Howls of protest greeted the postponement of the Lyons Inquiry last month, with many observers claiming that the delay will prove to be a disaster for local government.

But Sir Michael Lyons and his team now have a mandate that makes sense. They have a year to examine what local government should do, and to figure out how to pay for it. It’s a tough job, but even the harshest critics would agree that it’s a far better brief than a narrow reform of local government finance alone, with which Lyons was originally tasked.

So in many ways, the delay can be regarded as good news for local government – and even better news for cities. Thanks to the Government’s change of plans, there is now a critical opportunity to argue for the devolution of power and resources to the city level.

It’s clear that the Government wants cities to drive regional economic growth and is aware that current governance arrangements aren’t ideal. Yet when it comes to reform, it is up to city leaders, chief executives, business champions and other key players to rise to the challenge and build up a case for greater local control to convince Whitehall.

Here at think-tank the Institute for Public Policy Research’s Centre for Cities, we’ve just published a discussion paper as part of our City Leadership research. This examined the links between governance and city performance, and it found that there’s a clear case for devolution – with most research suggesting that, in order to succeed, cities need money, power and people.

First, money. Current levels of financial centralisation in the UK prevent cities from taking effective and targeted action to promote growth. Locally-controlled resources are insufficient; devolved spending, borrowing, and revenue-raising powers could help cities to grow.

Second, power. Cities need more control over economic development policy. Currently, they lack the autonomy – and the ability – to design and deliver comprehensive economic plans on their own.

Whitehall has long complained that local government isn’t innovative enough, but this is a symptom of decades of over-centralisation.

Third, people. Cities with strong leaders do better economically. The evidence suggests that our cities need more effective political and managerial leadership, coupled with money and power, to succeed in the global economy. City mayors are one possible route forward, but there may be other models of leadership that can promote success.

The evidence also shows that ‘big bang’ devolution to local authorities won’t work. Instead, we need to think carefully about how to devolve power. Studies show that European cities need to be a certain size to be economically successful, and that scale matters to the performance of city economies.

In Britain, however, city boundaries don’t match up to economic areas – suggesting that devolution of power and resources makes most sense at a city-regional level. There’s a lot of excitement surrounding city-regions, but the concept is still a ‘hard sell’. The expansion of the Lyons Inquiry gives the breathing room needed to flesh out city-regions and to develop a path toward smarter devolution.

So Sir Michael isn’t the only person with a tough job to do. Cities and their Whitehall supporters need to develop concrete proposals for devolution, before the opportunity presented by the Lyons Inquiry and the 2007 Comprehensive Spending Review passes them by.

Dr Adam Marshall is Head of Policy at Centre for Cities. See the full City Leadership report here