Burnham’s Plan Reopens Britain’s Debate Over London’s Grip on Growth
Prime Minister Andy Burnham’s plan to shift more money and power from Westminster to English cities has revived one of Britain’s oldest economic arguments: are growth and investment opportunities too heavily concentrated in London and the south-east, or is the real problem not that the capital is too strong, but that major cities such as Manchester, Birmingham and Leeds remain far weaker than they should be?
Burnham’s government wants mayors, for the first time, to receive a share of income tax revenues and for their regions to retain a greater proportion of business rates. The latter change is due to begin next spring, while details of how income tax revenues will be shared are expected to be set out in a roadmap alongside the Budget.
The plan also envisages wider powers over transport, housing, skills and employment.
Burnham has defended the shift on the grounds that people living in individual regions are best placed to understand what those places need, and that communities should benefit more directly when their local economies grow.
But his plan does not begin this debate from scratch.
It enters an already established argument over what some economists describe as London’s gravitational pull on investment, jobs and skills.
Has London Become Too Powerful a Magnet?
Peter Hetherington, who writes extensively on regional development, recently returned to the issue in The Guardian, asking how Burnham can deliver growth “in every postcode” while London continues to attract enormous levels of investment in technology and infrastructure.
Hetherington points to the Lower Thames Crossing, an infrastructure project east of London estimated to cost between £10bn and £11bn, and contrasts it with projects in northern England that have either been cancelled or scaled back.
But the argument goes beyond public spending.
Ron Martin, professor of economic geography at the University of Cambridge, argues that London is undergoing another major transformation. Over the past century, it shifted from a centre of consumer industry to a global financial capital. Now it is increasingly becoming a major global technology hub.
Figures cited in Hetherington’s piece suggest that the “golden triangle” linking London, Oxford and Cambridge attracted almost 70% of investment in high-growth technology sectors in 2023.
For those who take this view, the problem is self-reinforcing.
Capital flows towards places where companies, infrastructure and skilled workers are already concentrated.
That concentration then attracts still more companies, workers and investment.
Investors See London as Safer
Research from the Institute for Fiscal Studies offers another explanation for the gap.
In January, Sonya Krutikova and Xiaowei Xu reviewed research suggesting that, since the 2008 financial crisis, investors have increasingly treated London as a lower-risk destination than many other British cities.
As a result, they are willing to accept lower returns on investment in the capital while demanding higher returns to invest elsewhere.
The research describes the outcome as the emergence of two financial worlds: London and its surrounding economy on one side, and cities and regions forced to pay a higher price to attract capital on the other.
Part of the explanation lies in the heavy concentration of Britain’s financial institutions in London, which leaves investors more familiar with the capital and less confident in assessing risk elsewhere.
The divide is not confined to capital.
According to the same research, 44% of graduates are living away from the regions where they grew up by the age of 32, while almost a third of graduates who move from elsewhere in Britain end up in London by the age of 27.
Weaker regions can therefore lose both investment and skilled labour at the same time.
But Is London Really “Too Strong”?
This is where another school of thought enters the argument.
The Centre for Cities agrees that the weakness of Britain’s major cities outside London is one of the country’s biggest economic problems.
But it also sees signs that the picture may be beginning to change.
Researcher Yunzhe Wang has pointed to official data suggesting that, for the first time in more than a decade, productivity gaps between London and other major British cities have begun to narrow.
Large cities outside the capital have seen productivity rise at roughly twice the rate of the rest of the country, while London’s productivity has stagnated.
From this perspective, the goal should not be to make London less successful simply so that the gap looks smaller on paper.
Convergence caused by a stagnating capital does not solve Britain’s wider economic problem.
The real objective is to make Manchester, Leeds, Birmingham, Liverpool and other major cities more productive and more capable of attracting businesses and skilled workers in their own right.
Even the Centre for Cities remains cautious, however.
It regards the apparent catch-up with London as recent and fragile rather than evidence of a decisive structural shift.
What Would Burnham’s Plan Actually Change?
That is where the government’s wager begins.
Instead of leaving cities heavily dependent on grants allocated by Westminster, Burnham wants to give them a source of revenue tied more directly to the growth of their local economies.
Thomas Pope, deputy chief economist at the Institute for Government, has described giving mayors a share of income tax and business rates as potentially the most radical part of Burnham’s agenda.
The attraction is obvious.
Regions would gain a more predictable long-term source of funding, a direct financial incentive to promote growth and greater freedom from the restrictions that often accompany central government grants.
But Pope also points to an obvious paradox.
The fastest-growing areas would raise more tax and therefore receive more money.
The places already falling behind could receive less.
That means the system would almost certainly require grants or some form of equalisation mechanism to compensate weaker regions, alongside stronger local accountability.
Without that, a policy designed to narrow Britain’s regional divide could end up widening it.
London Wants More Power Too
One striking feature of the debate is that London itself does not oppose shifting power away from Westminster.
Stephen Cowan, chair of London Councils, which represents the capital’s boroughs, has described the proposal to give regional authorities a share of income tax as “real progress towards genuine devolution”.
He has also argued that London should receive greater fiscal autonomy and that its borough councils should have a role in deciding how new revenues are spent.
That adds another layer to the argument.
This is not simply a struggle between London, determined to hold on to power, and other cities trying to wrest it away.
London, Manchester and other major urban areas are all demanding greater freedom from central government.
The real question is how to stop existing economic strength from determining how much money and autonomy each region is ultimately able to exercise.
More Than a North-South Divide
IFS research also suggests that the solution cannot be reduced to shifting tax revenues alone.
Krutikova and Xu argue that regional inequalities are produced by overlapping constraints involving finance, skills, jobs, education and labour mobility.
Fixing one part of the system is unlikely to be enough.
Improving young people’s skills, for example, will not transform a region if there are too few attractive jobs to persuade them to stay.
Yet the research also contains one finding that appears to support Burnham’s model.
The two metropolitan areas outside London where investment costs have begun moving closer to those in the capital are Greater Manchester and the West Midlands—two of the English regions with the deepest experience of devolved powers.
Even there, however, stronger investment has not automatically translated into better outcomes for all local residents.
That is why Burnham’s plan raises a much broader question than Britain’s traditional argument over the north-south divide.
One side sees decades of concentrated investment, decision-making and finance around London as creating a gravitational pull other regions struggle to resist.
The other argues that weakening London will not make Britain richer, and that the real task is to give other cities the tools to build competing centres of growth.
Burnham’s government is betting that shifting money and decision-making away from Westminster can begin to change that equation.
But even supporters of devolution warn that success will depend on far more than tax reform alone.
Infrastructure.
Investment.
Skills.
And, above all, whether Britain’s weaker regions can be given the means to compete without being asked to start the race several laps behind.
Read more:
ShortURL ⬇
