On the Manchester model

Everyone agrees that the UK has a lopsided economic and political structure. The trouble is that no-one knows how to correct it, with Andy Burnham’s ideas no obvious solution.

First some background. England has been unified since King Alfred. William the Conqueror made sure that his own feudal grants were dispersed, to pre-empt the wherewithal for provincial rebellion. A century later, Assize Courts were introduced to ensure that the Royal writ ran over local disputes and transgressions. The only challenges to England’s centralisation were a few cities (London being the prominent example, its “liberties” guaranteed by William from the outset of his reign); and local government reform after the industrial revolution. Even so, such municipal independence as arose has largely been reversed of late. 

There are good reasons for this. All too often, modern local authorities have fallen prey to capture by their labour forces. Eventually, the post-Thatcher contractorisations in education and sanitation relieved the councils which took advantage of them (compare, eg, Birmingham, which dragged its feet).

Also all too often, local bodies failed to control their finances. Major recent examples include Birmingham (once again), Bradford, Croydon, Haringey, Havering and Nottingham. There are a dozen or so others, none helped by the fundamental disparity of relations with central government, which caps local taxes, provides around one third of funding, but imposes some eighty percent of local obligations. 

This makes it irrelevant to invoke the template of Germany: its Basic Law was written by the victors of WW2, who prescribed Länder with substantial autonomy. They were able to rely upon strong local cultures, often harking back to the independent states preceding Bismark’s unification, just 75 years earlier. 

By contrast, Burnham’s Manchester model is a game of bait and switch. It uses funds obtained from the Public Works Loan Board, an arm of the Treasury, which explicitly declines to look at the uses to which its money is put. Manchester loans these funds on to local projects, also free of arm’s-length scrutiny, in effect using the national credit rating for local projects. This brings to mind other public borrowers who believed that big Daddy would keep them out of trouble (bankers call malarkey of this kind “moral hazard”) leading to, eg, Argentine defaults, where provincial profligacy hides behind central guarantees.

The Manchester model is not yet a big thing in the UK, but Burnham gives the impression that he believes he’s found the secret sauce. This attests to incompetence at best, recklessness at worst. If he threatens to roll out such merry wheezes on a larger scale, we may depend on the bond markets to get good and spooked. 

There remains the underlying issue of promoting provincial agency, Burke’s “small platoons”. It’s not at all easy: let us focus on the two largest problems. 

First, the provinces lack social capital, that is the necessary institutions, relationships and skills. The in-principle solution would be to build them up gradually, experimenting from place to place and learning from mistakes. Provincial officials would enjoy greater discretion over, and retain a higher proportion of, local taxes; and make differentiating decisions about local services. They would face the verdict of the ballot box and the market, by way of movement in capital and population. This takes time. It also means going against generations of lefty shibboleths by tolerating a “postcode lottery”.

Once again in principle, this holds out the promise of eventually permitting local borrowing. To avoid moral hazard, they would have to unequivocally waive central government guarantees. This means their credit rating would reflect the usual disciplines of cash-flow, collateral and interest rate, with muscular rights for creditors on default. The model would be the American States, lenders to whom balance the increased risk by comparison with Federal borrowings with the fillip of tax-exempt interest. We will pass over the fiscal and constitutional implications of this. 

Instead, let us turn to the second problem. Burnham plans to push provincial decisions through civil servants rusticated to Manchester. This assumes that they turn up (compare the ONS, still crippled by the move to Wales, from which ninety percent of its workforce and top management defected); and that the Treasury hasn’t working-partied the whole scheme to death. If, nonetheless, some such office eventually opens its doors, it risks fuelling the fire of provincial competition. Manchester contends with Liverpool, as do bigger cities with smaller towns, Lancashire with Yorkshire, each with the Northeast and the Midlands, not to mention Scotland and Wales. For the last sixty years, attempts to create provincial social capital based on sub-national regions (Midlands, North, Southeast, West, etc) have come to nothing. Lord Mayors jealously hang on to their chains of office, Lord Lieutenants likewise to their ermines, as do cricket clubs to their “ceremonial counties”, while the electorate remains conspicuously disengaged. Meanwhile - and contrary to Burnham’s take - London prospers despite fragmentary local government.

Who’s going to grapple with this? Not, I think, our Andy, whose vibe politics will not survive contact with reality. So, brace for a couple of years of futile turmoil.

Miles Saltiel