Andy Burnham's promise to rewire the state and transfer power out of Whitehall has quickly become the defining idea of his premiership.
It is an agenda shaped by his experience as the Mayor of Greater Manchester, where the economy grew by an average of 3.1% a year during his tenure – twice the UK rate – and the number of jobs rose by roughly 21%.
Giving regions greater control over the decisions that shape people's lives is presented as the route to growth in every postcode. Greater Manchester's experience, however, shows that devolving power is necessary but not sufficient.
Household income has risen, but remains 16% below the UK average. Health devolution has been associated with a small improvement in life expectancy relative to comparable places, but long-term ill health, low skills and worklessness remain binding constraints.
Most striking is the widening gap between public spending and locally generated tax revenues. This raises a central question for the Government's plans: can devolution make places more productive and fiscally sustainable, or will it simply shift responsibility for entrenched problems away from Whitehall?
The need to tackle both economic growth and public service reform was a core argument in Greater Manchester's case for devolution. In 2012-13, the city region generated an estimated £17.7bn in tax revenues against public spending of £22.5bn, leaving a fiscal gap of £4.8bn.
Economic growth alone would not close it, while residents remained disconnected from opportunity by poor health, low skills and economic inactivity. Nor would cuts solve the underlying problem. The promise of devolution was that services could be integrated around people and places, investment shifted towards prevention and more residents connected to higher-skilled employment. Local leaders would then retain more of the savings and revenues generated by success.
The latest comparable figures do not yet show that cycle taking hold. By 2021-22, public expenditure in Greater Manchester had reached £41.2bn while tax revenues were £26.2bn, widening the nominal gap to £15bn.
Spending increased by 83% over the period, compared with a 48% rise in revenues. More than 36% of expenditure was not covered by locally attributed taxation, against 21% in 2012-13.
These figures require caution. The two datasets use different methodologies and have not been adjusted for inflation. Furthermore, central government funding, although falling, was still particularly high in 2021-22 due to the Covid-19 pandemic response and measures taken in response to increases in the cost of living – not the best point at which to assess local tax and spend.
When compared with all strategic authorities, Greater Manchester is mid-ranking in terms of the proportion of spending covered by tax. Only Greater London, Cambridgeshire and Peterborough, York and North Yorkshire are net contributors to the Treasury.
The fiscal gap should therefore be treated as a warning, not a verdict on devolution. English regions have had limited power to respond to national shocks and even Greater Manchester's settlements fall well short of the fiscal autonomy envisaged in the original Devo Manc proposals.
We also lack a reliable counterfactual. We simply do do not know how these places would have performed otherwise without devolution or with additional powers.
This strengthens the case for carefully designed fiscal devolution. Allowing regions to retain a share of locally generated revenues could provide flexible, longer-term funding and a stronger incentive to invest in growth, prevention and labour-market participation.
Successful reform would produce a visible local return rather than savings flowing automatically to the Treasury. But places with weaker economies, greater health and welfare needs and smaller tax bases would be more exposed to volatility.
If devolved revenues merely replace grants, fiscal devolution could reward already prosperous areas while leaving poorer places further behind.
A credible settlement must combine meaningful local control with national equalisation, transitional protection and arrangements for sharing the costs of economic shocks.
Burnham has promised to ‘devolve by default', including greater mayoral control over 16-19 technical education, employment support and major transport investment, alongside funding through retained shares of income tax and business rates. Yet he has also recognised the boundary: redistribution, national standards and intervention in exceptional circumstances remain responsibilities for central government. Fiscal devolution will initially replace grants rather than necessarily provide additional money.
Narrowing the fiscal gap is a legitimate long-term ambition, but no region should be expected to become immediately self-financing or be held responsible for structural weaknesses it lacks the powers and resources to address.
Government should publish consistent annual tax-and-spend estimates for every strategic authority, enabling progress to be assessed against a common baseline.
Rewiring the state will make a difference only if mayors have the powers to strengthen their economies and retain a fair share of the revenues that growth generates, while Whitehall remains responsible for redistribution and for addressing inequalities between places.
Mark Morrin is associate researcher for independent think-tank ResPublica
ResPublica: Is Manchesterism the model for rewiring the local state?
