The Economic Case for a Federal UK

With regard to economic prosperity, the UK is one of the most divided and unequal countries in Europe. Over the past thirty years, London’s economy has accelerated ahead of the rest of the country, such that by 2020, average wages in Northern Ireland and Wales were only 70% of average wages in London as stated in the 2021 report titled Levelling up the UK’s regional economies published by the Centre of Cities. This is reflected in a marked national productivity gap, with London having a gross value added (GVA) of £51,000 per worker, compared to £27,000 in the East of England, £23,000 in Yorkshire and £21,000 in the North East of England as suggested in the Median annual earnings for full-time employees in the United Kingdom in 2020, by region authored by Statista. 

These inequalities have led to a much-touted government agenda to ‘level up’ the UK economy. However, a crucial element of the policy debate in the UK that has so far gone under-examined is the fact that the economic difficulties of the North and Midlands of England have coincided with the atrophy of the UK’s system of governance. Whilst Wales, Scotland and Northern Ireland now boast powerful regional governments, England has been left underrepresented. The introduction of metropolitan mayoralties in England’s major cities has gone some way in redressing this imbalance, though England’s smaller towns and rural areas are still without sufficient regional representation. 

Economic and political inequality are not unrelated phenomena. To level up the economy in the UK's poorer regions, levelling up of the politics needs to happen first. What follows is an argument in favour of federalising the UK government, so that each region of England, along with the three smaller kingdoms, has equal political representation, in the form of powerful regional governments. 

The Problem with Governing a Divided Country

The socioeconomic disparities within the country mean both major political parties struggle to appeal to different factional interests simultaneously. In 2019, Labour failed to unite conservative, patriotic voters in their heartlands with liberal internationalist voters in metropolitan areas. For the Conservatives, however, there is increasing evidence that a chasm exists within their voter base too, but this divide is fundamentally economic, not social in nature. The recent Chesham and Amersham by-election delivered a bloody nose to the Tories, courtesy of centre-right Southern English voters displeased with a government agenda that seems to prioritise addressing the concerns of traditional Labour voters in the so-called 'red-wall'- namely, Brexit and levelling up. There is certainly a faction of not-so-shy Tory and Liberal Democrat-leaning voters that interpret levelling up the North and Midlands of England as nothing more than levelling down the prosperous South East, and they are unlikely to change their minds anytime soon. 

If the government deems bold policy agendas as high-risk strategies likely to alienate a generous portion of its voter coalition, the economic policy pursued from Westminster will resemble little more than the path of least resistance; a bland aggregation of the sections of public opinion least likely to offend. For this reason, the power to direct industrial and infrastructure policy must be taken away from the UK government and given to heads of new regional governments. 

Given the strong divergence of opinion about economic policy (among other issues) within England, it makes little sense for the prime minister to have to make policy for people in North Yorkshire, knowing full well that people in Buckinghamshire will not like it. Instead, it would be much more prudent for a regional government in the North West of England to organise the levelling up agenda for their region, and for a separate authority to do the same for the South East. Under such a system, the details of important economic and infrastructure plans such as levelling up and the green agenda would not be jeopardised due to a change of government policy in Westminster, because the fundamental responsibility for maintaining such details would lie with regional leaders. 

A good example of a situation in which greater devolution of responsibility is needed is the rollout of electric vehicles. Whilst the UK government has a target of achieving net-zero carbon emissions by 2050, Greater Manchester’s Combined Authority (GMCA) has a net-zero target of 2038. The largest single source of carbon emissions in Greater Manchester is the transport sector, making an efficient rollout of electric vehicles crucial to achieving the 2038 target. However, Greater Manchester does not have the power to ban the sale of petrol and diesel cars; this power still lies with the government in Westminster, which currently aims to ban sales of these vehicles by 2030. If this is pushed back to 2035, Greater Manchester’s 2038 target for net-zero will likely not be reached, exposing the reliance that local or regional governments have upon the UK government for achieving their own objectives. Such reliance would be eliminated if GMCA were given the considerable devolution powers it desires. 

Federalism versus Devolution

The main criticism of federalism is that having a system of multi-level governments would lead to gridlock during times of disagreement between Westminster and regional governments. Critics of federalism often point to the United States, where the competing mandates of the federal and state governments made it difficult to coordinate concerted responses to the 2008 financial crisis and the COVID-19 pandemic. 

However, my reading is that a federal system would lead to far less gridlock than the current system of devolved parliaments does. In a federal system, the powers of the federal and regional governments are set out in stone, and cannot be changed easily. Crucially, the rights of all the regional governments are equal in relation to one another, and in relation to the central authority. This is not how the UK works currently; here, the powers of the governments in Scotland, Wales and Northern Ireland are not equal by default. 

Though the Scottish and Welsh parliaments both now have the power to set their own levels of income tax, they were not granted this power at the same time, and the assembly in Northern Ireland still does not have tax-raising powers. Furthermore, England does not have its own regional parliament at all. This has made the relationship between Westminster and Edinburgh much more dysfunctional than the relationship between the federal government in Washington DC and the US state governments, the rights of which are at least codified in the Constitution. The confusion over different rules in the four kingdoms during the pandemic demonstrated the dysfunctionality of the UK system very well. The cause of gridlock is not devolution, but asymmetrical devolution, and the egalitarian nature of a federal system would eliminate the imbalances within the current UK order. 

Moreover, recent history has shown that when new regional or local governments are established in the UK, their constituents prefer them to the government in Westminster. Labour ran a lacklustre and unpopular national campaign for the 2021 local elections, losing eight councils, but Mark Drakeford’s Welsh Labour increased its majority in the Welsh Parliament, and Labour retained its mayoralties in London, Manchester, the West of England, and Liverpool, as stated in the report titled Combined authority mayoral elections 2021 published by the UK Parliament. 

Policies matter

The economic rationale for greater, symmetrical devolution is clear. However, radical diffusion of responsibility and power away from London cannot mean that the government in Westminster takes a back seat on levelling up the economy. Whilst regions must be free to choose their own economic future, leadership of overarching innovation missions must still come from the centre. First and foremost, this means making R&D spending levels equitable across the country as a precursor to radical devolution, which will not happen overnight. It also means taking more seriously the fact that the challenges of the COVID-recovery, the advance towards net-zero emissions, and yes, the levelling up agenda, are not separate challenges from improving regional governance, but counterparts to it. 

A federal UK would not be a utopia. It would not prevent disagreements between governments in different parts of the country, it would not prevent novel viruses from entering the UK on boats and aeroplanes. It would also not, in and of itself, make the country more effective at reducing its carbon emissions. Ultimately, our ability to reach net-zero emissions or level up the North and Midlands will depend not on which government is solving these problems, but which policies our governments implement to solve them. However, it is clear that regional governments, each responsible for the needs of only a slice of the country rather than the country in its entirety, would be more adept at choosing the right policies for their own respective regions than the far-away government in Westminster. 


Tom Leeman

I am a Politics and Spanish graduate from the University of Bristol, going on to study a Master's degree in Political Economy at King's College London.

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