Andy Burnham and Treasury Death Grop aren’t the hot new indie band coming out of Manchester. It is a central part of the our new Prime Ministers strategy. He has declared war on one of Britain’s oldest institutions. Not Parliament, the Bank of England or Whitehall civil servants.
His target is the Treasury.
For decades, governments of every political colour have accepted that Britain’s economic strategy should be designed in London and implemented, often reluctantly, everywhere else. Regional leaders bid for funding. Treasury officials decide which projects represent value for money. Ministers announce the winners.
Burnham argues that this model has failed. He wants regional mayors to retain a share of business rates and income tax, borrow against future revenues and make far more investment decisions themselves.
It is a radical proposal. It is also one that deserves far more careful scrutiny than the predictable political reactions it has received.
Because Burnham has correctly identified a genuine problem. Britain is probably the most centralised large democracy in the developed world. But handing fiscal power to local government raises a different question altogether.
Do we still have local government capable of using it well?
Britain really is an international outlier
The United Kingdom is extraordinarily centralised by international standards.
In federal countries such as Canada and Germany, regional governments raise and spend a substantial proportion of public revenue. American states enjoy extensive tax-raising powers. Even France, long regarded as one of Europe’s most centralised states, has devolved significant responsibilities over recent decades.
Britain has moved in the opposite direction.
The Treasury has become not merely the guardian of the public finances, but the national investment committee. Whether a tram extension in Manchester, a railway station in Newcastle or a regeneration scheme in Middlesbrough proceeds often depends less on local priorities than on whether officials in Whitehall believe it satisfies the Green Book.
That creates obvious frustrations. Local leaders understand their economies better than civil servants hundreds of miles away. Investment decisions frequently become slow, bureaucratic and politically driven.
Burnham is right to challenge that model.
But the Treasury has already begun to change
There is, however, an important complication. Burnham’s argument is presented as a rebellion against Rachel Reeves’ economic strategy.
It isn’t.
In fact, Reeves has already begun dismantling some of the Treasury orthodoxy that Burnham criticises. The Green Book has been rewritten to place greater emphasis on local growth and prosperity rather than relying almost exclusively on traditional cost-benefit analysis. Integrated funding settlements for mayoral authorities have expanded. Longer-term investment funds have begun replacing endless rounds of competitive bidding.
The real disagreement is not whether power should move away from Whitehall. It is how far. Reeves wanted to reform Treasury decision-making. Burnham wants to transfer many of those decisions out of the Treasury altogether.
That is a much bigger constitutional step.
We have tried something similar before
History should make us cautious. This is not Britain’s first experiment with fiscal devolution.
In the early 1970s, reforms to local government finance produced some remarkable unintended consequences. Authorities fortunate enough to contain enormous industrial ratepayers suddenly found themselves awash with money. Billingham, benefiting from ICI’s vast chemical complex, was able to build facilities that neighbouring authorities could only dream about.
South Bank, sitting beside British Steel, decided that industrial Teesside’s greatest need was… a Formula One Grand Prix circuit.
Parts of it were actually built, before the project eventually collapsed.
The lesson was not that local councils are inherently irresponsible. It was something much more fundamental.
The location of a tax base often bears surprisingly little relationship to the needs of the population that depends upon it. A huge factory may stand inside one council boundary while thousands of its workers live elsewhere. An airport may generate enormous revenues for one authority while neighbouring councils deal with the transport, housing and environmental consequences.
Eventually the disparities became politically unsustainable and business rates were centralised once again.
Britain has been oscillating between centralisation and decentralisation for half a century. Each system solves one problem while creating another.
Fiscal devolution needs equalisation
This is where Burnham’s proposals become genuinely difficult.
If Greater Manchester keeps more of the proceeds of its economic success, it has a stronger incentive to encourage investment and growth. That seems entirely reasonable. But what about Sunderland? Or Hull?
Should the quality of local public services depend upon the historical accident of where successful industries happen to be located?
Every country that has developed meaningful fiscal devolution has eventually confronted exactly this problem. Germany redistributes resources between richer and poorer states. Canada operates a constitutional equalisation system designed to ensure provinces can provide reasonably comparable public services despite very different tax bases.
Fiscal autonomy without equalisation produces widening regional inequality. Complete equalisation removes the incentive for local growth.
The challenge is finding the balance. More equalisation means more treasury intervention to move money around the country, which cuts across fiscal devolution. More devolution means rich areas get richer and poor areas get poorer.
That is considerably harder than simply announcing that mayors should keep more tax revenue.
And it has another very political problem. At the moment taxes are paid in and redistributed by the Treasury, which makes it relatively hard to see who is paying in and who is taking out. Devolving money down makes it all a lot more transparent, which sounds good, but in practice will create huge tensions between the areas who are net givers and areas which are net takers.
There is another problem nobody wants to discuss
Capacity. For thirty years successive governments have centralised expertise, outsourced services, reduced council budgets and steadily weakened local government.
Finance departments have shrunk. Commercial expertise has disappeared. Planning departments struggle to recruit. Project management capacity has been hollowed out.
And now we propose giving those same organisations billions of pounds, borrowing powers and significant tax revenues.
That is asking a great deal. Do you really want to give massive power to the people who can’t empty your bins on time?
Greater Manchester is probably better placed than most. It has spent years building institutions, transport authorities and economic development capability. Not every combined authority has done the same. Mayoral authorities may be better placed than local authorities, but they will need a big investment in capacity to fulfil a much bigger role.
Perhaps devolution itself creates capability. Perhaps institutions only learn by exercising responsibility. But pretending capacity does not matter would be a serious mistake.
This brings with it another huge political challenge. How can you justify spending lots of money on Council bureaucrats while core services are facing budget constraints?
Democracy has consequences
There is an even more awkward question. What happens when local politicians use devolved powers to pursue policies the rest of the country considers misguided?
The debate often assumes every mayor will behave rather like Andy Burnham. That seems optimistic.
Imagine a Reform-controlled combined authority deciding to reject renewable energy developments despite national energy policy. Imagine borrowing being used to fund politically attractive vanity projects. Imagine investment decisions being driven by ideology rather than evidence.
These are not imaginary concerns.
Reform led Councils have recently rejected several solar developments which were subsequently approved on appeal by the Planning Inspectorate. Appeals of this kind expose councils to the possibility of costs being awarded if unreasonable decisions have generated unnecessary expense. My own Council in Durham has made similar decisions.
That does not mean Whitehall should simply overrule local democracy whenever ministers dislike the outcomes. That would defeat the entire purpose of devolution. But it does illustrate that devolving power also means devolving the consequences of poor decision-making.
If we believe local communities should make their own choices, we must accept that they will sometimes choose badly.
Right now a small number of diverse, multicultural cities, with high levels of investment and productivity produce pretty much all of the UKs tax receipts, along with the prosperous commuter suburbs which surround them. Right now the Treasury redistributes that money to the rest of the country. Local devolution makes that a lot more transparent and a lot more controversial. Diverse tax payers in big cities might not want their money used to bail out the bad decisions of Reform voting areas.
Imagine a Reform Council using changes in procurement rules to remove contracts from firms which practice inclusive hiring practices, or scrap the Council’s own anti-discrimination rules. This leads to legal action and huge damages, costing the Council millions. Who bails that out?
The answer is not less government
Both sides of this debate risk reaching the wrong conclusion. Treasury centralisation has undoubtedly become excessive. But replacing Treasury bureaucracy with local bureaucracy is not an economic strategy.
Successful fiscal devolution requires institutions. Independent audit. Transparent accounts. Professional finance teams. Strong scrutiny. Clear fiscal rules.
Above all, it requires a clear understanding of which decisions are genuinely local and which remain national.
Transport priorities? Local.
Housing delivery? Mostly local, but what happens when Councils use their power to block all house building?
National energy security? National. But what happens if Councils use their powers to block solar farms, or Net Zero infrastructure?
Macroeconomic stability? National.
Climate obligations? National.
The Treasury should stop deciding where every bypass, tramline and business park belongs. But central government must still define the rules within which local government operates.
To add to the complexity the Government’s new found enthusiasm for industrial strategy and government intervention needs a strong centre to make these decisions. They aren’t alone, Governments around the world are moving away from the neo-liberal consensus and finding a new role for government intervention. Space X is as much a creature of US Government investment as it is a triumph of private sector entrepreneurship.
The real challenge
Burnham has performed a valuable service by forcing Britain to confront an uncomfortable truth. The Treasury has accumulated an extraordinary degree of control over Britain’s economy. Too much.
But history also teaches another lesson. Fiscal devolution is much harder than administrative devolution.
Britain has tried versions of it before. Some authorities prospered spectacularly. Others struggled. The result was growing inequality, political tension and eventual recentralisation.
If this new settlement is to succeed, it must avoid repeating those mistakes. That means combining greater local freedom with stronger institutions, meaningful equalisation and robust accountability. Otherwise we will simply replace one set of unintended consequences with another.
The question is no longer whether power should leave Whitehall. It should.
The question is whether Britain has rebuilt local government sufficiently to trust it with what comes next.
