Liam Byrne has been the Member of Parliament for Birmingham Hodge Hill since 2004. He served in Prime Minister Gordon Brown’s Cabinet from 2008 to 2010 as Minister for the Cabinet Office and Chancellor of the Duchy of Lancaster from 2008 to 2009. He was Chief Secretary to the Treasury from 2009 to 2010. Byrne was the Labour candidate for the Mayor of the West Midlands in the 2021 mayoral election, where he lost to the Conservative incumbent Andy Street.
This interview was conducted on 6 December 2021.
Q: Can you tell us about your role in growth and regional policy over the past few decades?
I was Chancellor of the Duchy of Lancaster in Gordon Brown’s administration and then Minister for Public Service Reform and Chief Secretary to the Treasury. I served in those offices during the Financial Crisis and thereafter. I suppose I was also one of Gordon Brown’s first regional ministers in his administration. Subsequently, I was shadow Secretary of State for Work and Pensions and chaired Labour’s Policy Review. For a lot of the last decade I have been very focused on the West Midlands and ran for mayor of the West Midlands, which was an exercise that took rather longer than I anticipated and consumed most of the last three years.
Q: Reflecting back, what were the greatest frustrations and the greatest successes for policy during that period?
I moved to the Cabinet at a time when growth policy was under some pressure on the one hand, but also in the midst of renewal on the other. Gordon Brown had created what, in my view, was the extraordinary innovation of part-time regional ministers, which allowed us for the first time to have a ministerial position in government that helps you coordinate spatial interventions. That provoked a lot of new thinking about how national government policy can be better integrated regionally.
Second, we were beginning to get to grips with industrial policy a new way. This had actually been in development for some time. I think the real catalyst for this was Peter Mandelson’s return to government in about 2008. Peter came back from the continent with more of an Old Labour than New Labour view of public policy and was quite interested in industrial policy in a way that I think was useful. I think up to that point it had lacked profile. In the US and in the UK, new industrial policy was in its infancy. I came to government at a time when those two cross currents were really gaining strength. Then, in the run up to the March 2010 budget, the Treasury was commissioned to develop a growth strategy to sit alongside the March 2010 budget. As it happened, Alistair Darling had always been in two minds as to whether to put that in place. But nonetheless, I helped oversee the drafting of that. It was not, in fact, ever published, but it was obviously an important part of the story that Gordon Brown wanted to tell about how Britain was renewed coming out of the financial crisis. We never really got that story, we never really got the chance to put that story together in the way that perhaps we could have. Gordon brought a particular political framing to the fiscal consolidation that we had to undertake that was laid out in the white paper ‘Smarter Government’, which basically became the consolidation plan and efficiency plan for government. It would have been helpful, in my view, to have put that alongside a growth strategy that helped us understand where the real growth is going to come from for the next 10 years and the role of public policy and helping make that happen. The papers were never published, although a lot of the analytical work was undertaken by the Prime Minister’s Strategy Unit. A lot of the policy thinking had been done by Treasury.
There was then a final piece of the puzzle, I suppose, which again was never really completed. I led a piece of work at the Treasury on what would now be called Levelling Up. It was basically, ‘what did local economic development need to look like for the future? How did we learn the lessons from the New Deal for Communities? Where had the Neighbourhood Renewal Fund worked, where hadn’t it worked? How did we get into a situation where it was easier to spend money on bollards than it was on skills development in a particular neighbourhood? What therefore were the real drivers of economic growth that we needed to foster a local level? And what was the role of the Treasury making those things happen?’ Some of those papers are available.
I tried to go one step further, to create a much more powerful motive force for the government, by proposing the idea of full-time regional ministers. We have a team that actually put together a proposal on full-time regional ministers as the real engines for this sub-national policy. Again, that policy was defeated by an unholy alliance of Gus O’Donnell and Peter Mandelson. But nevertheless, the policy work was done.
Q: Could you give us a sense of what the analytical frame was for that work. What did you think the objectives of the policy were? How did you think about inequalities across the UK?
We were starting to wrestle with productivity growth, which was just beginning to plateau at the time. The Prime Minister’s Strategy Unit undertook a very useful piece of work which decomposed the British economy and zeroed in on some leading-edge businesses that were globally-exposed, where productivity growth has been outstanding and we had globally significant levels of productivity performance. There was then a series of sectors which were non-tradable, where productivity growth was quite poor. We began to decompose a few of these things. Then you begin to ask the question about how we continue and, indeed, step up some of the policy that was working well. In a lot of our manufacturing industry, take aerospace, for example, there was some really great performance, and the role of public policy, science policy and skills policy – higher education policy – were seen as really important contributors to that. In other sectors there was much poorer performance. I suppose we were just beginning to get into the weeds of what was going wrong in some of those sectors. Again, these were not new questions, questions that most post-war governments have wrestled with.
Q: How did you develop your views on ‘what works’? Is there a specific example that inspired you?
I’d first grown interested in it at Harvard. In my final year, I’d done a couple of projects for Rosabeth Moss Kanter and Josh Lerner. I began to look at the role of community development venture capital and community banks like South Shore Bank, and became quite interested in that – in sub-national institutions and their role in the fostering economic growth. This coincided with a famous policy action team, Policy Action Team Nine, which looks at the role of inner city enterprise, as part of the city regeneration. Ronnie Cohen had done quite a lot of work on how community development venture finance could be developed and brought in to help support that initiative. In due course, that led to things like British Ventures and indeed, Social Investment Wholesale Bank. So I first become interested in this back in 1999, 2000.
When I became an MP, I served Hodge Hill in east Birmingham, which is the most economically deprived constituency in Britain. A lot of what I tried to do locally and in Birmingham was very hands on. It was very engaged, on some of the real practicalities of trying to regenerate a place that was once upon a time a great cradle of manufacturing and civic enterprise, but had lost a lot of that manufacturing base to overseas, and – through the process of residential sorting – this led to quite a lot of concentrated poverty.
As the regional minister for the West Midlands, I’d begun to really get a grip of some of the bigger levers like transport policy, housing interventions, skills and business support. I had come to see that often those things were really difficult to integrate and coordinate at a local spatial level, and then the star of industrial policy rose over the horizon. I was quite influenced by some of the American thinking that had emerged in the US Treasury about the risks of industrial policy and the risks of taking a very centralised approach to industrial policy. I became quite convinced that if you wanted industrial policy to work, then you needed to create a framework that was flexible enough to allow regional and local innovation/competition. Our centralised approach to departmental policy setting often ran against that. I’d begun to see both from the bottom and from the top, I suppose, some of the problems that were going to bedevil this approach to fostering growth.
Q: You mention skills, transport infrastructure and business support in regional policy. Has the UK got the balance right across these policy levers? Are we missing something from that bundle?
I’d add in science policy. The role of research funding is incredibly important. I think here we had a bit of a dilemma. I remember having this argument with Paul Drayson, who was once the science minister, about why so much of UK R&D spending public of R&D spending was going into the Golden Triangle, and not into poorer places. The argument that Paul made, quite legitimately, is, ‘we’ve got to put our eggs in the baskets that we think are most excellent…we are investing in excellence rather than spreading things around’. But what that means is that places like the West Midlands have an incredibly low share of public R&D spending, and it then becomes really difficult to lever in private sector R&D. It means that you’ve got a reasonably low level of R&D as a fraction of your economy in that region. And that has all kinds of externalities. To see them at their real extreme, you want to go to a place like Stoke, where that problem has been really pronounced for a long period of time, or Burnley. It’s proved really difficult to build a middle class in those particular towns because you just don’t have any really science or innovation rich parts of the economy.
So, on your list, I would have transport, housing, skills, business support and science policy. To go through them in reverse order… Science policy was very centralised, and even though we had a great scheme called HEIF, the Higher Education Innovation Fund, which did allow government to put R&D funds in poorer places, it was actually quite a small fraction of the R&D budget. Business support was always bedevilled by poor policy delivery. It was constantly being reformed. We lacked good institutions to do things like support export support. There was a lot of chopping and changing: almost a pendulum used to swing between local control and central control, and it just never really quite worked.
Skills policy was obviously troubled by the sheer pace of turnover and skills ministers. Again, it was hard for local areas, for example, to create the financial incentives to encourage people to go into technical education in a particular sector that might have a particular strength in that particular part of the world.
Housing policy… I mean, we had such a backlog to fix in when we took office in 1997, I think we always struggled to begin putting together the money to build new homes and then council house funding systems of one of the most Soviet/Byzantine bits of public policy you’ve ever seen. On transport funding, there was just a lack of regional equity in the way that transport funds were distributed.
If you took a step back and you looked at those five areas, what you would see are multiplicity of different funding streams with different timetables, different rules, very high transaction costs to bid for them and not a lot of integrated governance at sub-regional level. It became a very complex policy area without robust institutions to strike bargains that persisted over long periods of time. It’s in real contrast to other countries.
Q: What is it about Whitehall that leads to this outcome?
I think, for the last four or five years, there hasn’t been a lot of government, is the truth. There have been a lot of elections, and there have been referenda. There hasn’t been a lot of governing since about 2015. It’s been quite chaotic.
I think, back in our day, it did feel like there were very strong centralising forces in Whitehall departments and senior civil servants who didn’t necessarily want to surrender significant parts of their budget. We went round the old canard of the accounting officer, and how, ultimately, it would be the permanent secretary in front of the Public Accounts Committee if something went wrong, and therefore the permanent secretary needed a gigantic amount of control over the conduct policy. I think the centralising force within Whitehall is quite important. Departments are not fantastic at cooperating with each other.
Then the third piece of the puzzle is the sheer turnover of ministers. When you’re moving ministers, on average, about every 18 months, you just create such an instability in Whitehall. I think the combination of instability, fragmentation and vested interests made it very difficult to devolve much of this to local levels.
I suppose in some places local governance was weak. We struggled to devise an architecture for sub-regional government that commanded the breadth of consent that perhaps we needed. RDAs [Regional Development Agencies] were really good, but because RDAs reported up into the business department, whereas councils reported up into the department for the local government you almost had an institutionalised division of Whitehall architecture at the local level. That didn’t really help either.
Q: How much you do you think Whitehall, across departments, had a similar view about decentralisation? Did you see systematic differences across departments?
Systematic difference, that is a good question. I’m not sure if there were systematic differences. I think part of the dilemma for Labour was that we were significantly increasing public spending. We therefore needed to ensure that money was being spent sensibly. So the first iteration of Public Service Agreements with departments, I seem to remember, were quite departmental specific. That approach did then evolve to create PSAs that bit on more departments, because we recognised that joined up government was going to need to be more important.
But I think we were also stumbling on the lack of governance platforms that sat between councils, which were often too small, and RDAs, which were too big. I remember the Treasury doing that lovely piece of work on the sub-national review, which was really quite useful. David Miliband for a while championed cities as the great drivers of growth. I think, in a way, we ran out of time to fix that mezzanine level of governance because the first task was basically repairing public services from 18 years of starvation. You have to do the first things first, don’t you? For a lot of the New Labour period productivity growth was in a really good place. It was only much later in the administration that problems became manifest. And we ran out of time.
Q: Were there any within-Whitehall differences that struck you at a particular time as being a big issue?
Well, I would say science policy was always quite centralist because you have a national regime that was looking to back excellence – biasing it towards London, Oxford and Cambridge – rather than worrying too much about fostering science led growth, at any particular level.
Transport was quite interesting because what actually happens in transport is that you’ve got the roads settlement, which is devolved. But then the big money is going into the national networks, and that could be national networks for rail or it could be the Highways Agency. In many ways, they were the most centralised bits of government that I ever found. They wouldn’t really have frameworks or, frankly, much interest in altering a rail transport investment programme in order to build out a particular station because building out that station would allow you to regenerate a particular part of Birmingham. They just weren’t at that, you know… they were run by engineers who were trying to run national networks rather than worry about local economic growth.
Housing and local government, they did lack clout, although Prescott had quite a lot of clout. It was a shame that the Prescott regime at the Department of Transport and the Regions didn’t make more of the integration of housing and transport in retrospect. Part of the problem, I think, was that the council house building regime was quite constrained by the fiscal framework. Actually, the Department of Communities and Local Government found very difficult to propose reform to the Treasury. I remember having an entire afternoon with John Healy and a whiteboard, as we tried to understand the current system and work out how we could change it. As far as I know, it was the first time that a CLG minister had actually gone to the Treasury to say, ‘well, look, can we change the system, and can we figure out what works for you and what works for us’?
Skills, I think, was often driven by national targets, but equally they were sensible because there was a problem with a lot of the skills base that we were trying to improve. The one experience I do want to share was the difficulty in trying to create an interface between local areas and national government. The Intergovernmental Relations School has always agonised about why we haven’t got a proper IGR system in the UK. The first book I did was on local governments, so I have a geeky interest in this. I remember trying to create a council for regional ministers. Regional ministers, I thought, were a brilliant idea. I wanted some architecture to support that in the Cabinet Office. Trying to get the Cabinet Office to create proper infrastructure for the council of regional ministers, was about the hardest thing I ever tried to do in government. There was just a real reluctance in the Cabinet Office to support this.
It eventually became too difficult and we gave up. I couldn’t work out whether Gus O’Donnell was just not interested; whether people thought it was a bad idea; whether people thought it was a mad hairbrained scheme, of Liam Byrne and regional ministers at the time were still part part-time, and therefore they were struggling for resources within their own departments. So the opportunity was lost, really. I’ve got no proof of this, but I felt that there was a real reluctance in the Cabinet Office to engage in it and really make it happen. We had one graceful servant, Julian Bowery, who really put his shoulder behind it to make it work. I suppose in retrospect, we should have set it up as a proper Cabinet committee.
Q: What about local government capacity? How much of this was about the structures not being right, and how much of it was not having the right people to work the structures?
It was a bit of both. I think because RDAs were newish still, it takes time for institutions to bed in. RDAs were doing a lot of the easy stuff, which was land assembly – because no one else could do land assembly on a sub-regional basis – decontamination and marketing. All of that work is incredibly important, but it does take an awful long time to pay off. If you look at I54 now in the West Midlands or Anstey, those are absolutely critical platforms for industry now. But they only really began to flourish in the last few years. You’re talking a lead time for some of this stuff of 10 to 15 years. And because that was often their focus, they often became alienated from the local government base and sometimes didn’t work effectively enough with the local government base to establish shared priorities.
Some councils did have good capacity, some frankly did not. What you ended up with is patchy, inconsistent capacity and a general sense that we were missing sub-national capacity, which is what you needed to take good decisions on transport. I remember as the regional minister coming in in what, 2008, and we were pulling together the first regional set of prioritisation for transport asks. But that’s 2008: eleven years on from Labour being elected.
Equally we created our first regional skills policy at about that time (again a long time after we’ve been in office). It’s difficult in retrospect to remember that so much of the priorities of the first one and two Labour administrations were just on clearing up the mess that had been inherited, and there were a set of priorities that needed to go to creating this. Regional infrastructure was always going to be a second order of business. And we were trying to do that at the time of the Iraq war and then the Financial Crisis. These external events burned so much political administrative capacity that it just wasn’t a surprise that we made limited progress, I think.
Q: Do you think the fundamental problem of the RDAs is that the accountability was only upwards? Or was it that they did not have enough power and clout?
They definitely suffered from not having any bottom-up accountability, because that’s often a force for good. The way that they resolved that is often with lowest common denominator, dividing up the pie that they had, rather than anything a more detailed. I think their real constraint, though, was the lack of purchase on skills policy and transport policy. I just think that we know how important transport infrastructure spending is to regional productivity, and we know how important skills policy is to regional productivity. Their inability to bend those policy agendas, I think, really constrained their ability to foster industrial policy.
I don’t think it’s necessarily surprising, because industrial policy was not really front and centre of government economic thinking until what, 2007, 2008 onwards? I just don’t think there was the urgency for it. I wasn’t around when DTR was a thing… I don’t know why that synergy didn’t really happen in the way that it could have done and should have done. In theory, housing and transport decisions really ought to have been taken in lockstep, and they obviously weren’t for a long period of time. I don’t know how functional that department was. I hear genuinely mixed accounts of how functional that department was.
Q: How do you feel about the subsequent evolution of regional policy?
I can’t remember the year, but I remember the great history of English local government by Sidney and Beatrice Webb. There’s a great line in it, I think it’s in the chapter on the pavement commissioners. It basically describes the evolution of English local government as a mishmash of overlapping authorities. There seems to be something quite English about our approach to institutional innovation, which is quite mishmash-like. I think what we’ve got now is a very 21st century mishmash of overlapping agencies and authorities.
The virtue of the metro mayor model is that it does a better job than RDAs at brokering sub-national priorities, and it creates a degree of kinetic energy around those agendas in government. The metro mayors have a platform on which they can make a political argument to Westminster and Whitehall. That creates quite a useful dynamic. That was the dynamic, frankly, that I was trying to create with full-time regional ministers. I wanted agents of the locale in Westminster, and I wanted to compliment that with regional select committees so that we actually had a parliamentary focus for that.
I agree with Gordon Brown, that we should have created a spatial focus for things like House of Lords reform as well, a bit like the Bundesrat.. you’d have then had some pretty hard-wired spatial architecture in Westminster. And I think if you have done those three things, you would genuinely change the special focus of public policy. I think you would make integration a lot better. It’s still very fractured.
At the moment I’m trying to get an east Birmingham tramline built to connect the two High Speed Two stations to east Birmingham. East Birmingham’s got the worst unemployment in Britain, and there’s a real risk that it becomes an oasis of inequality in the middle of the new wealth created by this great big new railway. I went to go and see the trams minister, Baroness Vere, last week with a couple of colleagues. We need about £1.3bn, but the problem is that the next we’ve got to do a business case and then another business case and then another business case. We think it’s probably going to cost about £200m worth of business cases. It’s really difficult for the region to think about match funding that because they don’t know what their active travel grant is going to be, and they don’t know what their bus grant is going to be. All three of those grants are done on different timetables, and from different pots of money.
The lack of intergovernmental relations that we have in this country is really problematic. We don’t have an arena where local Westminster bargains are crafted and negotiated. We fixed a bit of it in a mishmash-like way. We’ve got some new sub-national governance that is, I think, making a bit of progress. But it’s patchy, and its latitude over the full complement of four or five different policy areas that we talked about as important is really quite constrained, and we still lack a space where you can bargain effectively with government. You end up with a piecemeal set of funding settlements in a piecemeal geography.
Q: What do you think to the powers of the Mayoral Combined Authority model in particular?
I think it definitely does give the impression, because it is true that there’s more than there is. The modesty of what most mayors are actually doing is the most striking thing at the moment. If you look on paper at what they’re doing, it’s really quite modest. I think, because it is directly elected, you could treat that as a licence to devolve far more money to an accountable individual who could pass the public accounts committee test, but in transport, you would need to devolve at least three significant budgets around buses, active travel, trams as well as regional rails, that’s four.
Housing: I think it’s pretty simple to see how you could devolve, but even in housing, it’s very bid-driven, and the conditions associated with the devolution of the money are very housing related and quite stringent. So if you want to spend your money to more on decontaminating land rather than building houses because you’ve got a different battle order for building houses, it’s pretty difficult to do that.
Skills is not in any way, shape or form devolved. I remember we did quite a lot of work on this, and we identified about five different government pots of money that would need to be devolved and then integrated into a single pot to do the things that we wanted to do, and in skills policy the real problem is with the Department for Education and DWP [Department for Work and Pensions]. Kickstarter is quite a good example. In the West Midlands, Birmingham, Kickstarter is an abject failure. It would be much better to give the budget associated with some of those DWP retraining programmes to us locally so that we could meld them with the devolved adult education budget. We do keep the underspends, but we don’t keep the budget itself. And to create a single pot that you could stabilise over 5 to 10 years, and work with the business community to identify priorities. Absolutely no way you can do that at the moment.
Export support – which is quite important in the West Midlands, because I think we run the biggest export surplus or second biggest export surplus at the moment – is run by the Chamber of Commerce. That has just been taken off them and recentralised in the Department for International Trade. Science policy remains pretty centralised.
Put all that together and what’s your conclusion? That the mayors that we’ve got today are bigger in name than they are in policy. I think tax is incredibly important. Even if you didn’t want to devolve particular taxes like the sales tax or business rates, there is potentially more that you could do with things like tax increment financing that would actually help unlock the debt capacity that they have been blessed with. The prudential borrowing limit for the West Midlands Combined Authority is about £1.1bn, £1.2bn. They have got an investment programme that only consumes about £800 million of that. So they’ve got £300-400 million credit borrowing capacity unused in the middle of a recession. It’s mad. Yet they could be doing land assembly deals with High Speed Two or the local councils, which, if they had the latitude to do some tax increment financing against it, they could wash the face of that extra debt, and we could have a £400 million fiscal injection into the West Midlands. Literally two people have had that conversation, me and the finance director of the West Midlands Combined Authority. We were the only two people who understood it. No one else understood it. No one else is arguing for it. It’s madness. It’s completely insane.
You just do not have that creative fiscal capacity, or that tax flexibility, at a sub-regional level, at the moment. Nuffield colleagues did a bit of work on this a year or two ago, just looking at where tax is paid and how it is then redistributed spatially. We’re so locked into this position that so much tax is created in London and South East and then distributed out. How are we going to break away from that cycle?
Q: Has London been more of a help than a hindrance?
You can go back to Daniel Defoe and his description as London as the great motor of the Industrial Revolution. It was true. It was basically the principal demand engine of the country for centuries. I think it might be a bit naïve to hope that that is ever going to alter in our lifetime. But there are definitely governance lessons that you can learn from London.
You come back to these basic questions about the creative state. How do states foster economic growth? I’ve been very influenced by a lot of the new economic history that’s come out of China, that makes the point that back in the days of the Industrial Revolution and actually you had conditions of Smithian growth in quite large parts of southeast China. But why, therefore, did you have an industrial revolution in northern Europe? Well, we were mobilising a tax base that was on a completely different level. We were doing that because we were routing millions into warfare. You basically had a tax state procurement powerhouse in northern Europe that you just didn’t have anywhere else.
What can you learn from that, on a regional basis? Well surely you must be able to learn from that that a creative state locally has got to have some capacity to mobilise tax revenue and use those procurement pounds to foster local economic development. I do think tax is an important part of the equation, but what I’m really curious about is the fact that a big place like the West Midlands could have a fiscal capacity, that it chose not to use when it could. Why is it leaving almost a third of its borrowing capacity on the table in the middle of a recession? I mean, just economically, that is quite an odd decision.
Q: What do you think is the most important lesson for us to take away?
I think there is a new confidence in arguments about the roles of good states in fostering economic growth. There is a healthy understanding that trying to centralise industrial policy is a bad idea, you know. Hayek would be turning in his grave if he looked at the conduct of this government. I mean, it is the most centralised government since World War Two. It’s extraordinary. The idea that the governing mind in Whitehall can have enough information and enough knowledge about strategy and trade-offs to take the decisions that its taking is nonsense.
If you (a) believe in industrial policy, but (b) worry about how a centralised administration can conduct policy safely, then surely you must be trying to create an institutional architecture where you’ve got industrial policies, not policy. Policies, plural. But those industrial policies look different in different parts of the country, and that is super important if the problem you’re trying to solve is the productivity crisis in the non-traded sector. I think if you put those three things together, it would just leave you to a very different institutional architecture to the chaos that we have today. And admittedly, it’s chaos. But even a kind analyst would struggle to make much sense of what we’ve got today.
ENDS