UK devolution push could reshape regional growth and public service productivity

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UK devolution and growth

Highlights

UK policymakers are considering a major devolution plan granting local authorities greater control over public spending in health, transport, housing, and education to boost productivity.
International examples, such as Italy's decentralised health system delivering better outcomes at lower costs, are cited to support combining devolution with transparent benchmarking and partial fiscal autonomy.
The push for regional agglomeration could accelerate growth in clusters like Sheffield (advanced materials), Cardiff (semiconductors), and Newcastle (offshore energy), although it may widen spatial inequality between cities and towns.

Big bang plan for local control

As reported by Financial Times, Burnham is being urged to avoid incremental reform and instead give local authorities far greater control over public services, with spending decisions on health, transportation, housing and education made closer to communities.

The argument is that a more decentralised model, backed by clear incentives for good performance and penalties for poor delivery, could improve public-sector productivity after years in which it has weighed on wider economic output. Supporters say regional competition would create a policy laboratory, allowing areas to test different approaches and enabling others to learn from both successes and failures.

Jack Newman, research associate at the University of Manchester, says smaller devolved regions would reduce the risk of one national policy mistake causing damage for decades. Gwyn Bevan, emeritus professor at the London School of Economics, says devolution also requires a centrally organised benchmarking system so results can be measured transparently and lessons shared across regions.

International comparisons are used to support the case. Italy's decentralised public health system, combined with clear reporting standards, is cited as delivering stronger health outcomes than the UK while spending less on healthcare overall. Partial fiscal devolution could add revenue autonomy and strengthen local accountability, although its scope remains constrained because many UK regions depend on fiscal transfers from the centre.

Implications for regional clusters and inequality

Alongside devolving services, Burnham is seen as needing to renew efforts to rebalance the UK economy by supporting agglomeration outside London rather than weakening the capital. The case is that stronger second-tier cities would create jobs, improve local tax bases and support greater financial autonomy over time.

Research highlighted in the piece points to several conditions that help regional clusters form, including stronger universities, denser urban development, better transport links, cultural amenities and publicly funded research centres. Lower electricity costs are also identified as a useful way to improve competitiveness for local industries.

Potential UK clusters include advanced materials and manufacturing in Sheffield, compound semiconductors in Cardiff, and offshore energy and batteries in Newcastle. Devolving powers over housing, transport and education could support those sectors, while central government would still have a role in research and development funding and long-term finance through institutions such as UK Research and Innovation.

The article cautions that agglomeration-led growth does not mean growth in every postcode and could initially widen spatial inequality, with cities advancing faster than towns. Neil Lee, professor of economic geography at the LSE, says growth cannot be created everywhere, but argues that raising overall growth remains the central objective.

In our earlier report on UK lenders positioning for Andy Burnham’s devolution agenda, we explained how major banks such as Lloyds and NatWest aimed to expand regional project finance as more infrastructure decisions move closer to local authorities. The piece highlighted recent airport and transport-related deals and noted that banks see devolution as a way to speed up project delivery, while also warning that limited local planning capacity and a tougher fiscal backdrop could constrain the pipeline.

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