A new approach to devolution and industrial strategy post-Brexit

Five ways the Government's commitment to a new industrial strategy can make the most of devolution.

Speculation over what economic policy and devolution will look like under a May government continues to grow. A shift in policy has already been signalled: this week’s first meeting of the new Economy and Industrial Strategy Cabinet Committee emphasised again that the new PM aims to “drive growth up and down the country, from rural areas to our great cities”. Previous certainties are being thrown up in the air as questions are raised about everything from HS2 and the future of Osborne’s pet Northern Powerhouse project, to whether areas really need mayors to gain more powers. As the Government, and the new Secretary of State for Business Energy and Industrial Strategy Greg Clark, works out what to keep, what to jettison and what to add, here’s five ideas about a new devo strategy that is not separate to but an integral part of a new approach to economic growth and industrial policy.

1. Make sure industrial policy makes the most of cities and city regions, as they are best placed to boost economic growth and sluggish productivity.

City centres are increasingly the location of the most productive, knowledge intensive businesses that generate most economic growth, and they rely heavily on surrounding towns, suburbs and rural areas for workers and suppliers. To get significant levels of economic growth, Government must boost the big city regions – Manchester’s 1 per cent increase in tax revenue in the last decade was nearly as big as the tax generated by the 10 fastest growing smaller cities. This means giving big city regions greater control over transport, skills, planning and finances, enabling them to tackle some of the specific local constraints to growth identified by local businesses and particular local sectors.

To get growth quickly, the Government should work with the fastest-growing places (many of them small), not necessarily on big devo deals but on greater flexibility to invest in infrastructure that local businesses need, for example tackling congestion and housing affordability in fast-growing cities like Cambridge and Oxford. Options could include Tax Increment Finance or public sector bonds. For those cities feeling that their core purpose has been undermined by globalisation, Government should work with them to understand their key strengths, their relationships with other local economies, and actions that will make the most difference to local growth and local people. Critical to the success of industrial policy and devolution should be continuing to adapt policy to different local needs. One of the strengths of the last five years was that Liverpool didn’t have to make sure its policies also worked for Lands End and vice versa.

2. Bank the progress you’ve already made on metro mayors in big city regions, but relax mayoral requirements for smaller areas.

The mayoral orders are in Parliament – get them agreed and we’ve got a cadre of powerful voices for city regions (including towns, rural areas and suburbs) that will be at the heart of improving productivity over the next decade. They will also provide a single figurehead for their place who can be held to account by local citizens, the media and Parliament for public spending, services, investment etc. If the Government backs away from mayors in any one area, the agreements elsewhere could be put at risk. Changing these policies could also mean still-sceptical civil servants seize the chance to pull back powers – and their reluctance to let go cannot be underestimated, nor their desire to return to the centralised status quo. But keeping big city region mayors does not and should not mean that more rural areas or smaller cities have to have mayors to gain more powers, or that the powers these areas gain need to be the same as Greater Manchester.

3. Ensure economic growth policies take decisions at the lowest efficient geography.

At a time when Whitehall and Westminster have a formidable ‘to do’ list, they should not be trying to do everything on economic growth and industrial policy themselves (and probably trying to get some of the talented people from those local areas into SW1 to help them do it!). Partnerships already exist to support policy development and delivery, whether at neighbourhood level, in the form of combined authorities, or across city regions. Whatever happens to the ‘Northern Powerhouse’ (and my bet is it will stay but be one of many projects rather than a flagship initiative – and it may get renamed), the city regions across the North will keep working together; the same is true of places in the ‘Midlands Engine’, ‘Great Western Cities’ etc. Local areas should be empowered to devise or deliver policy on industrial strategy, and beyond that on public services, where they will know far more about what is effective and efficient, rather than continuing to have civil servants deciding almost everything in Whitehall.

4. Make skills and innovation a national priority and work closely with city regions to deliver on these aspirations.

One of the biggest differences between people and areas that are successful and those that struggle is skills and innovation. It’s vital that the May government does not fall into the historic trap of neglecting investment in human capital because its benefits take so long to come through. The Government’s national industrial strategy must prioritise skills and work closely with local areas and key institutions across the UK to ensure everyone, from early years to those already in the workforce, can get the education and training they need to prosper in the modern economy. Government will also need to work closely with business in different ways – at a national sectoral level, through national and local representative business bodies, and in city regions and local areas – to understand and raise business demand for skills. And Government should make the most of city regions’ ability to bring together knowledge intensive businesses, universities and lots of skilled people to support higher levels of innovation, which will be vital for future economic growth and productivity.

5. Borrow to invest, working closely with city regions.

With the relaxation of Osborne’s fiscal rules, there is an opportunity for the Government to invest in infrastructure projects that generate jobs in the short term, and could help city regions attract businesses, jobs and investment in the long term. Some projects may be national, for example speeding up investment in better links between Manchester and Leeds (formerly ‘HS3’) as the first phase of improved links across the North. Some could be more local, for example giving new mayors additional funds to improve travel within city regions to help those in more deprived areas access jobs. An industrial strategy that makes the most of devolution should also allow areas to borrow against local revenue and invest prudentially in infrastructure that unlocks development.

What’s next from Centre for Cities

I haven’t even touched on issues such as immigration, planning or housing, all of which will matter to local areas. The weeks and months ahead will see frantic work on industrial strategy, productivity, economic growth and devolution. My hope is that the work is joined up, as all these areas are integrally linked. We will be doing a great deal to develop our thinking and set out policy ideas in this area, starting with our publication of a map of where different jobs are across the UK. Look out for that at the end of August.

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Comments

Gail Mayhew
4 August 2016 17:13

All of the above depends of maintaining local democracy and accountability. HOW will the proposed mayors be held to account? and WHAT happens if they go off piste? With the abolition of the Audit Commission, there is insufficient recourse for members of the public and stakeholders to formally hold local authorities to account on key capital spending decisions. Judicial Review remains an overused last chance saloon for communities in dispute with their local authorities. Individuals should not have to rely on such an expensive and risky process. So point 1 - more devolution should be supported by the reinstitution of the Audit Commission, and tougher public oversight on devolved spending decisions. Point 2 - better standards of due diligence on capital projects are required - an easy borrow from the business world - and more rigorous option testing and cost benefit analysis will be essential if the sort of borrowing flexibility alluded to above is to be put in place, to ensure impacts and alternatives are properly considered and optimum leverage on the public £ achieved. Point 3 - Future housing CIL receipts must not be abused as the mechanism to fund infrastructure - as we know, the residential property market is cyclical - and the impacts of a phase of price stagnation or depression could be amplified if local authorities fall into the trap of funding infrastructure on overly aggressive property market predications and anticipated CIL levies. Local authorities should resist the moral hazard of over-permissioning homes in order to create the receipt pool for a given infrastructure project - this is an abuse of the planning system which should be allowed to say 'no' to inappropriate and over-development. Finally, if Mrs May's government is to achieve the move to a genuine regional policy that rebalances the London-centricity that had become a noxious preserve of the Cameron administration, then a fundamental change of perspective needs to emerge. The seeds of which are finding a locally driven narrative for prosperity and growth, local accountability, local economic capture, seeking global connectivity and trading potential, strong and tough oversight on public spend and driving value for money in public leverage.

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