Making Devolution Deliver: Who Coordinates the Coordinators?

Last week, after I published my piece on Britain’s competitiveness map, a senior figure at the Department for Business and Trade asked me a question I haven’t been able to stop thinking about. The substack was an excellent read, he said — but what happens when decision-making devolves further? In the fractured world we all know exists, how ought the UK’s regions plan accordingly?

The “how” question is an important and challenging one — and it opens up a set of issues I want to explore over the next few weeks. This piece focuses on the UK’s coordination and long-termism challenge. Next week, I will draw on China’s experience of regional industrial policy to deepen the argument.

Nine months ago, the UK Modern Industrial Strategy laid out a ten-year framework: eight priority sectors, detailed sector plans, and a “places” strand designed to connect national ambitions to regional capabilities. Then in March, the Chancellor’s Mais lecture escalated that ambition. Where the strategy spoke of developing “a roadmap for future fiscal devolution,” Reeves announced £2.3 billion in City Investment Funds for metro mayors, a commitment to business rates retention, and a forthcoming roadmap for sharing income tax and other national taxes with regional leaders. English city-regions were to be benchmarked against Stuttgart, Turin, and Lyon. She called it “a permanent transfer of power and resources.”

The ambition is welcome — and it represents a genuine break from the past. As Coyle and Muhtar (2021) have documented, British industrial policy since the 1970s has been characterised by constant churn — six changes between the Coalition and Conservative governments alone, each leaving behind institutions that stumble on in zombie fashion. The Mais lecture is explicitly trying to end that cycle: statutory underpinning for the Industrial Strategy Council, long-term capital rather than annual grants, a roadmap rather than a one-off announcement. That seriousness of intent matters.

But so does the design. As McCann (2020) has shown, the UK is the most interregionally unbalanced large economy in the OECD; only Slovakia and Ireland, both tiny by comparison, rank higher across his composite of 28 indicators. Decades of centralised, space-blind policymaking have produced these disparities, and recent evidence suggests they are not closing on their own. Devolved governance tends to produce more balanced growth, but only when the institutional design is right. The design question that neither the strategy nor the Mais lecture adequately addresses is this: what happens when nine metro mayors, each with new fiscal resources and four-year electoral cycles, start making investment decisions that are assumed to be coordinated over a decade?

The gap in the middle

Start with what the strategy actually asks regions to do. It identifies eight priority sectors — from advanced manufacturing and clean energy to life sciences and defence — that will drive UK productivity growth to 2035. The “places” strand says these national ambitions should connect to regional capabilities, fostering clusters, building specialisations, developing skills pipelines and innovation ecosystems.

Now the incentives. The Mais lecture announced two distinct fiscal instruments, and both deserve scrutiny. The City Investment Funds are backed by business rates retention. Business rates are a tax on the occupation of non-domestic property — they reward physical footprint. A large distribution warehouse generates substantially more rateable value than an AI startup in serviced offices or a life sciences facility in its first years of operation. The fiscal logic points towards logistics parks and retail developments. The strategy points towards patient, capability-building investment in sectors whose returns take a decade to materialise.

The forthcoming roadmap for sharing income tax revenue has a different incentive structure — it rewards employment and wages rather than floorspace. But it still favours whatever generates taxable employment fastest. A distribution centre creates hundreds of jobs within months; an advanced manufacturing cluster may take a decade to reach scale. The mayor who backs the distribution centre sees the income tax revenue immediately. The mayor who backs the cluster waits years. Neither instrument automatically rewards the kind of growth the strategy is asking for.

These are not criticisms of any individual mayor. They are observations about what happens when the fiscal instruments and the strategic objectives pull in different directions. And the problem becomes far more serious when you multiply it across city-regions, because even if each region individually pursues the right kind of growth, uncoordinated pursuit produces duplication. The risk, put bluntly, is that we end up with nine regional economies that all look the same: a logistics park, a business park, an innovation hub with impressive branding and no supply chain underneath it. It is worth noting, too, that the city-region model leaves much of the country outside the framework entirely. Rural counties, smaller towns, and coastal areas lack the combined authority structures that make fiscal devolution operational — a gap that needs to be filled.

I’ve spent my career studying UK trade and productivity, and the Chinese economy, and if there is one lesson from China’s experience of regional development it is this: coordination matters as much as resources. When China designated shipbuilding as a strategic industry, twelve provinces claimed it in the 11th Five-Year Plan and sixteen in the 12th. Local governments competed with below-market land and cheap financing to attract yards. The result was 173 new shipbuilders entering the industry between 2003 and 2009, and China’s market share surging from 14% to 53%. But the overcapacity was enormous — more than half the yards were eventually culled, and the gross return on government spending was just 18 cents on the dollar. And once these patterns set in, they proved very hard to reverse. The political incentive is always to double down on what is already working, not to pivot towards investments whose returns may not materialise until a successor is in office.

Who coordinates — and how?

The Mais lecture is largely silent on this question. It sets out the ambition of individual city-regions but says nothing about how mayors pursuing locally rational strategies will produce a nationally coherent outcome. The strategy’s “places” strand gestures towards coordination but offers no mechanism.

Yet the mechanism is what matters most. In my own work on firm-level productivity and trade, I keep finding the same thing: the regions that perform are not necessarily the ones with the best assets. They are the ones whose firms are most connected — to supply chains, to export markets, to the competitive pressures that force adoption of better technology and better management. A region that builds an advanced manufacturing cluster in isolation is a hub with no spokes. It needs to be plugged into national sector plans and international value chains, or it will never generate the ecosystem density that makes clusters self-sustaining. That means a region’s strategy cannot be designed in isolation from its neighbours or from global markets. The most valuable regional strategies are complementary ones — a clean energy supply chain where one region specialises in turbine manufacturing, another in installation and maintenance skills, a third in the engineering services that connect them. That kind of complementarity does not emerge on its own. It has to be designed.

At minimum, the fiscal devolution roadmap needs to satisfy three design principles.

• First, each regional investment strategy should be outward-facing — demonstrating not just what will be built locally, but where it sits in national sector plans and cross-border value chains.

• Second, there needs to be a formal process for testing whether regional strategies duplicate or complement each other before funding is committed. Right now, regions know their own capabilities but not each other’s. Closing that information gap — and using it to stress-test strategies before the money flows — is what distinguishes coordination from hope.

• Third, the fiscal instruments themselves need to reward long-run capability-building, not just activity that fills floorspace or generates fast employment.

There is no shortage of institutions that could contribute. The Catapult network has linked innovation centres across regions since 2011. UKRI’s Local Innovation Partnerships channel research funding to places. The British Business Bank runs dedicated regional funds. But these bodies were designed to deliver within regions or within sectors, not to coordinate strategies against each other. They can tell you what is happening in a place. They cannot tell you whether nine places are all chasing the same thing.

More recently, the Productivity Institute has built a network of regional productivity forums connecting researchers with local policymakers and businesses. As a newer institution, it is still developing its role — but its evidence base on regional productivity, firm capabilities, and labour markets could help provide the cross-regional intelligence that makes coordination possible.

The Industrial Strategy Advisory Council, due to be placed on a statutory footing as the Industrial Strategy Council, is the natural candidate to hold this together: a permanent, independent body with a mandate to ask the questions no single metro mayor has an incentive to ask. It could draw on the Catapults for innovation insight, the British Business Bank for investment flows, and networks like the productivity forums for evidence on where regional capabilities actually lie. Is devolved capacity being directed towards long-run productivity, or towards whatever fills the most commercial floorspace? Are regions building on genuine local strengths, or chasing the same generic investments?

Getting it right

The Chancellor’s instinct is right: Britain cannot solve its productivity problem without empowering its regions. The centralised model has failed. But devolution without coordination risks producing nine versions of the same economy rather than a diversified national one. The fiscal devolution roadmap due at the Budget is the moment to get the design right — not just which revenues to share, but how devolved resources will be tied to the capability-building the strategy demands, and how regional strategies will be tested for complementarity before the money flows. China’s Five-Year Plan process, for all its obvious differences, offers a lesson: the National Development and Reform Commission (NDRC) coordinates national priorities with provincial plans through sustained consultation, matching central objectives to regional capabilities. The UK needs its own version of that architecture, suited to a democratic and devolved context. The question is whether British politics has the patience and institutional seriousness to build it. Next week, I will explore what China’s experience — the successes and the spectacular failures — can teach us about getting this right.