I want devolution to be a success. It would addresses many of the legitimacy challenges which central government faces, and done well would create much better incentives for growth. But I see four big risks which devolution advocates need to address: 1.Devolution expands the welfare state Pushing power down to regional government creates the scope for a fresh start on many problems, particularly incentives for economic growth. If local areas can see the benefits of infrastructure being built, because their government can retain some of those benefits locally, it will go a long way to creating goodwill for data centres, nuclear facilities and FDI. But they’re also a chance to start again on social policy. If areas have to pay for the constant expansion of the welfare state out of their own pockets, then they might think twice about it. My worry though is that if we design the system badly then it’ll just recreate all the worst tendencies of the centralised welfare state. Particularly if fiscal devolution isn’t set up so areas carry the consequences of financial mismanagement. Westminster has to be prepared to let parts of local government fail badly, and go through significant fiscal contractions, or the system will just create endless moral hazard. And in areas where that’s unrealistic, we shouldn’t be pursuing devolution. For example, funding social care locally out of council budgets has been a huge political failure, and there’s a strong consensus that it shouldn’t be the job of local government to finance care spending. Need is distributed relatively randomly throughout society, and it’s an area where the public have a strong sense that fairness is important. Because of this, my colleagues at Re:State have come up with an excellent alternative model for a prefunded social insurance system for social care, pooling risk at a national level. Social care is an example of where a local approach has failed, there are similar areas we should avoid devolving so we don’t just shifting a large welfare state to local areas to continue funding. 2.Devolution gets confused with redistribution. I expect that governments in the foreseeable future will want to do much more financial redistribution away from London to the regions. Not just to get “good growth in every postcode”, but to try to equalise or ‘level up’ economic opportunity across the regions in part by increasing transfers from London’s economy. Even doing this in isolation would be a mistake - the economy already has massive inter-regional transfers, though most are done through the NHS, welfare system and other public services rather than grants to local government. But even there, there is significant redistribution. Continuing the trend of taxing the South East more to pay for the rest of the country will deepen the divide politically. And it risks killing the growth engine of London so that it can no longer support the rest of the country even at current levels - London isn’t competing with Manchester and Glasgow for investment, but with Paris, New York and Tokyo - if it loses that race then we all lose out. But if more inter-regional redistribution is done in conjunction with a big devolution programme, then devolution will end up tarred with the same brush, and it will feel like ‘devolution for them but not for us’. 3.Devolution gets caught up in national efforts to improve local government Andy Burnham’s leadership has started with lots of moves to improve local government, but driven by Westminster. Policies like unilaterally capping bus fares, cutting business rates for some businesses, and committing to act on garish shop signage are all decisions about issues which should be made locally, not in Westminster. Burnham can’t go from being the Mayor of Manchester to the Mayor of Great Britain, he has to let other areas make decisions for themselves. That isn’t just a point about local legitimacy, though I think that’s does play a role. On lots of issues, we’ll make better decisions locally than nationally. Take Canada’s federal Housing Design Catalogue - the standardised housing designs made to smooth planning decisions at a national level are unattractive because they’re a compromise trying to have as wide an appeal as possible. If you make decisions about the built environment locally, they’re likely to be more tailored and thoughtful. 4.Devolution loses a cross-party consensus If some combination of issues 1-3 come about, many people may feel devolution has been a failed policy. But even if that doesn’t happen, and the outcomes are mixed, any of these scenarios and more seem likely to see the breakdown of the cross party consensus in favour of devolution. An increasingly patchy landscape of regions with strategic authorities and regions without them will make governance pretty tricky. Lots of areas don’t want a mayor. On balance I think they should all want one, and it’s worth trying to standardise the regional tier in the medium term. But imposing it against people’s will, particularly if it also seems to come with big costs, will likely mean the end of the strong cross-party consensus in favour of devolution that we’ve enjoyed for well over a decade. You can already see challenges between national and regional leaders that we didn’t used to have, for example the governments insistence that the retained income tax model for fiscal devolution can’t be used by conservative and reform mayors to give local rebates. More of these breakdowns along political lines seem likely in the future.

I enjoyed reading Issue 002 of the @theRSAorg Journal! Feels like they’ve really stepped it up a notch in both the design and the content. Quentin Blake’s illustrations are a really fond part of my childhood, can’t wait to go see the Centre in Clerkenwell.

Really enjoying this series of posts from Ben. We need much better solutions to the problem of extractive (non-financial) elite action. Often the legitimacy problem in point 2 bites hardest in the wider public finances, not the new revenue. When it comes to raising new revenue, we’d often be happy to pay more for eg good infra, more police. But the public have good reason to worry that a) it’ll be repurposed for bad ends or b) ‘isn’t that what I’m already paying record taxes for’. Hypothecation of funds is an important answer to this, as is a thoughtful curation of the institutions that get to raise taxes (local, regional, national), and moving to social insurance/contributory systems like Beveridge originally intended. It’s one area where I’ve really changed my mind since leaving HMT. The Treasury view of hypothecation is that it doesn’t allow sufficient flexibility to balance changing priorities, and may mean a more ‘inefficient’ tax take overall because we’re locked into hypothecated streams of revenue which we don’t need as much as other areas, where we then have to raise general taxation. But I wish more HMT officials would take an empirical approach, and realise that during the period they have defended almost all hypothecation attempts then overall spending/tax/borrowing l has soared without democratic legitimacy, and the flexibility it buys is mainly flex to spend in the least legitimate areas (welfare). A new elite consensus to govern with much greater respect for public legitimacy is long overdue.

There are lots of social programmes which would be much easier to deliver if the government just gave people free stuff instead of trying more complicated interventions. Policymakers are real victims of the ‘galaxy brain’ meme - we often overthink things. Just buy stuff!

Good read from @pahlkadot and @ad_greenway. In the past I’ve always been attracted to ‘just start over’ theories of institutional reform. But this is often unrealistic, and getting it wrong comes with high costs. The State is littered with the remains of failed new institutions which never scale, but never quite die either. Working out how we navigate these tradeoffs is a key topic for like-minded students of Metapolicy.

The Bank of England has a very high impact on monetary policy. The Bank has low impact on climate change. That's why we need to scrap the climate change mandate - and refocus the Bank on its core business. Full piece: ⬇️ H/T @jo3hill re everythingism.

As a former Treasury official, it’s always strange to see how much blame it gets for problem in Britain. Most arguments for breaking it up are very revealing. I have no issue with machinery of government changes which are designed to boost growth, though a wholesale move of economic policymaking to Manchester wouldn’t do that. But in most cases people who want to break up the Treasury aren’t doing it for growth, they just want it to stop controlling public spending. This would be a huge unforced error. The thing most people don’t know is happening behind the scenes: every other department in Whitehall is extremely profligate. The Treasury is the only organisation holding back a ballooning deficit from crashing our economy and hitting all our pay checks. My experience of working in a spending team was an endless torrent of calls for more spending, often badged as ‘investment’ but promising no return of any kind. Officials repeatedly lied, refused to admit what the real numbers were telling them, and hid spending from us at every turn. Ministers have every incentive to call for even more spending, and the issue of paying for it is always someone else’s problem - in this case, HMT, the Chief Secretary and the Chancellor. In the next few years we will need more broad fiscal consolidation - debt to GDP is unsustainable and as the last few days in the markets have shown, we are highly vulnerable to external shocks. Deliberately weakening the only bit of government which is prepared to manage that process, because of a misguided view that we can tax, borrow and spend our way to high growth and living standards, is usually the implicit motive, and sometimes the explicit one. Thankfully, it doesn’t seem like the PM wants to take control of spending and tax away from HMT. We’ll have to see which other economic levers this policy ends up covering. We all know the actual sources of growth - economic dynamism driven by low input costs like energy, cheap land and fast transport to work, and a permissive regulatory and tax environment which lets businesses make bets to grow and hire. I also think that done well, fiscal devolution and municipalisation could be good for the economy. These are all good candidates for No10 to take an assertive role in making policy. We should let the Treasury get on with the unenviable task for balancing the books. Nobody wants to be the one who tells the NHS or DWP they can’t spend more on vulnerable people, but often that is the case and someone has to make the trade offs. It’s other people’s money, and the taxpayer needs a strong seat at the table to protect their interests. Yes, it’s imperfect - often they don’t do a good enough job on supply-side reform, or they cut capital to permit more resource spending. But that’s partly because they’re faced with a bad set of choices forced by the rest of government, and have to make do as the only voice for growth at the table.

HM Treasury is, by a distance, the most pro-growth Department. Critics of 'Treasury Brain' typically see it as anti-growth because it opposes a specific spending programme they perceive as 'pro-growth' without accounting for the impact of the higher taxes and borrowing.

Important difference highlighted by Joshi here. For lots of policy programmes, they amount to deploying the PMs time to “knock heads together” and use the spotlight to affect change. This is unavoidable (maybe even inevitable) in lots of social policy, but it is never a durable policy change. Cf how many times the Home Office has announced a new taskforce or “crack squad” for sorting immigration.

It’s also been Treasury pushing hardest for supply side reform which ultimately rub up against politics. Burnham talks about separating growth from spending control, but it’s the latter which is his real beef with HMT: too ‘short term’. It all comes back to public spending.

This is big. The Government is going to strip back social value procurement rules, and end Everythingism in procurement. This is a great step towards making procurement markets much better and more competitive. It’s been a big topic of our research at Re:State in the last year, so let me explain: - When government puts out a tender for bids, 10% of the ‘marks’ go to companies who can show they meet various ‘social value’ rules. There’s a whole gamut of guidance which requires them to prove they are things like carbon-neutral, moving jobs outside of London, revitalising high streets, DEI, and many more. These might all be important objectives to the government, but furthering them all through procurement distracts companies from delivering the core purpose of the contract, and adds cost – a phenomenon we call ‘Everythingism’. It’s particularly bad for small companies who get priced out of selling to the public sector because the overheads become so high, so they don’t compete at all – making the market much more concentrated in the long run. 20% of contracts government lets have one or even zero companies bidding for them – a nightmare for the taxpayer. - It looks like the Government are going to start cutting social value objectives and focus the list on these categories: higher paying jobs, apprenticeships, and routes for NEETs into work. This is a big improvement, not just because the list is shorter but also because these are easier objectives for companies to target, measure and quantify than the vaguer goals which are coming off the list. - They are also planning to entirely remove social value requirements from contracts under £1 million in value is very welcome. As we called for in our paper ‘Procure and simple’, giving small companies routes to bypass social value to win work is essential – the system is just too intensive for them to get work at that small scale. - However, it also looks like they’re also considering boosting the weighting towards social value objectives on contracts worth above £5 million, from the 10% of marks they currently get in a tender to 20%. That would be a mistake, and one which will mean more contracts are delivered at lower quality and higher cost – the two most important bits of what procurement should deliver. But if the set of metrics that 20% will be awarded on are significantly shortened, then that does slightly mitigate the impact. But I still hope this part of the proposal doesn’t make it through to the policy changes in the autumn. - Interestingly, the Cabinet Office are also asking departments to draw up a list of 10 high-growth companies to target for more contracts. We called for this approach in ‘Procure and simple’ because the distortions against startups and scaleups entering the procurement market are so extreme that I think you do need a counterbalance, and to focus on ways you give more contracts to them for innovative new products. The biggest problem with procurement policy is that it’s entirely ‘buyer-led’ – contracts which government puts out to solicit bids for. There’s basically no route for a company offering a genuinely innovative new product to come and sell it into the public sector – which massively hampers startups and scaleups. There’s plenty more they could do to eases the path for high-growth companies – for example, more targeted direct awards for innovative products, or exempting them entirely from social value weightings on contracts of any value (both possible under the current Procurement Act). I hope they take this seriously. Procurement rules govern over £300 billion of the economy. There’s a huge opportunity to free up the red tape stops British companies growing, and also stops them becoming great exporters to other governments, because they can’t even get a foothold working for their own Government here at home. @LOS_Fisher