Clarifying the devolution dividend: Final Report of Investment in Places Policy Fellowship

Executive Summary

This report presents the findings of the TPI Investment in Places Policy Fellowship Clarifying the Devolution Dividend. The fellowship was established to investigate whether national systems of subnational governance influence both the strength and the spatial inclusivity of economic performance, and if so, how. Against a backdrop of persistent UK regional inequalities and increasing rhetorical support for “devolution”, the fellowship explored whether a more structured, comparative understanding of subnational governance arrangements could inform better policy choices.

The core hypothesis guiding the work was that the subnational governance arrangements of countries able to combine high levels of productivity with more geographically balanced economic outcomes tend to share three key characteristics:

• Strong subnational institutional autonomy – the ability of local or regional governments to make meaningful decisions and shape local outcomes
• Robust systems of fiscal redistribution – mechanisms that enable equitable access to public resources across regions
• Subnational governance aligned with functional economic geographies – institutions designed to match real patterns of economic activity, particularly at the metropolitan scale

The research drew on academic literature, international policy evidence, and a review of existing cross-national datasets. It found that no existing single data source fully captures the dynamic and relational aspects of these governance factors, but that meaningful analysis is possible by combining and extending several established sources, including the OECD’s Functional Urban Areas database, the Local Autonomy Index (LAI), the Regional Authority Index (RAI), and the OECD/UCLG World Observatory on Subnational Government Finance.

Using productivity data from OECD-defined urban areas across 41 countries, the fellowship found that:

• The UK’s subnational productivity disparities are among the widest in the OECD,
• Most UK metropolitan areas have relatively low productivity and have seen limited recent improvement,
• In contrast to more balanced spatial patterns in France, Germany and Canada, the UK remains highly dependent on a single high-performing super-region focused upon London, and,
• UK subnational autonomy remains limited compared to other advanced economies, especially in terms of fiscal powers and influence over public service delivery

Although the data do not yet allow for full hypothesis testing, early analysis suggests that the UK’s governance model is an outlier among peer countries. Low autonomy, centralised resource control, and fragile metropolitan governance structures may be contributing to the UK’s long tail of underperforming places. The report finds some signs of progress in recent efforts to align governance structures with economic geography through the development of Combined Authorities in England, but these remain weak by international standards and are not accompanied by adequate fiscal powers.

The fellowship concludes that there is a clear case for a more comprehensive research programme to test the hypothesis more fully and provide a robust evidence base for future policy development. This would involve combining cross-national quantitative analysis with in-depth case studies in the UK and comparator countries. Such work could better identify the balance of governance conditions that support inclusive and sustainable economic growth.

The report ends by offering some early reflections relevant to UK policy:

• UK economic underperformance reflects wide and persistent subnational disparities, not just national-level weakness
• Subnational autonomy in the UK is low and incremental reforms to date are unlikely to achieve major spatial rebalancing
• Redistribution mechanisms are centralised and weakened by recent decades of reform, limiting local capacity to respond to need
• There is emerging momentum behind functional economic governance in England’s city regions, which should be nurtured and deepened

The fellowship’s findings underscore the need to rethink how the UK governs for economic prosperity. Stronger, more empowered and better-aligned subnational institutions are not a panacea, but they may be a necessary precondition for reversing spatial inequalities that have proven resistant to half a century of conventional policy approaches.

Authors Alan Harding, Siân Peake-Jones