Flawed UK devolution model stalls regional economic growth
As Andy Burnham makes regional devolution a centrepiece of his prime ministerial pitch, Wales's 25-year struggle with constrained borrowing and funding gaps offers a stark warning about handing out responsibilities without economic levers.
Andy Burnham is placing further devolution at the heart of his campaign to become UK prime minister, prompting a sudden rush among parliamentarians to champion the policy. However, a quarter-century of devolution in Wales illustrates the severe economic risks of expanding regional powers without handing over the necessary financial tools.
The UK is the most fiscally centralised country in the G7, with Westminster controlling more than 90% of tax revenue. This is roughly double the centralisation of the next closest nation, Italy, and stands in stark contrast to the US, where individual states account for about half of all government spending. Expanding regional control is widely seen as essential to fixing a system that most agree is failing, but the structural design determines whether regional economies can actually grow.
Wales demonstrates how devolution can be set up to fail. The Welsh government holds responsibility for economic development but lacks the levers to execute it. It has less borrowing capacity than a standard local council, relying on hard limits rather than the prudential borrowing powers available to local authorities.
Consequently, Cardiff has been forced to use local councils to borrow for major capital projects like school-building programmes. Compounding this, Wales’s limited borrowing capacity was frozen between 2016 and 2026, meaning its real-terms borrowing power shrank annually while Scotland’s increased with inflation.
The funding imbalances extend beyond borrowing. Wales receives just 2% of UK research and development funding despite making up 5% of the population, depriving the region of a critical driver of corporate innovation. Furthermore, key infrastructure like rail remains under central control, a situation that has cost the Welsh economy billions.
Despite these clear lessons, Burnham’s early framing of his devolution vision has raised concerns. His team recently sent near-identical articles to publications in London, Scotland, and Wales, merely swapping regional place names. He also mistakenly promised action on housing, water, and apprenticeships—areas outside Westminster’s control—prompting fury within Welsh Labour, with one source calling the gaffe a “gift to Plaid Cymru”.
There is also the fundamental question of durability for businesses seeking long-term stability. Even if new regional structures are established, the Welsh parliament could theoretically be abolished by a simple majority vote in Westminster, regardless of how Welsh MPs or Senedd members vote. Building regional economic policy on such a fragile constitutional foundation remains a precarious proposition.
