Melanie Dawes is Chief Executive of Ofcom. She was Permanent Secretary of the Department for Housing, Communities and Local Government from 2015 to 2020 and before that worked in senior roles in the Treasury, HMRC and Cabinet Office.
This interview was conducted on 26 January 2022.
Q: Could you tell us about your roles in growth policy over the past few decades?
I was permanent secretary of what was then DCLG [Department for Communities and Local Government] from 2015 until 2020. So I was running the department that had the lead in thinking about devolution to regions and cities. And also, in partnership with BEIS [Department for Business, Energy and Industrial Strategy], thinking about regional growth policies.
Prior to that, I was in the Cabinet Office between 2011 and 2015. I saw all domestic policy, I was running the Economic and Domestic Secretariat. I sometimes stepped in to coordinate work on regional growth and devolution – for example, Michael Heseltine’s single pot proposals. But I saw that from the Cabinet Office perspective, so, in other words the whole of government perspective.
And then the other relevant period is my spell of 15 years in the Treasury from 1991 to 2006, where I started off as an economist. I was largely a macro economist, thinking about overall growth, monetary and fiscal policy, and whether or not to join the single currency. But I did also work on welfare reform, tax credits, and the education budget, and as Europe Director, my last post in the Treasury. So I saw quite a broad sweep of these particular policy issues at that time, albeit that I was not directly involved in them.
Q: What is your overall evaluation of policy over that period? What do you think were the key successes and the key frustrations?
I think there are two things that go hand in hand. One is that the Treasury in particular, but government as a whole, struggled for a long time during that period to articulate real value in growth policies and intervention, let alone regional growth policies. And I do remember in the Coalition years, a rather exciting moment when the Cabinet just realised that what was then being called industrial policy – that it didn’t mean ‘picking winners’, but that there was still a role for the government. Not just in creating competitive markets and empowering competitive markets but actually intervening sometimes to support those markets, to help consumers or investment and achieve specific outcomes.
I would observe that there was a very strong vein against intervention, almost on principle, from the 1980s onwards, which slightly got in the way of Government’s thinking about what regional growth policies should look like. And Gordon Brown’s agenda was trying to address that gap, but it was still quite focused on things like competition and the underlying principles of that time in favour of empowering markets rather than intervening in them.
I see that particular set of issues then sitting hand in hand with what I think is a very, very centralist approach to government by the Treasury, Number 10, and Whitehall departments.
I saw that very sharply when I was at MHCLG/DCLG, when I was in the department from 2015 onwards. I saw it on social care, I saw on anything to do with local authorities, that there is something about the way budgets are allocated, there is something about the way that Treasury rules are applied through the Green Book, which creates a sense that Whitehall has to be the final decision taker. And it leads you towards things like competitive pots and often quite temporary funding streams, rather than proper delegation and empowerment of regions and cities.
So when you put those two things hand in hand, I think Whitehall often struggles to think about what is the right way to address regional inequalities. Because two of the pieces of the toolkit are not naturally embraced by central government. And that is a point that I think absolutely applies across the political spectrum. It’s not a point about one party over another.
Q: Have those attitudes have been consistently applied? Or is there an evolution?
I think there has been some variation and certainly some variation in philosophy and attempts to tackle it. I mean, almost starting at the end of that period, Greg Clark and George Osborne with Michael Heseltine, were definitely in favour of devolution. And were trying to mobilise Whitehall to properly sweep up budgets and just delegate them. I think the Treasury still likes to be able to show that everything’s value for money and has a rather ‘productivity’ mindset which leads you towards projects which can much more obviously show their value rather than ones where actually, it might be quite hard to show the value. And sometimes you’ve just got to take a punt. So I think the Treasury leads you to a certain type of risk judgement about what you’re going to invest in and still quite a degree of centralisation. And I think that was still true even in those Clark and Osborne years. But they were definitely a very strong force in favour of something that was both bolder in terms of the impact it could have as a growth policy, but also in terms of devolution.
And clearly Michael Heseltine when he was in government in the 90s, and I’m not very familiar with that period to be honest, because I was very much more junior and very much focused on macroeconomics at that time. But, clearly, he genuinely believes in empowering local communities, and I saw that again when he worked with MHCLG after 2015 and he will, I’m sure, give you a trenchant exposition of all of that.
In the New Labour years there was an attempt to fill both the gaps I’ve described, but I would argue that it was still very centralising. So ‘Total Place’ and the common performance assessment (‘CPA’s). After 2010 the Coalition government disassembled all of that in favour of the ‘localism’ agenda, but we were left without very much understanding of what was going on at a local level. I’m not talking so much about growth policies here as about public services, where it was very difficult for me as accounting officer for local government finance, after 2015, to be able to say where money was being spent and to what purpose. But maybe there was a halfway house that could have worked better.
As I understand it, the CPAs were quite detailed, and they were in the end a top down approach, they were saying, Oh local government tell us what you’re going to deliver for this money that we’re giving you. So I don’t think honestly that I saw much variation in that centralising instinct of central government over the Labour years. And when politicians did come in wanting to do it differently, they were working against the grain and usually didn’t get there unless the Treasury was firmly on their side, as they were in the Osborne years.
Q: Were there different parts of the Whitehall which had consistently different views?
I think you see some variation depending on the individuals who are there. John Kingman in the Treasury was a strong force for thinking in a different way, and for backing leadership at a local level or a regional level, and for pushing against some of the issues I’ve described. But I think generally you do see departments led by the overall pressures and remits that they’re facing.
I would say that after 2010, the Department for Education was not at all keen on devolution – or empowering local government. I would say that the Department of Health, although rarely very material to the growth agenda, when it comes to thinking about empowering local areas, this really, really cuts against the centralised model of the NHS.
DWP [Department for Work and Pensions]- again it’s a national system, and all the imperatives push it towards needing to be able to account for outcomes at a national level. So for example, when I was in MHCLG, we pushed so hard to try to get some pilots going in Blackpool, where effectively, very rogue landlords are bankrolling huge amounts of housing benefit and massively exploiting very vulnerable tenants. I thought it was clear that housing benefit levels in that particular city needed to be reduced. And we couldn’t find a way of doing that which would have allowed the local authority to have taken some of that cash instead and given it to individual tenants by way of additional grant support. We were stuck with the system of piling it straight through the landlord. That might be slightly out of date to the way universal credit now works. But my point is that it was very difficult, and that’s not because you haven’t got, sometimes, officials who really want to try and help – but they’re working against forces set by the system. And I don’t think we should ever underestimate the force that drives the accounting officer and the minister to be able to account to Parliament and the Treasury for outcomes and value for money. It’s a very, very strong and powerful set of incentives in Whitehall departments.
Q: Do the Regional Development Agencies fit into that critique?
They were still subject to national oversight, I think that’s my point. And that’s one of the things that’s most difficult because, in the end, it’s money that’s been voted by parliament. But if you’re constantly calling in questions about how it’s being spent in accordance with a national set of standards, you are removing accountability from the local level. National controls reduce local discretion and empowerment, and at some point they’re going to reduce ownership, they’re going to get in the way of decision making. You can’t have both. At some point you have to make a choice and I’m not sure we always acknowledge that.
Q: Is this due to a lack of an accountability tier locally? So accountability has to flow through parliament?
Probably. I think that local government structures are a serious impediment to central government feeling that it can trust to delegate. And quite a lot of the economic levers at a local level are held by district councils which are extremely small and really not able to take on the kind of bigger responsibilities that you would hope that you could delegate. And even my choice of the word delegate there is intrinsically a top-down concept, so it runs very deep!
When I was in DCLG/MHCLG, I formed the view that the failure to take forward the Redcliffe-Maud proposals in 1970, which was a decision of the Heath government, was a missed opportunity to streamline local government. Even though there would have been some areas that maybe would have needed to have been changed subsequently, it would have created single tier authorities with something more region-wide around the West Midlands metropolitan area and the Manchester metropolitan area. The lack of coherence in local government structures and accountabilities is a problem. And that’s ultimately a political choice not to deal with it.
Q: How do you think about areas outside the administrative boundaries of the conurbations, like Burnley or Blackburn with Greater Manchester?
Well it was a missed opportunity. And I think the sort of deal-making approach to devolution under Clark and Osborne, and the bespoke deals that were then created, did end up with a rather inconsistent landscape. And sometimes it was unfair. There was at least one part of the country where the local leaders had deals all ready to go but they were not approved. I can recall one where there was strong cross-party working across two cities and a county, and a proposal to create single tier, statutory, unitary authorities with the mayor for the region. And they had done all the heavy lifting locally, but politically it just didn’t work for the Government at the time. And so it never got progressed. Ultimately this goes back to my central point, which is that it’s all about the centre deciding where this happens, and the centre deciding the terms on which it happens, rather than having a systematic opportunity for everybody to control their own destiny on things which they understand better than central government.
Even with local government reform it is hard to achieve decentralisation. But again, central government is responsible for quite a lot of the capability issues at a local level that are often used as excuses for not properly delegating budgets. I should also add that as accounting officer at DCLG/MHCLG, the Public Accounts Committee (‘PAC’) rightly pushed me very hard on making sure I did understand how the local growth pots were being devolved, and whether the right structures are in place, and whether the right processes and audit systems and so on were in place. And I’m not in any way saying that I think the PAC shouldn’t ask those questions at a system level. But what Whitehall often does is veer between hands off and hands on. When Whitehall does get interested, it tends to get terribly, terribly interested and rather overbearing and top heavy. And then when it’s pulling back a lot, often it can veer towards neglect. And I think what the PAC was saying to me after 2015 was that this wasn’t acceptable either. But there are ways to do it, which achieve systemic oversight but without meaning control.
I did put in a system of local government oversight in the department when the audit commission was abolished after 2015 because I didn’t have any ability to see into where risk might be and where the next problem might emerge, either in finance or leadership. And I’m glad I did put that in because, clearly there have been quite a lot of issues that have emerged over the last few years. Though central government determines a lot of the conditions of success locally anyway, through funding in particular.
We can’t suddenly move to a German model where we’re all very happy for everything to happen on a federal level. But I can understand why the Labour growth policies of the early 2000s created a regional model, and were not at the local government level, because this is still quite small. There will always be about 150 or so upper tier authorities because that makes sense for service delivery, but it’s a lot of councils to be dealing with growth issues which usually need to be framed outside a larger boundary than any individual county, and certainly larger than most individual metropolitan boroughs in our cities. So it isn’t just local government structures, but I think it’s part of it.
In this conversation alone, with our use of language there’s an incredibly strong set of very deep ways of thinking in Whitehall that are not usually unpacked and are quite unconscious, but are very, very strong indeed. And they’re probably extremely evident to the outside world and I don’t think that Whitehall really, ever quite internalises that. And our Westminster political system is part of it. But it’s very strong in the Civil Service as well.
Q: How do you think about devolution to Scotland and Wales in this context?
A couple of observations. First, I don’t ever recall that Whitehall led or embraced that devolution to Scotland and Wales. And particularly the extent of the devolution to Scotland. So I think it’s the exception that proves the rule almost, in that this isn’t a natural set of behaviours by central government, the Westminster government.
What’s interesting is that when you do have those budgets able to be spent in, say, Scotland, why does that work politically in Westminster? I think the political accountability is clearly there in Scotland, and it takes some of the heat away from the Westminster politicians who’ve delegated those budgets. Now you can argue about whether that’s a good thing or not. I think it’s consistent with what I’ve been saying that unless you’ve got a political structure to devolve to, which is really credible, then it’s quite hard to shift accountability away from the UK Parliament and from UK central government departments. But at the same time I observed a number of times over the years, Cabinet discussions where UK ministers would get quite frustrated that, say, a Welsh local community didn’t realise how much money had been put in by the UK government into a project, and could see a European Union logo on the signpost to the amazing new centre that had been built, but why wasn’t there a UK one? So on the one hand, there was a desire for more political accountability by Westminster. But on the other hand the accountability had clearly shifted with the creation of the Scottish and Welsh parliaments. We don’t ask ourselves the question in the same way – what value for money is being achieved by that devolved funding on behalf of the Westminster Parliament – do we?
We could argue that some of the outcomes in Wales and Scotland are not as good as they could be. But at some point I think you have to stop caring about that question if you are truly trying to shift accountability.
Q: An accountability tier hasn’t led to significantly more being devolved to London, though?
No, and that’s probably partly because the London boroughs don’t want more powers centralised under the Mayor.
Look at the police. There’s an interesting question about why the Home Office actively wants an accountability for the Met, that goes beyond what it has for any other police force in the land, despite the fact that this is the one police force that’s actually got its own assembly and its own mayor.
Q: Some claim devolution has led to more centralisation in the devolved nations, and this is what the London boroughs were concerned about?
That is certainly something that you hear. And that there’s a more centralised care system, for example, in Scotland, than there is in England, as a result, and also that Welsh local authorities feel they’ve been quite cut out of some of this. But to be fair, the sizes of Scotland and Wales are similar to the English regions, and you would expect strong regional leadership in England on devolved budgets of any significant size. So it’s not clear to me that it’s wrong for the nations governments to be quite centralist in how they operate across their countries.
Q: How has local government capacity in England developed over time?
I don’t think you can ignore funding, there have been very significant cuts to local government funding since 2010. By the time I left MHCLG in 2020 it was the order of 25 to 30% in real terms. And given how councils have had to protect adult and children’s social care budgets, that does mean that the bandwidth of the leadership has got stripped back quite a bit. You meet some incredibly capable local authority leaders both on the political side and on the officer side, but they have not had very much investment over the last 12 years. They’ve had a reduction in what they were able to invest to keep that going.
I do think what happened in Manchester started off very exceptionally, with Howard Bernstein and Richard Leese. That goes back to the late 90s, and you probably remember, it was 1998 that they first set up AGMA [the Association of Greater Manchester Authorities]. And that was a local initiative that no one else did. And so they have gone further, they got more out of the Coalition government than any other region, particularly on the health and social care side. But that reflected painstaking leadership at the local level to build relationships and build trust and convince everybody that acting together was better than adding acting separately, not just in how they engage with central government, but also in how they actually joined up their services locally and thought about their hospital trusts and their public health system and their transport networks and so on. So, I think their uniqueness is their own – I think they have to take quite a bit of the credit for that, and almost for catalysing change. They created something that by 2010 looked really quite attractive for the Coalition government to engage with and try and spread elsewhere.
The other thing I think they had in their favour is that they were all Labour authorities, pretty much, and in other parts of the country it is more mixed. If you think about Hull, Grimsby, North Yorkshire the politics is more difficult. If you think about Bristol and the surrounding rural areas, again, quite challenging. Even the West Midlands has got a more mixed political economy. That ought to be strength, really – but when you have a lot of individual local authorities representing different political standpoints it can make cooperation harder.
Q: Do elected mayors improve cooperation or accountability?
I think it’s much easier for central government when there is an elected mayor. It’s very hard to argue with that direct political accountability. Although I’m not sure how far that will stand the test of time when central and local politics aren’t aligned anymore – it works in the West Midlands and Teesside for obvious reasons, at the moment. But in general terms I still think it’s easier for central government, because you can see a focal point for local leadership. It it almost answers the Kissinger question about the European Union. Only on certain things, of course.
Q: What about in the West Midlands, where there is an especially large central authority?
Birmingham is almost a special case. Birmingham City Council has been so weak for so long and suffered from so many issues of leadership, also structural problems and specific challenges for the city. It had a very weak economy for many decades – and you know my family are from Birmingham. So, in a way, I think the West Midlands Combined Authority helps to manage the challenges of Birmingham City by folding it into something else, i.e. the wider region. It’s the opposite of how change happened in Manchester, where it was led outwards from Manchester City Council. And actually, you’ve got very able local authority leadership in places like Coventry and elsewhere.
Although I do think it’s probably harder to build collaboration when you’ve got the more mixed political economy, I do ultimately think it’s a good thing. And, politically, local government is much better than central government at working across political boundaries. It’s much more part of the normal furniture, you know, so it’s less of a big deal locally, than it sometimes looks through Westminster lens.
Q: Would improved local accountability in the West Midlands enable greater devolution there?
Well, there has been quite a lot of devolution to London, I mean, the transport budget, it’s quite significant. Why wouldn’t they just devolve the LEP [Local Enterprise Partnership] – why did we have to have a LEP for London and not just give it all to the mayor, it’s odd really isn’t it? Particularly given that Boris Johnson was the mayor at the time, it’s surprising, because the politics were in favour of that.
Q: It seems like the degree of devolution to Mayors across the board is less than it could have been?
I would agree with that. And you’ve reminded me that adult skills was never an area that we used to find it easy to get any traction, when I was trying to coordinate the Heseltine single pot budgets during the Coalition years. And that was partly because the budgets had ceased to exist. Some of the reason why it was hard to devolve, in the 2010s, was that the budgets just weren’t there anymore. And the cuts had been biggest in the cross-cutting flexible budgets, as opposed to the ongoing service budgets for running things such as A Level provision or universal credit, where you’ve got these giant flows constantly moving across the system.
We haven’t talked about tax. I often thought that things like local hotel taxes were a real opportunity to get round some of this, because they allow local discretion around revenue raising. But this was never at all popular with ministers and I remain a little bit surprised by that. And I think the centralising forces come into play again. I would say that one of the most centralising of the lot is the Treasury’s grip of taxation. Both of tax design issues, and of money raised, so in effect any kind of tax decision making. That is quite unusual when you look at other countries – there’s not even a sliver of discretion really across the system, compared to most other countries. Even for things like council tax, we have national caps – and so on.
Q: You could argue these barriers to tax devolution are due to administrative issues, with cross-regional flows of people and a need for redistribution?
Yes, there are some administrative difficulties. The problem with income tax discretion in Scotland is that people could be working in Scotland, but not living in Scotland. When I was at HMRC I always found those administrative barriers quite persuasive but we got around them in tax devolution to Scotland. There may be a cost in admin or tax gaps but overall it depends what you are trying to achieve.
I still think that we struggle to think creatively about how the state intervenes to drive economic outcomes, and that we lack sufficient frameworks. The 1980s model was extremely un-interventionist, and even under Labour this continued in some respects, for example with regulation generally being seen as a cost rather than something that could actually increase growth by managing collective risks properly. Through to the Treasury’s understandable but strong and innate suspicion of anything involving public spending or tax subsidies. This lack of clarity of framework and history means that I don’t clearly know the answer to what you would do – even if you did want to devolve a whole bunch of stuff to the North East, say – what those things would be and what the outcomes would be and what we think would really make a difference.
Q: Is it better to pursue a big constitutional settlement, or to work at the margins to improve economic and social outcomes?
If I had to choose, I would back structural change, which I don’t say lightly. I’m not usually in favour of structural change because of the costs and the need for long-term focus to make it successful. But I think our politics is so London-centric that it’s becoming quite problematic. So I would say that we should finally address the incoherence of our local government structures in England and then work out what political structures would allow more meaningful delegation of budgets. And you might not do it everywhere, by the way. You might do as Redcliffe-Maud proposed in the 1960s, and say that the West Midlands and Manchester need regional structures but nowhere else is quite big enough. But I would address the structural thing.
If I had to do it without that – I would invest in education. That’s a very good example of how more centralised networks have achieved a rise in standards. And it’s almost a complete counter to my argument. Although, it’s still ultimately about empowering schools, it’s just with more economies of scale to make their own decisions. It’s certainly not about Whitehall knows best, that’s not what’s achieved the success. It’s a model that has allowed schools to think for themselves, but it has replaced local authority groupings of schools with national networks of schools. There has been particular success in education in London. It’s a big part of why London is still standing on its own two feet, I think.
Q: And adult skills would rely on local delivery rather than a national agency?
Yes, because you’ve got to have relationships with local employers. But you’ve also got to say, ‘We’re going to be the experts in tunnelling here, so we’re going to set up a tunnelling academy and we’re going to invest in the equipment’. Whether it’s nursing or tech, modern skills training involves investment. And you can’t do everything everywhere, you’ve got to work out where it’s going to go. I think that the industrial policy that was developed during the Coalition years was trying to align some regional devolution to a sense of national skills centres, and that was right. We’re not an enormous country, we can’t do everything everywhere. And similarly, at a local level, everyone’s going to need to know where they train their nurses and teachers locally. But you’re going to have some clusters of industries where you’re really investing, that work for that region for its history, that your local communities are interested in. And that can’t be decided always at a national level, you need a mix of local and national decision-making.
I launched a call-to-arms at a conference at Nuffield about three years ago. It was to say that we have no policy framework in this country for understanding the value of strong communities. And how – and why – sometimes, they make better decisions. And it’s quite a long subject this and it can sound very woolly. But we always measure quantified things. And I’m of course I’m in favour of that. But sometimes it misses the point. Because it misses the point that a particular part of Grimsby has a history of the maritime industry, and those industries are going to resonate and embed themselves in the life of that part of the country, in a way that just setting up a cyber security centre wouldn’t. And those things matter, because they’re about people and about stories and about memory. But this is getting extremely – well, it’s not fluffy, actually, but it could sound that way – and that’s my point, because we don’t have language for it that policy makers can use. And we really struggle to put value on that within a sort of Green Book, Treasury, value-for-money frame, which is why Nuffield is now trying to invest in this, so that we can get a bit more quantified around some of it and give ourselves a bit more traction on it.
Q: What’s the one thing that has really worked? Or that we should take forward from this?
The answers are very difficult because some of them require real political leadership – for example you don’t change local government structures without that. And from an economic point of view knowing what the solution is to poorer towns whose traditional industries have disappeared, it’s really not at all straightforward. I don’t think there are any silver bullets here in terms of solutions.
My fundamental point is about having to take risks – because the structures and the capabilities aren’t there locally at the moment because they’ve not been invested in for many years and if ever, in the modern age. And I think the centralising forces I’ve been talking about go a lot deeper than anyone in Whitehall really ever realises. It was only when I got to MHCLG that I saw it and could feel it as clearly as I did.
ENDS