speri.comment: the political economy blog

Why the North, why now, and what’s new?: Part II

Osborne’s plans spell ‘devo-danger’ for the left in Northern England

Craig Berry, Deputy Director at SPERI

Craig BerryDevo-Manc, and its equivalents in the other regions of Northern England that will surely follow, is being sold as a key element in the creation of George Osborne’s ‘Northern Powerhouse’.  In the first of these posts, I argued that Labour’s future might depend on rekindling Northern England’s ‘inner powerhouse’.  Here, I focus on how and why the Conservative government has taken the initiative in the English devolution agenda, and the danger this poses to the left.

The most obvious – but strangely under-appreciated – point is that devolving planning, transport and health powers, and their (depleted) budgets, will not lead to a ‘balanced’ economy in geographical terms.  This does not necessarily mean that decentralisation in these forms should not happen, but to assume this will offer a panacea for the North/South divide seriously misdiagnoses the nature of the divide.  Northern and Southern England are unequal as a result of the nature of the finance-centred developmental model that prevails in the UK and indeed is entrenched in virtually all aspects of economic policy and practice.

This model can only be meaningfully altered at the national level, or even the global level.  For two relatively short periods of time (at the height of the British Empire, and again immediately after the Second World War), historical circumstances allowed the model also to enable large parts of the North of England to prosper in tandem with the South-East (albeit to a lesser extent).

But these circumstances are no longer evident.  The Conservatives are not prepared to make the kind of structural changes to the UK economy that would genuinely redress North/South imbalances.  New Labour’s response to this dilemma was to grow the public sector in the North, colluding with a hamstrung trade union movement to paper over the cracks.

This is not an option for the Conservatives, thanks both to the perception that ‘there is no money left‘ and their in-built ideological bias against the state.  Instead, they are seeking to hand some policy-making powers to Northern regions, creating the impression that the North has its destiny in its own hands, while retaining all the powers that really matter to our economy (such as monetary policy, industrial policy, business regulation, employment law, trade rules) at the centre and holding them, increasingly, in technocratic institutions shielded from parliamentary oversight.

In economic terms, the most important task for city-regions will be to create an environment as hospitable to private enterprise as possible.  The ultimate end-game for the Conservatives seems to be tax devolution, which – as Daniel Bailey argues – will create a ‘race to the bottom’ as regions compete to tax firms and wealthy individuals less, undermining public services in the process as revenues decline.  (This logic, by the way, is precisely why the SNP is increasingly lukewarm on the prospect of fiscal autonomy in Scotland, although it does not dare admit it.)

Such a devolution of tax would also further undermine the legitimacy of the (now minimally) redistributive welfare state.  The right-wing agenda to stop London’s riches being redistributed northwards is based on the falsehood that London creates its own wealth, rather than continuing to rent-seek on an epic scale and thereby reaping the benefits of a privilege established during the UK’s long-gone industrial and imperial periods.

The link between the ‘Northern Powerhouse’ agenda and economic balance sets a dangerous trap for progressives: this is a fundamentally conservative and paradoxically pro-London strategy.  The inevitable result is that multinational corporations will locate low-value activities in low-tax jurisdictions in the North – and Scotland – while continuing to utilise London’s capital markets and all the other financial, legal and business services that are concentrated in the capital.

It’s also a hugely undemocratic agenda.  Osborne is imposing a directly elected mayor on Greater Manchester (despite the rejection of this model by voters in a 2012 referendum): he knows that Labour is well-entrenched in local government in the North and that Northern councils have created a great deal of noise about the uneven impact of austerity at the local level.  By imposing so-called ‘metro mayors’, he disrupts the institutionalisation of Labour power, offering just enough by way of carrot to existing leaders to get them to play along.  It will then be much easier to make deals with a handful of mayors, rather than dozens of council leaders.

Osborne also knows there is a fair chance the Conservatives will win some of these new offices, because the logic of the powers to be given to ‘metro mayors’ will lend itself to a pro-competition, Conservative narrative.  It is, after all, what happened, eventually, in left-leaning London.  He is essentially gambling that an elitist Labour leadership will not be able to hold the party together (and, at the moment, Labour’s right is dancing to Osborne’s tune), creating a degree of disarray within the party at the local level and handing the electoral initiative to the Conservatives.

The question, then, is this: despite these problems, should the left in the North of England grasp the opportunity of these devolved powers, even under a flawed ‘metro mayor’ model?  In my view, the dark cloud does have a silver lining.  Labour needs to rebuild from the bottom if it is to have any hope of again becoming credible at the top.  It needs therefore to start this process by building outwards and upwards from the Northern English communities which are most disconnected from the UK’s finance-centred economy.  Labour can seek to govern through ‘metro mayors’, for sure, but, more importantly, it should aim to develop this model into a platform from which to advocate a genuine transformation and proper ‘rebalancing’ of the country’s whole political economy.

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Categories: British growth crisis, Craig Berry, Inequality, Politics and policy, SPERI Comment, Tax | Tags: , , , , , , , | Leave a comment

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