In my last article for this magazine, I wrote of what appeared to be the Damascene conversion on the part of the Chancellor to the cause of fiscal devolution. The process she set in train - due to conclude with the Autumn Statement - is now underway in earnest.
The question raised by that speech, and explored here, is a simple one. Will fiscal devolution prove to be another incremental step or will it mark a moment to which we look back, as with the first devolution deals, as a line in the sand visible decades from now?
Researching my forthcoming biography of Howard Bernstein reminded me that the original Greater Manchester earnback deal of 2013 faltered on a fundamental difficulty: whether the impact of local policy on economic growth could ever be measured with sufficient precision. The gainshare agreements that followed resolved that problem, but at a cost. They were not fiscal devolution but a series of financial transfers between central government and places.
The Chancellor's emerging approach appears to overcome part of that impasse. Rather than relying on a contested measure, GVA, and the knotty issue of causation, fiscal devolution could instead be based on the proceeds of income tax and business rates - revenues that are more stable, and more measurable: a firmer foundation for policy.
But the central question that lay beneath the failure of earnback remains. It is this: are government and places prepared to accept that, in return for meaningful devolution of resources, downside risk must be borne as well as the upside? In other words, are places that have fiscal devolution prepared to absorb new resources and use them so that they benefit from the proceeds of growth but would also need to find savings if their investments do not pay off?
If the answer is no, then this moment will fade quickly. The line in the sand will be scarcely visible in five years, let alone twenty-five.
If, on the other hand, government and mayoral strategic authorities are willing to match fiscal responsibility and the retention of the proceeds of growth within agreed parameters, then this could mark the beginning of a genuinely new phase of devolution. Much remains to be negotiated in the months ahead. It is a test of seriousness for government and for places alike.
A government that is serious about devolution will also need to ensure that strategic authorities are equipped with the capabilities it presupposes. The experience of devolution elsewhere in the United Kingdom is instructive. Government in London, Scotland and Wales (and the RDAS for that matter) were not created on a shoestring. They were built deliberately: through transition teams, advisory groups, financial system design, staffing strategies and the transfer of functions into institutions designed to exercise them. Capability was not assumed to emerge over time but constructed in advance.
Fiscal devolution at scale will not be granted to those who ask for it. It will be made possible and given to those ready to take responsibility for it.
The English model currently under development has had a different, contrasting virtue. It has been within the bounds of political and administrative possibility for many places precisely because it has been incremental. But that has come at a cost. Compared with London, and still more with Scotland and Wales, it has been under-engineered.
The lesson is not to replicate those systems wholesale, but meaningful fiscal devolution requires institutional depth in places where it is largely absent in most parts of England. Without it, powers risk being devolved faster than the capacity to use them, something which, in practice, will largely serve as a brake on what is devolved. If we can get the engineering right, the model we are rolling out, combining strategic authorities with councils is well placed to deliver better public services than other models as set out in the recent Future Governance Forum report on strategic authorities.
Meaningful fiscal devolution requires places to act now: to build institutional capability proactively. That means establishing a Treasury function capable of managing borrowing, cash flow and financial risk; a strategic finance and policy capability able to undertake multi-year planning, scenario modelling and capital prioritisation and an economic and analytical core that can understand local labour markets, productivity and sectoral dynamics. It requires disciplined investment appraisal, programme management and delivery assurance, supported by robust audit and accountability systems. These are not optional extras. They are the machinery of serious devolution which will be vital if government money is to be used accountably, along with local spending and borrowing, to deliver investment which really benefits local people and business. To put it bluntly, if the stakes are being raised places have to know that they are making smart decisions.
All of this can sound abstract. But the reality is much more concrete. Were government to devolve responsibility for income tax, there would inevitably be a corresponding question: what responsibilities are places to take on in return? In practice, that points towards areas long sought by places such as Greater Manchester - control over the skills system, or the devolution of welfare-to-work spending. These are among the most tightly held functions of Whitehall. It is fanciful to suppose they could be devolved without risk. And yet, if places are able to use skills funding and employment support more effectively - improving outcomes and reducing the costs of economic failure and benefitting financially from doing so- then they will also need to accept that those risks sit with them.
Fiscal devolution at scale will not be granted to those who ask for it. It will be made possible and given to those ready to take responsibility for it.
Mike Emmerich is founding director at Metro Dynamics and author of a forthcoming biography of Sir Howard Bernstein
