Devolution should mean regions competing for investment

The next phase of devolution should shift focus from how funding is distributed to rewarding growth, according to Gus Wiseman. For over three decades, governments have attempted to rebalance England's economy by distributing funding to regions outside London and the South East. Although these efforts have led to successful projects, the model remains unchanged.

Local leaders often compete for Whitehall funding rather than focusing on attracting long-term investment. This distinction is crucial because winning government funding is episodic, while attracting investment is continuous and can create jobs, expand the local tax base, and strengthen the local economy over many years. To encourage local leaders to act as long-term stewards of their economies, the next phase of devolution should focus on rewarding growth.

Germany presents a contrasting model where local authorities receive property tax alongside a share of national tax revenues, allowing successful places to benefit directly from the growth they generate. This creates a stronger incentive for local government to support development, resulting in a more positive relationship between public and private sectors.

England has previously recognized this challenge through Greater Manchester's additional fiscal freedoms, Enterprise Zones, and City Deals. However, these initiatives are exceptions rather than the norm. With Metro mayors having stronger mandates and ambitious economic strategies, and initiatives like the Mansion House reforms, the National Housing Bank, and the Sterling 20 promoting long-term capital investment, now is the time to implement stronger local incentives.

Local Government Pension Scheme funds are also increasingly emphasizing place-based investment, aligning local growth ambitions with patient institutional capital. While investment decisions are now increasingly made city by city, cities that can offer capable local partners and credible development pipelines will stand out in the competition for capital.

While devolution's debate has largely focused on power distribution, the more critical question is how local leaders are rewarded for utilizing these powers. If England can create a stronger link between economic growth and local benefits, it will attract long-term investment and give devolution a greater chance of delivering its potential.