In its new legislation, the government has ducked the opportunity of further fiscal devolution to the North East. In doing so, it has missed a crucial opportunity to use the potential of new funding powers to help rebalance the economy as a whole and make the future fairer for everyone. At the Fairness Foundation, our new report sets out why decentralising power and funding is vital to unlocking the North East’s potential.
It’s no secret that the North East faces its fair share of economic challenges. Around two-thirds of the region’s towns have levels of household deprivation which are higher than the national average. According to the English Indices of Deprivation, in the North East these alarming levels of deprivation are stubbornly concentrated and the region has the highest proportion of neighbourhoods in its most deprived decile among any of the UK’s nations and regions. Even more worryingly, the percentage of children living in relative poverty in the region experienced the steepest increase among any UK nation or region over a recent ten-year period, according to the North East Child Poverty Commission. Meanwhile, the gap in regional health inequalities between the North East and other regions has worsened in recent years, and healthy life expectancy now stands at just 59 years of age.
Devolution
Yet for all of those challenges, it’s a damning truth that the region equally lacks its fair share of devolved powers to address them. Of course, in recent years, devolution has made some strides forward in the region, including the establishment of the new Mayoral Combined Authority and the election of the region’s first Metro Mayor in May 2024, as well as the publication of the region’s Local Growth Plan in March 2025. The current government’s devolution agenda has built on this momentum, by devolving new powers in skills, education and planning, and by establishing the major Pride in Place funding programme which includes funding for sixteen places in the North East.
Despite this momentum, however, the government’s Devolution & Community Empowerment Bill contains virtually no measures on the question of further fiscal devolution which, as our new report outlines, could prove determinative in improving living standards. Indeed, as it currently stands even with this new legislation, the UK will remain one of the most centralised economies in the developed world, collecting just 5% of taxation at the local level. Instead of tackling this challenge, the government has ducked the question.
Fiscal devolution – a route to reduce regional inequalities
This omission is not just a failure to address our overly centralised tax system but also risks undermining progress on regional disparities. After all, as we set out in our new research, increased fiscal powers can make government more efficient and responsive, improving outcomes on the ground in local places. Simply put, people in the North East clearly understand the region’s challenges far better than anyone in Whitehall. As such, greater fiscal devolution could lead to improved policymaking in the North East, boosting socio-economic outcomes and helping to mitigate overall regional inequalities.
Greater decentralisation has also been shown to unlock the ‘catch up potential’ of places outside London, boosting inclusive economic growth that can reduce regional disparities. Indeed, OECD research shows that well-designed decentralisation has a positive effect on growth and that doubling the sub-central share of tax or spending is linked to a 3% rise in GDP per capita. Yet the UK’s over-centralised model has long relied on London and the South East to drive national growth. It’s clear this overlooks the potential of regions like the North East. As Gordon Brown put it: “we must stop leaving half the country out of our economy”. In this context, improving the performance of local places through fiscal devolution provides a practical route to reduce regional inequalities. By giving local leaders more autonomy and agency over taxation decisions, fiscal devolution can help to unlock growth across all parts of the country, ensuring that prosperity is more evenly shared throughout the UK.
It should also be noted that improved devolution could also improve the quality of public policy by enabling better-informed local decision-making, and bringing people closer to government. The current deep sense of dissatisfaction among the public with Whitehall is fuelled, at least in part, by a feeling that national government is unresponsive and distant. Effective fiscal devolution could address this sense of acute unease and disenchantment by giving communities a greater stake in their government and helping to restore more trust and faith in elected leaders.
In order to meet these objectives, drive regional growth and reduce spatial disparities, the government must stop avoiding the issue of fiscal devolution. Clearly, there are a range of appropriate candidates for immediate fiscal devolution. In her Budget last month, the Chancellor announced progress on two of those leading candidates, through expanded powers on tourism levies and the expansion of pilots into the retention of business rates.
A long-term, strategic project
Yet in order to rewire the state for good, fiscal devolution must be approached as a long-term, strategic project, with a clear commitment from government. For too long, devolution has evolved into an asymmetric patchwork of different powers in different places. Westminster must think differently, by setting out a coherent vision of a truly devolved state, one where areas like the North East are properly supported and underpinned by the shared understanding that fiscal devolution can create a fairer economy.
This means learning lessons from 25 years of devolution in the UK’s devolved regions, improving Whitehall’s understanding of devolved arrangements, and building local capacity in places like the North East. We set out a set of recommendations in this space, including that the Ministry of Housing, Communities and Local Government should work with each local authority to map the powers available in their area, and identify any skills gaps. In the North East, this would help ensure the region has the capability and expertise required to make full and effective use of increased fiscal powers. We further suggest a new Tax Devolution Commission could be valuable in strategically reviewing the tax code to determine which taxes should be devolved in the longer-term, helping to craft an effective and coherent vision for future devolution.
Moreover, given the continuing need for an effective redistributive state, full devolution without a strong role for central government risks leaving areas like the North East worse off. Without support from wealthier regions, areas with weaker fiscal capacity could struggle, potentially exacerbating regional inequality. To prevent this, we argue that regional inequality could be embedded in legislation through a new equalisation system. Germany provides an instructive example of how this could be done, while the Levelling Up and Regeneration Act previously established duties in law for government ministers in relation to regional inequality. Similarly, the forthcoming implementation in England of the Socio-Economic Duty could further help mitigate disparities between regions.
Taken together, all of these measures could establish a long-term sustainable approach to fiscal devolution that could invest in places like the North East to boost living standards, drive growth and reduce regional inequalities. While concerns remain that maximal devolution could worsen disparities, our research shows that these risks can be overcome with careful policy design. With the right powers, fiscal devolution could prove a transformative tool to rebalance the economy in the interests of all communities. The coming years will test the government’s commitment on this question, and its willingness to devolve meaningful fiscal authority will be the ultimate measure of its seriousness in ending economic unfairness and reshaping the state to work for everyone.
You can read the report here.
Jason Bunting, Advocacy Manager, Fairness Foundation
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