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What a year it has been! Leicester won the Premiership, Ed Balls lost to Ore Oduba on Strictly, and the Rio Olympics and Paralympics were a marvellous and inspiring success. And lest we forget, the UK voted to leave the European Union, we then got a new Government, and to cap it off, America elected Donald Trump to be the country’s 45th President.
How Brexit, May’s government and the Trump presidency will affect the UK will become clearer in 2017 – speculation on these is for another time. But looking back on 2016 I think there are five issues that are worth reflecting on from a city economy perspective. These developments predate the EU referendum, but all of them influenced the result, and will loom large in the minds of policymakers as they prepare their response.
Concerns about who wins and who loses from economic growth are nothing new. The great Adam Smith was alive to these issues in the late 1700s, as was John Maynard Keynes in the 1930s. But in the aftermath of the Great Recession, and galvanised by the recent work on inequality by economists such as Thomas Piketty and Joseph Stiglitz, the calls for not just growth but ‘inclusive’ and ‘good’ growth have risen to the fore in debates about the future of global capitalism. This is reflected in launch of the latest RSA Commission, chaired by Stephanie Flanders, looking at how economic growth and economic inclusion can reinforce rather than undermine each other. The agenda has also been championed by Theresa May, who on becoming Prime Minister promised to ensure prosperity “up and down the country”.
No one would deny the importance of preventing people and places falling behind as a result of global economic and technological change. But for inclusive growth to avoid being a short-lived policy fad, 2017 needs to be year when the warm words and platitudes are turned into a deliverable programme of action. As Gavin Kelly, Chris Giles and Ryan Avent have highlighted, this is a tough policy nut to crack. I had a brief go here. Tom Forth (a good friend of the Centre) put forward some interesting proposals yesterday here. As these contributions suggest, tackling regional disparities will involve an awareness of trade-offs and a willingness to make difficult choices. Expect more thinking from us on this in the New Year.
The journey towards directly elected metro mayors in several of England’s big cities continued to move forward during 2016, but it hasn’t been an easy ride. During 2016, Greater Manchester, Liverpool City Region, West Midlands and Tees Valley were joined on the devolution journey by West of England and Cambridge and Peterborough. Unfortunately the North East and Sheffield look like they have ended their respective journeys, and the Leeds City Region remained the only big city unable to get off the starting line.
While it is disappointing that not all of England’s big cities will be electing mayors in 2017, the progress made over the last 24 months should not be underestimated. The UK is one of the most centralised countries in the OECD and rectifying this will take time and continued commitment from Westminster, Whitehall and cities. In 2017 the government’s devolution priorities, if they have any, are as likely to be about ‘doubling down’ on places with Mayors, as they will about extending devolution deals to a whole raft of new places. Andrew Percy, the Northern Powerhouse Minister, has already said that a greater share of Local Growth Funding will be allocated to those places with a Mayor than those without. This doubling down on Mayors is even more likely if the Conservatives win a couple of the Mayoral contests, which is more likely than it might seem.
The difficulties faced by Tata Steel combined with the Brexit vote has resulted in the government promising a new industrial strategy that will drive growth “up and down the country, in rural areas and our great cities”. Further details about the industrial strategy have been thin on the ground in 2016 but are expected in early 2017. The big question is whether it will adopt a sector-based approach – which is typically what previous government approaches have been – or to adopt a placed-based approach. The latter seems to be the preference of the current Secretary of State for Business Greg Clark, but traditionally the Treasury have been less keen. Whatever form it takes, to be successful the strategy will need to reflect the nature of the national economy and how it is changing – recognising why businesses choose to locate and invest where they do, the global trends that influence which industries the UK is best-placed to compete in, and how best policy can support them. I’ll be doing a City Talks podcast on the topic in the New Year with some great panellists – watch out for that in February.
Prior to the referendum the Government’s housing agenda was very much focused on boosting home ownership (Right to Buy, equity loans, ISAs, etc.) but since the referendum there has been a welcome shift in emphasis towards boosting supply. In his speech at Conservative Party Conference, the new Secretary of State for Communities Sajid Javid recognised the fundamental role of tackling housing problems in addressing economic and social inequality, and signalled that this was a growing priority for the Government. He also rightly diagnosed the need to build more homes as the key challenge in addressing the UK’s housing affordability crisis.
Promises to build more homes are hardly unique or revolutionary. For the new Government to succeed where others have failed, it must commit to opening up more land for housing and development in the UK’s most successful and least affordable cities. That will mean taking potentially contentious decisions, such as re-assessing land currently designated as green belt. With new house-building numbers still well below where they need to be, Sajid Javid’s warning that too many people across the country “object to houses being built next to us” – an attitude that he says has to end – was closest to articulating the sea-change that needs to take place for the Government to achieve its aims in 2017.
Despite the challenges facing the NHS, schools and social care, the new Chancellor’s decision to abandon his predecessor’s deficit reduction targets will not mean big boosts in departmental spending. The Autumn Statement in November instead focused on more investment being allocated to help boost the economy, particularly on transport infrastructure. He promised to spend 1-1.2 per cent of GDP on ‘high-value infrastructure investments’ and suggested that combined authorities led by mayors would be given extra borrowing powers to boost local growth. How the government’s plans to ‘invest in infrastructure to unlock growth’ and ‘rebalance the economy’ interact with each other will be interesting to watch during 2017. As Alex points out in our post-Autumn Statement podcast, these two aims pull against each other, as the highest returns on infrastructure investment are likely to be seen in already successful places.
While the five issues above continued to bubble under the surface, political discussion in 2016 was dominated by the EU Referendum, the outcome of which transformed the policy debate. Prior to the vote, the Government emphasised the need to steady the ship and stick to the ‘long term economic plan’, and it was widely assumed that following a Remain win things will carry on as before. The shock result of the vote led to a big revaluation of the last five years. One interesting outcome, highlighted by Tony Travers in our podcast on Brexit, is a Conservative government more willing to intervene in the economy, and less confident about the benefits of open markets.
This turnaround should remind us that as Macmillan quipped: it is ‘events, dear boy, events’ that guide government policy. So although there is plenty of hard thinking to do on the five issues outlined above, one particular series of events will occupy an increasing amount of government time going forward – negotiating our exit from the European Union. The course this process will take, and its impact on city economies, is still a ‘known unknown’ (next year’s Cities Outlook will outline some of the risks). But although the country’s economic fate is partly in the hands of the negotiators, we are still masters of our own house. Making a success of mayors, industrial strategy, housing and infrastructure is the best way to ensure our cities remain resilient in the face of what’s to come.
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