Fiscal Devolution in England: Breaking Treasury Myths

Debates over fiscal devolution in England frequently return to a central question: whether HM Treasury is willing to relinquish meaningful control over economic decision-making. Critics of the current system often argue that the Government must ‘break the grip' of the Treasury if fiscal devolution is to make substantive in-roads.That argument is often accompanied by calls to fundamentally restructure – or even break up – the Treasury. Charged with a dual mandate of supporting economic growth and balancing the books, the Treasury has often been portrayed as risk averse. Harold Wilson attempted to rebalance the Treasury with the creation of the Department of Economic Affairs (DEA) in 1964. The Sheffield MP, Louis Haigh, is the latest to call for changes in the Treasury.History, however, offers little support for the idea that bypassing or dismantling the Treasury is either politically viable or institutionally sustainable. The DEA was reincorporated into the Treasury in 1969, only five years after it was established. The Treasury is therefore not going away, and advocates of fiscal devolution cannot simply dismiss its concerns. Instead, we must engage with them directly.Two objections frequently feature. First, concerns about insufficient capacity and capability – often a shorthand for scepticism about readiness – and second, fears of tax competition and the so-called ‘race to the bottom'.The Government has also already embedded assurance within the devolution framework. The Integrated Settlement process and the Readiness Check require strategic authorities to meet certain competence thresholds, including across governance, financial management, and performance oversight. The Ministry of Housing, Communities and Local Government will not sign-off the Assurance Framework that governs additional funding flexibility (through the Integrated Settlement). Existing intervention mechanisms, including the Best Value regime, also provide Whitehall with powers to intervene where necessary.Critics suggest that strategic authorities lack the expertise required to manage greater fiscal powers effectively, potentially leading to poor investment decisions or weak value for money. On the surface, the concern is not unreasonable. Critics may point to Tees Valley Combined Authority and its approach to Teesworks, which has dispensed with more than £500m in public money, for example. And the Tees Valley Review in 2024 did conclude that there was insufficient evidence to demonstrate value for money, though the central issue was one of governance and transparency rather than an inherent lack of local capability.Part of the issue is not that risk or poor decision-making exists, but that it is treated as evidence against further devolution. If the Treasury were subjected to the standards it applies to strategic authorities, it is not clear that all Whitehall spending decisions would meet the threshold it places on them.More importantly, concerns about capacity and capability are not arguments against fiscal devolution; they are arguments for more investment. The Government already possesses many of the mechanisms required to build local capacity and readiness. Programmes such as the Mayoral Capacity Fund exist precisely to strengthen capacity within strategic authorities. If the Government expects strategic authorities to play a greater role in shaping regional economies, then greater investment is required.The Government has also already embedded assurance within the devolution framework. The Integrated Settlement process and the Readiness Check require strategic authorities to meet certain competence thresholds, including across governance, financial management, and performance oversight. The Ministry of Housing, Communities and Local Government will not sign-off the Assurance Framework that governs additional funding flexibility (through the Integrated Settlement). Existing intervention mechanisms, including the Best Value regime, also provide Whitehall with powers to intervene where necessary.A phased approach to fiscal devolution can further alleviate Treasury concerns. Updating the Devolution Framework to give strategic authorities a long-term direction and an opportunity to build capacity and capability over time would better position strategic authorities to capitalise on fiscal devolution. The design of the roadmap announced by the chancellor will therefore be of central importance. It should not amount to a loose collection of recommendations, but instead provide a clear and long-term trajectory for fiscal devolution in England.The Government could also expand the ‘trailblazer' model, initially granting greater fiscal autonomy to the most institutionally mature strategic authorities before wider rollout. Such an approach is not without trade-offs, particularly in relation to spatial inequality, but the Government's use of trailblazer approaches demonstrates that readiness is already treated as a guiding principle within English devolution.A second common objection is that fiscal devolution could encourage tax competition between English regions. Yet these fears are often significantly overstated within the English context. Such dynamics are more commonly associated with federal systems possessing extensive tax-raising autonomy, such as Australia and the United States. The loss of more than 100 corporate headquarters in California to Texas because of the more favourable tax environment in the latter is an example of this phenomenon. The UK is a long way away from that level of fiscal autonomy.The forms of fiscal devolution currently under discussion are modest by international standards and do not pose serious risks of inter-regional competition. Indeed research by the Organisation for Economic Co-operation and Development also suggests that taxes have ‘trended up rather than down and generally converged over time', challenging UK assumptions about the relationship between fiscal autonomy and the behaviour of devolved institutions.Taken together, a surface reading reveals that neither objection provides a compelling case for maintaining England's highly centralised fiscal model. This is the approach policy-makers should pursue: rather than fanciful notions of breaking up the Treasury, we need to make both the positive case for fiscal devolution and examine – myth-busting where necessary – concerns about fiscal devolution.Jack Shaw is director of Groundwork Research

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Fiscal Devolution in England: Breaking Treasury Myths

By Jack Shaw | 01 June 2026

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