Greater Manchester has recently outpaced London in productivity growth – a surprising shift that’s prompting many to ask: Is this the long-awaited “devolution dividend”? And could it finally help close the UK’s deep economic divides?
A long time coming – but momentum is building
The UK’s devolution journey has been long and uneven. UK experiments with devolution began late last millennium with the creation of elected governments in Scotland, Wales and Northern Ireland and restoring a strategic authority in London. But for much of England, devolution only picked up pace in the past decade with the formation of new Combined Authorities, mainly led by directly elected Mayors, starting with Greater Manchester and England’s other large provincial metropolitan areas.
This national response to bottom-up pressure was partly driven by the need to boost economic performance in struggling regions. Now, the ambition is to extend this model across all of England, aligning new authorities with “natural economic areas.” At the same time, a separate reform process is redrawing local government maps, merging smaller councils into new “unitary” authorities – the world’s largest municipalities, containing at least 500,000 residents.
Signs of progress
These reforms are intended to stabilise the precarious finances of local government whilst also delivering on the longstanding promise to promote a more balanced pattern of economic growth. Unwinding Britain’s centralised structure is not trivial, but these reforms have been strongly centred on good evidence of what works – devolution that is combined with a better organisation of subnational government at a scale that makes economic sense.
And there are some promising signs that it might be working. New official data on subnational productivity shows a partial reversal of established trends as the growth and influence of the dominant super-region centred upon London slowed and that of provincial metropolitan areas grew in the 2015-23 period. Particularly striking is that Greater Manchester, the poster child for metropolitan devolution in the former industrial heartland of north west England, showed the fastest recent growth and the sharpest increase in labour productivity.
Figure: Labour productivity trends in England’s largest metropolitan areas, 2015-23
Two cheers for UK reforms
Yet if we dig a little deeper, it is clear that UK reforms remain partial. First, because devolution to date has yet been accompanied by any fiscal reforms that loosen the iron grip national government wields over subnational revenue raising powers and budget levels.
Second, because the in-principle commitment to ensure subnational government geographies are economically coherent has at times been sacrificed to the need to minimise administrative disruption and achieve a degree of consensus amongst the authorities affected.
As a result, England’s main provincial metropolitan areas benefit from more coherent geographies – set by the last serious re-organisation of local government in 1974 – than those elsewhere, which continue to be influenced by pre-industrial forms of territorial organisation.
England, and the UK more generally, also trails many peer countries in a third crucial area: fiscal redistribution. Recent policy debate in the UK has praised Germany, whose better record in terms of shared prosperity is underpinned by strong subnational autonomy and a system of redistribution that automatically shares some of the benefits of economic growth with poorer areas of the country. This has helped Germany perform better than even other federal countries like the United States when it comes to balanced growth.
Towards a better understanding
So far, the UK’s devolution story has been a qualified success. Some of the areas hit hardest by the collapse of traditional industries are now seeing renewed economic momentum. But it’s now time to take the next step.
That means introducing fiscal devolution so local and regional leaders have the tools to shape – and pay for – their own growth strategies. It means ensuring that future reform maps make economic sense, even if they challenge outdated boundaries and building a shared national commitment to redistribution, so that all places benefit when the economy grows. And it means continuing to build the evidence that has guided the UK’s approach.
Our recent study for the Manchester-based Productivity Institute suggests that advances in data science make it possible to identify a “sweet spot” in subnational government design – the right balance of autonomy, scale, coherence and redistribution that supports inclusive growth. We must find it.
With those steps, we can achieve more than a “devolution dividend” in a few places – we can build a more inclusive and balanced economy across the whole country.
For further reading, check out the OECD’s work on devolution including Making Decentralisation Work and A comprehensive approach to understanding urban productivity effects of local governments. Moreover, you might find the related OECD work interesting: Enhancing Productivity in UK Core Cities and Place-Based Policies for the Future.
Alan Harding is a visiting Professor at the Alliance Manchester Business School and an Independent Strategic Economic Adviser to the Greater Manchester Combined Authority (GMCA). Most recently, with Sian Peake-Jones, he was a Policy Fellow at the Manchester-based Productivity Institute, completing a feasibility study on how the national ‘framework conditions’ under which subnational governments operate influences levels of prosperity and the extent to which they are shared. Previously, he was GMCA’s inaugural Chief Economic Adviser and the director of a number of applied academic research centres in northwest England specialising in comparative urban-regional development, policy and governance.
Dr. Sian Peake-Jones is a Visiting Fellow at the University of Manchester, where her work focuses on local and regional governance, productivity, and health inequality. Drawing on experience across academia, consultancy, and both local and central government policy research, she brings a practical perspective to how institutions can design policies that support inclusive and sustainable economic growth. Her recent projects have examined place-based strategies, subnational governance, and the relationships between health, inequality, the environment, and economic performance. Sian is particularly interested in how ideas about productivity translate into real-world decisions that shape places, public services, and people’s everyday lives.