Intelligent Devolution: Innovating to reverse hyper-centralisation in the UK

Following the recent publication of the Devolution White Paper, our consultant Milo Rees Roberts argues that devolution must go deeper and further to unlock economic growth outside the capital

Imagine you’re the CEO of a giant transnational corporation with millions of employees, dozens of departments and operations across the globe. Would you want yourself and your executive office to micromanage all operations, budgets and policies everywhere? Or would you delegate responsibilities, spending and some revenue-raising powers to individual departments and divisions? Chances are you’d choose the second option, and this is certainly the approach that the vast majority of companies – and even countries – take to increase their effectiveness and focus their efforts where they are most needed.

The UK is an outlier in this sense, and it has suffered as a result. Hyper-centralisation has stymied growth and productivity, concentrated wealth in London and the South East, and pushed administrative capacity to breaking point. The solution lies in innovation. Intelligent devolution — grounded in fiscal autonomy, regional capacity-building, and the adoption of transformative technologies — offers the UK a path forward. By enabling local governments to experiment, adapt, and innovate, the UK can not only address its structural imbalances but also unlock the potential of its regions. This article explores how innovation can make devolution work and why it’s the key to creating a more equitable, dynamic, and productive nation.

The State of Play

You’ve probably heard that familiar adage that the United Kingdom was, until the 1990s, the most centralised developed nation on earth. Indeed, Westminster successfully conducted a sustained campaign of political concentration over the course of the last century. This was as true of the economy by 1995 as it was of governance. Deindustrialisation and financialisation over the course of the 1980s and into the 1990s drove impressive economic growth, but shifted the nexus of GDP generation away from regional manufacturing and industrial hubs towards London – to the extent that the capital accounted for the same % of GDP production as the country’s entire manufacturing sector by 1998. In particular, the City of London, just 10 minutes drive from Whitehall (20 with today’s traffic) made up a third of London’s Gross Value Added by the end of the last millennium and has represented one of the sole countervailing forces against the UK’s growing trade deficit. When we refer to (hyper-)centralisation therefore, we refer not to England nor even to London, but to 2 neighbouring boroughs and a couple of hundred buildings.

You may then have heard that adage be qualified by the fact that a flurry of reforms, beginning in 1997, reversed the trend of centralisation and brought the UK in line with OECD standards. True — the package of reforms introduced in 1997/8 (namely: central bank independence and the formation of devolved parliaments in Scotland, Wales and Northern Ireland) were the most significant constitutional amendments since 1928. But this legislative agenda was only ever intended as a foundation for future, deeper federalisation as part of a necessary but radical reexamination of how semi-autonomous regions in the UK could raise and redistribute funds. In other words, the reforms were incomplete. Furthermore, the suggestion that devolution in the late-1990s was a sea-change which ended the UK’s status as a hyper-centralised nation is not entirely true to fact. Reforms since the turn of the millennium have been characterised by a fragmented and inconsistent approach to devolution. Successive governments have alternated between waves of centralisation and short bursts of local empowerment, creating an unstable system in which devolution’s potential has been curtailed by political inertia. For instance, powers, such as the ability to borrow through the Public Works Loan Board, were devolved to local authorities, but restrictions on how revenue from these loans could be spent significantly limited their effectiveness. This is one example from many of reforms which have been undercut by a lack of funding autonomy or meaningful decision-making authority, leaving regional bodies with little capacity to address entrenched inequalities.

For many, the protracted delay of a coherent roadmap for devolution offered by the current government has been frustrating. The recent publication of the Government's White Paper on devolution has been a significant foundational step, receiving broadly positive responses as a statement of intent and a constitutional crystallisation of the powers given to new “strategic authorities". However, it has not been immune from criticisms, principally because it excludes provisions for budget-raising powers, despite extending funding capabilities in strategic authorities. Devolution was a core part of the 2022 Commission on the UK’s future and featured prominently in Labour’s election manifesto as a central factor for driving economic growth. When considering the backdrop of stop-start devolution efforts since the mid-2000s and the retooling of the abandoned Levelling Up strategy of 2019, the task of addressing the "incoherence" of the UK’s governance structure remains formidable. For devolution to drive local economic growth beyond the capital, reforms must focus on fiscal autonomy, capacity building through organisational restructuring, and empowering Strategic Authorities (SAs) to implement tailored, innovative strategies.

Winner Take All as a Zero-Sum Game

The most drastic – and necessary – change needed for devolution to drive local economic growth is creating genuine fiscal autonomy in SAs. There is plenty of evidence to suggest that the current centralised model for determining regional levels of funding is not fit for purpose. For example, a study by the Institute for Fiscal Studies revealed that councils in the poorest 20% of areas receive 10% less funding than their assessed needs, while wealthier councils receive 13% more funding than their needs. Rather than reducing regional inequalities therefore, the current system actually entrenches them. The principal reason for this is that ROI calculations which determine investment levels in Combined Authorities (now SAs) favour areas which are already experiencing above-average levels of growth. This might be fine for ensuring taxpayer money isn’t wasted, but it’s actively counterproductive when it comes to fulfilling the actual aim of Levelling Up – now rebranded under the Ministry of Housing, Communities and Local Government – to stimulate local economies outside preexisting high-growth areas.

Beyond funding allocation inequities, other structural issues in the current system further entrench regional disparities. Annual budget allocations hinder long-term planning, which is essential to attract private investment to deprived areas. Frequent ad hoc bidding requires local authorities to allocate already stretched capital and labour resources yearly, a process which again favours regions with stronger administrative capacity over resource-poor regions which probably need funding the most. The solution for these problems lies in giving SAs the powers they need to raise their own budgets, shoring up their administrative capacities to raise and spend capital, and changing single-year central funding to multi-year funding projects. The latter two of these changes have been addressed by the White Paper, but this does not ensure that implementation will be carried out as effectively and efficiently as they could be. Empirical evidence for decentralised tax and spending improving government performance is promising. A multi-country comparative OECD study associated these models with both higher national income and lower inter-region inequality.

The good news for the UK is that there are replicable models for regional fiscal autonomy in most other European nations. Sweden’s municipal tax autonomy, for example, provides a blueprint for how semi-autonomous regions can be more responsive to local needs and desires. While building the regional administrative capacity required for SAs to raise and spend their own tax revenues may be a daunting process, numerous studies suggest that – unsurprisingly – higher levels of bureaucratic capacity are causally connected to improved service provision outcomes. Thus, if the government is proactive about innovating its regional governance and budgeting structures, it should find that it can achieve more, at higher levels of civil service productivity. While the Labour government does appear to be proactively encouraging organisational restructuring within SAs, particularly to rationalise existing “two-tier authorities” and to allow for greater local agency over spending, housing, transport and culture, the exclusion of budget-raising capacity within these changes is disappointing, and will necessitate further painful administrative overhauls in the future.

Devolution needs Innovation; Innovation needs Devolution
Clearly, there is a strong theoretical case for deeper devolution, but the practicalities of implementing it require innovative practices—not just in technology, but also in experimentation, piloting, and adopting new approaches. To the first point, emerging technologies such as smart contracts and blockchain have the potential to revolutionise how public money is dispersed with minimal human oversight. Automating procurement processes and welfare payments would make public transactions more transparent and efficient. These aren’t small gains either: Government estimates suggest that system management savings in the energy sector alone through smart contracts could amount up to £10 billion annually by 2050. Adopting these technologies would therefore increase public trust, make oversight easier and minimise the potential for fraud and delays (just imagine if the Royal Mail had used smart contracts or payments through blockchain!). This all sounds great – but what about the barriers to adoption? Studies on the NHS and civil service have shown that organisational fragmentation (sound familiar?) and employee reticence to adapt their workflows are the principal factors inhibiting deeper technology integration and associated productivity gains in over half of public sector organisations.

However, innovation must go beyond technology. It requires fostering a culture of experimentation and piloting to test and refine new policies, workflows, and ideas before scaling them. Luckily, the patchwork of Strategic Authorities across England provides an ideal testing ground for local experiments that can later be adopted nationally if successful – a principle that the Government has already exhibited an appetite for, both by extending the deepest devolution powers in London and Manchester to a greater number of regions and by calling for a ‘test and learn’ approach in central government activities. For example, pilot schemes could demonstrate where technologies or adapted workflows deliver the greatest impact while ironing out teething issues and building confidence among public employees. More ambitiously, the Government should look to trial innovative administrative structures, and scale these where appropriate: the White Paper has made clear that bureaucratic blockages and multi-tier, crosscutting public service provision has stymied the economic benefits that devolution in its current guise promised to deliver.

Moreover, technology and innovative practices must be customer-centric. Policies and technologies should be developed with the end-user in mind, prioritising accessibility and integration into real-world workflows rather than being dictated by a top-down, lab-like approach. Open-source development, allowing private actors to iterate upon publicly funded solutions, could democratise innovation and ensure that tools are practical and effective. The work of innovation support specialists, like Studio Zao, could be beneficial, as partners for key stakeholders such as local officials, equipping them to champion and implement these new ideas. Only by inculcating recognition of the value of innovation – not just to the country as a whole but also to public employees who will be at the front line of it – will transformative technologies and operational best practice be embraced by the civil service and local administrators.

Less Control means More Power

In this article we have explored what the current landscape of devolution in England and the UK looks like, and discovered that the familiar narrative of gradual devolution since the late-1990s has not necessarily resulted in linear progress towards more decentralised political and economic power. This article has laid out the case for even deeper devolution of powers to SAs, particularly when it comes to autonomy over budget-raising capabilities. I hope that I have made a compelling case for this, and why innovation lies at the heart of adopting new technologies and capacity-building practices. But I know what you’re thinking: why on earth would the Treasury and MPs propose and vote for measures which massively limit their control over the vast majority of the country, leading to less say over local laws, fewer opportunities for MPs to claim ownership over improvements in their constituencies, and crucially, much smaller Treasury budgets?

The answer to this lies in ‘heresthetics’ – the practice of politicians strategically manipulating policies to increase their own power. This all sounds very complicated and Machiavellian, but it becomes clearer when we examine the example of the creation of the Bank of England in 1997. This surprise announcement saw Chancellor Gordon Brown cede all fiscal powers to an independent central bank – superficially limiting his own power just as Labour came to power with a huge majority. In fact, this decision consolidated Brown’s power over every other Government Department. By articulating which powers were no longer under his remit, he had greater scope to oversee and control the responsibilities which remained.

In the context of devolving powers to Strategic Authorities, the Treasury could adopt a similar approach by ‘spinning out’ certain powers and responsibilities into local hands. This process would require an innovative approach, with clear metrics for success and systems of support to ensure that local governments can thrive in both the short and long term. By shifting some risks and responsibilities of granular local policy to Strategic Authorities, the Treasury could free itself to focus on national priorities while supporting regions to deliver truly localised solutions. A genuine partnership between central and local government—built on transparency, collaboration, and mutual accountability—could ensure that devolution works effectively for all stakeholders. Far from a decline in power, this reframing of devolution positions the Treasury as a strategic leader, empowering it to catalyse regional innovation while maintaining oversight of the broader economic picture. Ultimately, this is not a question of whether the UK can afford to innovate, but whether it can afford not to.