Centre for Public Policy

Article by Professor Sir Anton Muscatelli and Professor Graeme Roy

This article was originally written for and published in The Times on Friday 30 August 2024.

This week marks 50 days since the new UK Labour Government took office and with it came a warning from the Prime Minister of a ‘painful’ Budget this October. For most economists this isn’t much of a surprise. During the election campaign, the Institute for Fiscal Studies (IFS) warned of a challenging fiscal inheritance for whoever formed the new government. The Institute’s analysts concluded that with both Labour and the Conservatives promising no increases to income tax, national insurance or VAT rates, savings would need to be found from unprotected public sector budgets. With public sector pay awards taking priority, and as the Director of the IFS Paul Johnson said this week, the Chancellor now faces “difficult and complex choices”. Many of these choices will have a knock-on impact for the budgets of the devolved nations as they face pressures to balance their spending plans in the coming weeks and months.

While there is no silver bullet for bridging the void in public finances, efforts to re-boot economic growth across the UK will be key to generating a growing and resilient tax base over the long-term. The Prime Minister’s speech this week gave a welcome nod to the need to boost growth and harness the full potential of technologies like AI for the economy. With these new economic ambitions, a key issue will be how policy translates in the devolved context and in particular, what will be the role for Scottish city regions in driving productivity.

Labour has been clear it aims to turbocharge city regions, thereby unlocking economic growth. Indeed, in July’s King’s Speech, the UK government confirmed it will push English city regions to develop ‘Local Growth Plans’, with a need for all stakeholders (industry, colleges, universities, enterprise bodies and local government) to coalesce around plans for a renewed industrial strategy and a national mission to kick-start growth, building on local specialisms and strengths.

But it is still early days in our understanding of how the new government’s regional economic strategy will develop in practice.

One thing that is clear: all UK nations must be included in these plans. The previous administration built up a track-record of engaging directly with city regions like Glasgow, with important investments such as the £100M Innovation Accelerators already in train, and others like Investment Zones still in planning.

Cities like Glasgow are crucial in reactivating UK growth and evidence from The Productivity Institute is clear: if the UK wishes to address its stubborn productivity problem, it needs to focus on the major tier-2 regions like Glasgow, Manchester and Birmingham, in lieu of more affluent regions such as the South-East of England, London, and some of the wealthier parts of Scotland.

This is a complex task, not least because it requires close co-ordination of national and regional economic strategies, but also because the UK is almost unique amongst developed economies in having a model of devolution which is highly asymmetric. For instance, we have different types of local authority and city region devolution across the UK, and this may change further with the Deputy Prime Minister already setting out her intentions to explore new ‘devolution deals’ across England

So, what should the UK Government think about as it develops a renewed approach to local economic growth?

First, there should be a national strategy to underpin local decision making and clear objectives for any new ‘deals’ or increased public investment. There should not be a blank canvas. There is much we can learn – including from the first decade of the 2014 Glasgow City Region Deal – about the value of local knowledge and partnership working to leverage investment and high-value jobs. This will help ensure barriers to productivity identified at a national level are translated into effective local policy interventions.

Second, as was the case for the more recent UK city deals, a focus on boosting skills and innovation within major second-tier city regions will be key to driving productivity growth at scale.

Third, it’ll be important to provide flexibility around funding so that plans can be adaptable. For instance, early city deals had to cope with external economic shocks like Brexit and Covid. But opportunities will emerge too. Early discussions around ‘trailblazer’ deals for English cities, which combine increased flexibility with long-term certainty, are a welcome step.

Finally, it’s important that any refreshed plans for local growth in Scotland must fit within the overall UK industrial strategy, at the same time respecting devolution. Collaboration with the Scottish Government and collaboration across UK second-tier city regions will be crucial, implying a major and direct role for the Scotland Office.

As we have argued elsewhere, this may involve fresh thinking around the current workings of devolution.

For instance, if local growth plans have a major innovation dimension, there must be the ability to coordinate effort at a UK level. In Glasgow our strengths in life sciences, quantum technologies, photonics and creative technologies will benefit from being joined up with city regions elsewhere in the UK with similar strengths. City regions such as Glasgow will also require the powers and flexibilities in areas such as innovation and skills that match steps being taken in second-tier English cities.

At the UK level, we also anticipate new structures to emerge that enable city regions in the devolved nations to have just as much influence over national policymaking as large English cities. This includes proposed initiatives such as the widely trailed Council of the Nations and Regions.

All this requires considerable thought given the starting point of UK devolution structures. But it’s a real opportunity to ensure that in the next 5 years we can build a platform for better governance that delivers sustained economic development across the four nations.

Authors

Professor Sir Anton Muscatelli is Principal and Vice-Chancellor of the University of Glasgow.

Professor Graeme Roy is Dean of External Engagement at the University of Glasgow, Deputy Head of College of Social Science, and Senior Fellow of the Centre for Public Policy.

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First published: 5 September 2024