Does size matter? English devolution may not lead to productivity gains, admits Treasury secretary Lord Jim O'Neill

James Nickerson
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How much evidence is there to support the argument? (Source: Getty)

One of George Osborne's most senior Treasury colleagues has admitted that when it comes to solving the productivity puzzle, English devolution is little more than a punt.

Commercial secretary to the Treasury Jim O'Neill, who heads up the City Growth Commission, has been tasked with replicating London's economic success in other cities throughout the UK. The group backs devolution as a way of achieving this, claiming there is a strong correlation between size and productivity - but it so far, appears there is little evidence to back that up.

Giving the keynote speech at an event held by the National Institute of Economic and Social Research told, O'Neill said:"Bigger metro areas offer more rational for decentralisation on the basis of greater economic benefits.”

O'Neill - who is new to the post, having taken it up just after the General Election - added: "The UK is the most centralised economy in the OECD. In China, Germany and the US cities that contribute to growth have more devolution. It is not healthy for London be so dominant."

But the former Goldman Sachs economist was was unable to provide evidence to support his view that "bigger areas drive more productivity" when grilled by the audience.

“In terms of the end play of devolution, nobody knows – that’s why it’s so exciting," he said. "Success is about taking everyone out of their comfort zone, including the Prime Minister, chancellor and more local authorities.

"Devolution is a necessity but it is no guarantee for productivity," O'Neill added. "But, centralisation has not necessarily worked either."

Read more: It’s high time Britain faced up to the risks of radical devolution of power

Still, the government is ploughing ahead with plans to devolve parts of the country. Just last week Cornwall become the first county to receive powers over employment, transport, business support, energy, health and social care.

And the obsession with size is apparently shared by chancellor George Osborne, who siad:

City size matters more than ever before. Firms need access to increasingly deep pools of human capital.

The top 600 cities in the world contain just 20 per cent of the global population, but contribute 60 per cent to global gross domestic product.

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