The next phase of devolution in England should shift its focus from how funding is distributed to how economic growth is rewarded, argues Gus Wiseman, UK Director at Patrizia, a major European real assets investment manager, and former Global Head of Investor Relations at the Office for Investment.

For more than three decades, successive governments have attempted to rebalance England's economy by channeling funding toward regions outside London and the South East. The persistence of this effort reflects an uncomfortable reality: the UK records among the highest levels of regional inequality of any advanced economy, with productivity and wage gaps between London and the South East and much of the rest of the country remaining stubbornly wide. While many of these programmes have produced worthwhile projects, the underlying model has remained largely unchanged. Local leaders continue to spend disproportionate time competing for Whitehall funding rather than competing to attract private investment.

The distinction matters because the two incentives are fundamentally different. Government funding is episodic; attracting long-term investment is continuous. Investment creates jobs, broadens the local tax base, and strengthens local economies over sustained periods.

Under a reformed model, places that deliver new housing, attract employers, and expand their economies would retain a greater share of the value they generate. This would encourage local leaders to function more as long-term stewards of their economies. As Wiseman notes, England is unusual in the extent to which local economic success and local fiscal reward remain disconnected.

Germany offers a contrasting approach. Local authorities there receive property tax alongside a share of national tax revenues, enabling communities that attract investment to benefit directly from the growth they produce. A robust equalisation system continues to support less prosperous regions, while successful areas retain a meaningful share of the additional value they create.

Incentives Drive Behaviour

This structure fosters a fundamentally different relationship between the public and private sectors. Local government has a stronger incentive to support development because economic growth directly strengthens local finances. For institutional investors, that alignment provides greater confidence that planning authorities, infrastructure providers, and local leadership are all working toward the same objective.

England has previously recognised elements of this challenge. Greater Manchester's additional fiscal freedoms, together with Enterprise Zones and City Deals, have demonstrated how stronger local incentives can catalyse investment. However, these initiatives remain exceptions rather than structural features of the system.

Wiseman argues that conditions are now favourable for going further. Metro mayors hold stronger mandates and increasingly ambitious economic strategies. Simultaneously, initiatives such as the Mansion House reforms, the National Housing Bank, and the Sterling 20 are encouraging more long-term capital to invest in the UK. Local Government Pension Scheme funds are also placing greater emphasis on place-based investment, creating a natural alignment between local growth ambitions and patient institutional capital.

This alignment is significant because investment decisions are increasingly made on a city-by-city basis rather than through broad national strategies. Investors seek capable local partners with credible development pipelines and require confidence that projects can be delivered. Cities able to offer those conditions will increasingly differentiate themselves in the competition for capital.

The UK has no shortage of locations with world-class universities, innovative businesses, and highly skilled workforces. Yet investment has frequently lagged behind economic potential. While better incentives alone will not resolve every challenge facing regional growth, they would provide local leaders with a stronger rationale to accelerate development and create environments where institutional capital has the confidence to invest.

Much of the devolution debate has centred on where power should reside. The more critical question, Wiseman suggests, may be how local leaders are rewarded for exercising it. If England can forge a stronger connection between economic growth and local benefit, it will cultivate a more attractive environment for long-term investment and give devolution a substantially greater chance of fulfilling its promise.

Gus Wiseman is UK Director at Patrizia and former Global Head of Investor Relations at the Office for Investment.