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For anyone interested in how to make the most of UK city economies, the conversation eventually moves towards money. Not just lack of money, although that’s always an issue, but control over money: the ability to be financially self-sustainable and raise and spend money in ways that work for different local economies, whether Leeds or London. So Monday’s City Growth Commission report on fiscal devolution makes an important contribution to a vital debate, particularly in the run-up to the next General Election.
The challenges that any discussion about finance and governance has to confront are multiple. All have to confront the need to be clear about what fiscal devolution is ultimately for – more successful, efficient city economies – and what the details of that devolution are.
First, many national officials and politicians remain to be convinced that the most effective response to the UK’s largest cities punching below their economic weight is giving them greater control over their finances. This is despite the compelling evidence that limited progress has been made towards improving cities’ economic performance under one of the most centralised systems of government in the developed world. Proposals need to overcome ongoing concerns about ‘postcode lotteries’ and set out how the ability to respond to local economic circumstances is the most effective way to both support economic growth and spend public money.
Second, there’s always a debate about who gets which powers and when. Too often, historically, devolution has proceeded at the pace of the slowest so that everyone gets the same powers at the same time. The last few years have, quite rightly, started to change this mindset: devolution should start with those cities and city regions that have the appetite and ability to take on greater responsibilities as well as greater risks.
Which goes on to the third major challenge: who decides which places are ‘ready’ and on what basis? Whitehall and parts of Westminster having proved expert at deflecting change in the past; real change in fiscal devolution will require political determination to drive it through the system. It also needs agreement about the criteria for readiness (economic potential, governance and financial success are all likely to be important) and commitment that these will not be constantly moving hurdles. A compromise between ‘earned autonomy’ (cities earning extra powers from Government) and ‘presumed autonomy’ (whereby Westminster returns powers to local government) could ensure that cities with appropriate institutions and financial structures in place (e.g. Combined Authorities) automatically receive certain powers, while there are opportunities for those with further ambitions and capacity to take on more powers and freedoms.
Fourth, there’s a long-running debate about which funding, finance and spending powers should be transferred to local control. This is not just about national government giving councils more money. It’s about whether councils should be allowed to set new, democratically chosen local taxes, whether they can borrow against future local taxes and fees to invest in transformational projects and what controls Government could relinquish to ensure councils can invest in more housing, better roads, and skills programmes that meet the needs of local employers and residents. Getting the detail straight will be vital to making policy work in practice.
Fifth, concerns about supporting thriving and lagging places quite rightly feature highly in this debate and, as always, a balance has to be struck between enabling and incentivising growth in cities while sharing the benefits of growth to support other places. If cities kept all their business rates, for example, then what would happen to the Formula Grant (comprised of business rates income), which currently funds a wide range of council services across the country? If national taxes like VAT or payroll taxes were transferred locally, what central funding would be cut to support that transfer? What would it mean for less successful cities? These all need to be answered to turn fiscal devolution into a political as well as policy reality.
Yet, despite all these challenges (and there are many more), the opportunities offered by greater devolution of funding to cities and city regions are far greater. Much of the debate about fiscal devolution sounds and is technical, because that’s critical to making change happen – but the outcomes are far from technical. Cities host three-quarters of the nation’s most highly skilled jobs and are 15 per cent more productive than non-cities. They are vital to tackling some of the most pressing challenges of our time, from generating more jobs, building more houses or reducing the deficit through tackling issues such as unemployment and inequality. Only through giving cities more freedoms to respond to their particular challenges can limited public money be put to better use to support the local and national economy to grow.
Many city regions are ready to take on more responsibilities already, and be held to account for achieving better outcomes. Others will follow closely behind. As the General Election draws closer, now is the time for political parties to commit to giving more power to city regions. Reports like that of the City Growth Commission help to show why this is a step worth taking.
Crossposted on the City Growth Commission blog.
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