to put it in the too difficult box.
15:22
Speaker 3
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Speaker 3
Well, of course, harder to do and more urgent might not be mutually incompatible. Could be both. I would argue it is both. Um, I think you know England, England's a bit weird, right. We're one of what, only six countries in the world that doesn't have a codified constitution. And I think that makes some of these regional power imbalances much harder to to challenge. So, you know, we heard we heard a lot about Germany's basic law yesterday.
Um, but, you know, it's really interesting. So so that stipulates that resources have to be redistributed. There has to be uniformity of living standards across the republic, the country. And that means that if places aren't getting that, that can be challenged constitutional in the courts. So it's a very, very different setup. So I think. Of course, we don't look at, you know, when you look at countries that that have a greater degree of fiscal devolution than we do, which by the way, is pretty much everywhere.
Yeah. Um, it's not like they're sort of paradises of equality and they don't have have inequalities, titlist Tom said. But they do. Devolution does also give you provide you potentially with mechanisms for dealing with those inequalities, putting equalization processes in place and for to some extent, depoliticizing that or at least taking it out of the politics of the moment, because it becomes part of a sort of constitutional settlement rather than a sort of political football between the government of the day and whoever controls those, those places.
Um, but, you know, it's really interesting. So so that stipulates that resources have to be redistributed. There has to be uniformity of living standards across the republic, the country. And that means that if places aren't getting that, that can be challenged constitutional in the courts. So it's a very, very different setup. So I think. Of course, we don't look at, you know, when you look at countries that that have a greater degree of fiscal devolution than we do, which by the way, is pretty much everywhere.
Yeah. Um, it's not like they're sort of paradises of equality and they don't have have inequalities, titlist Tom said. But they do. Devolution does also give you provide you potentially with mechanisms for dealing with those inequalities, putting equalization processes in place and for to some extent, depoliticizing that or at least taking it out of the politics of the moment, because it becomes part of a sort of constitutional settlement rather than a sort of political football between the government of the day and whoever controls those, those places.
15:23
15:24
Speaker 5
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Speaker 5
My question really leads directly from from what we've just been talking about, because clearly there are major inequalities in the country. And although I'm sure you're right, and discontent is about a lack of accountability and all sorts of other reasons, but perceived inequalities is absolutely one of the reasons why that discontent is particularly rife. And so I wonder just how far you think equalization needs to go, and whether we should be prepared to see. Inequalities. Persist, but potentially if some areas really make the most of devolution and truly prosper more than they do now, those inequalities in some areas could even get greater.
So perhaps, Thomas, we could start with you. What do you think the public would put up with on that front?
So perhaps, Thomas, we could start with you. What do you think the public would put up with on that front?
15:40
Speaker 4
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Speaker 4
I think, yeah, it's important to distinguish here between different types of inequality, I suppose. So we could think about inequality of of outcomes. And we currently have very big inequality of outcomes in this country. And we talked about that regional inequality between economic outcomes. Say you could also think more specifically about inequality of um of. Kind of public spending. And actually we currently have a system that tries as far as possible to equalise local government resources across places according to need.
So we, um, you know, we, the amount of revenue that is raised in a place does not really contribute, does not, is not well correlated at all with how much we spend in that place. And that's a deliberate choice. Fiscal devolution, certainly if you wanted to maintain some kinds of incentives for growth within, that would likely require that closer link, at least some closer link between, at the very least, growth in revenues from your starting point and growth in resources to spend. And so that does imply greater inequality there.
I would distinguish, I suppose, between, um, a, a level of there are services that are absolutely essential and public service delivery, for example, where there's certainly a, a lower bound beyond which we wouldn't be willing for places to go. And there's also a difference between um, kind of deviation in, in the short term, when there might be a reset that came along at some point and deviation in the long term. I think it's important to note that most other countries don't aim for this full equalization of resources in the way that we do.
So if we look at those other countries that have fiscal devolution, they do have strong equalization mechanisms. They have countervailing transfers from richer places to poorer places, and in particular, that's attempting to lift up poorer places to some kind of.
So we, um, you know, we, the amount of revenue that is raised in a place does not really contribute, does not, is not well correlated at all with how much we spend in that place. And that's a deliberate choice. Fiscal devolution, certainly if you wanted to maintain some kinds of incentives for growth within, that would likely require that closer link, at least some closer link between, at the very least, growth in revenues from your starting point and growth in resources to spend. And so that does imply greater inequality there.
I would distinguish, I suppose, between, um, a, a level of there are services that are absolutely essential and public service delivery, for example, where there's certainly a, a lower bound beyond which we wouldn't be willing for places to go. And there's also a difference between um, kind of deviation in, in the short term, when there might be a reset that came along at some point and deviation in the long term. I think it's important to note that most other countries don't aim for this full equalization of resources in the way that we do.
So if we look at those other countries that have fiscal devolution, they do have strong equalization mechanisms. They have countervailing transfers from richer places to poorer places, and in particular, that's attempting to lift up poorer places to some kind of.