Centre for Public Policy

This blog is part of the Centre for Public Policy UK General Election Policy Insights series.  

Author: Professor Sir Anton Muscatelli, Principal and Vice Chancellor of the University of Glasgow

The topic of how to re-boot productivity growth in the UK has featured large in the general election campaign. The two main political parties have presented competing visions for growth.

In broad terms, the Conservatives have focused on prospective tax and national insurance reductions with some local investments in towns, echoing some of the ‘levelling up’ investments which have happened in recent years like ‘city deals’. Labour has instead focused on an integrated strategy to re-boot economic growth, based on Rachel Reeves’ ‘securonomics’ agenda which she set out in her Mais Lecture in March.

With Labour so far ahead in the polls, it is not surprising that most of the attention has been on its agenda to restore productivity growth. In a recent op-ed I examine the economic arguments behind ‘securonomics’. I also touch in a Spotlight podcast on the difficult circumstances which Labour will inherit if they win the election.

Overall, Labour has set out a rational plan to deal with the UK’s productivity malaise. Some of the UK economy’s problems are long-standing and date back to the Great Financial Crisis (2007-10). However, some of it is directly attributable to the lack of a rational institutional and policy framework. This is one of the reasons why I, alongside many economists linked to the Productivity Institute, have argued forcefully for a better co-ordination of government planning and spending functions in UK government, to counterbalance the finance ministry functions of the Treasury.

One issue which needs to be addressed relates to devolution. We know that the UK’s underperformance in terms of productivity relates to the poorer performance of several of its ‘tier 2’ regions (as measured at International Territorial Level 2 (ITL2)).

Unfortunately, the UK has not developed a rational and symmetric structure for devolution which one would expect in a federal state. Devolution has proceeded faster in the devolved nations than in the English regions. In addition, there is a lack of co-ordination between national (UK) government and the devolved nations in terms of economic strategy. We know from other OECD countries how important the ‘mid-level’ function at regional level is in terms of bringing together national and devolved policies, joining up strategic investments in infrastructure and planning decisions. In devolved nations like Scotland this has led to complex, and sometimes difficult, negotiations in past interventions such as ‘city deals’ and ‘investment zones’. With the benefit of hindsight, the complete devolution of certain functions to the devolved nations in the UK has made these tensions more frequent. In many federal states, the national and devolved level governments have overlapping competencies and have to co-operate.

So what could be done to address these co-ordination issues, especially in Scotland, if Labour seriously wishes to implement a policy of regional development which benefits all of the UK including the devolved nations?

First, there needs to be clarity of purpose on regional development across all of the UK. A new Labour Government should implement its policies on regional development and any direct spending interventions not only for the English Regions but also through its Scotland Office and Wales Office. Clearly this will require a refresh of intergovernmental relations between the UK Government and the devolved Governments. These were last reviewed in 2022.

Second, direct UK government spending interventions along the lines of ‘city deals’, ‘innovation deals’ or similar, are best undertaken at city region level. There are likely to be important strategic linkages between Scottish ‘city regions’ like Glasgow, and some of its English counterparts such as Manchester and the West Midlands. There will be interests in co-operating in key sectors and critical technologies (such as quantum, electronics and life sciences) between these city regions. Creating greater cross-UK linkages at city-region level will be important for a UK-wide economic strategy to work. This may require a re-alignment of local authority functions within Scotland to mirror the ‘tier 2’ city-region structure in England, covering key areas such as innovation and skills.

Finally, all of this may in time require a reappraisal of the structure of devolution for Scotland and Wales which allows for overlapping competencies in spending. We already have overlapping competencies in taxation. Following devolution in 1999, there have been major reviews through the Calman Commission in 2008-12, and the Smith Commission in 2014-15.

We should not be surprised if, as a result of major economic shocks in the last decade, and if Labour introduces a major new economic agenda or institutions to address the UK’s economic malaise, we may need to look for fresh thinking around the devolution settlement.

In a sense the Brown Commission’s proposals already recognised that devolution in the UK is central to solving the UK’s economic challenges. Of course, major constitutional reform will not be a priority for a new Labour government given the many problems the UK faces. But if intergovernmental relations do not ensure that the current devolution arrangements work for a UK-wide economic strategy to work, there may need to be some movement on this front.

 

Photo by Margaret Weir on Upsplash.

---

Tune in to our mini podcast series Spotlight: On the election.  

We’re shining a light on the policy issues, the parties, key battlegrounds and events of the UK General Election, bringing you expert insights from the University of Glasgow and beyond. 

Professor Sir Anton Muscatelli joins us on episode two for a discussion on the Economy and Living Standards with Dr Tanya Wilson.

Listen and subscribe on Spotify. 

 

First published: 27 June 2024