This article is taken from a new book on devolution from the Smith Institute, edited by Geoff Mulgan and Fran Bury of the Young Foundation. In it, Dermot Finch argues for bold steps towards differential financial devolution, with more powers for our biggest city-regions.
Leadership and power go hand in hand. But England is one of the most centralised countries in the developed world – and its cities lack financial power. With the exception of London, major economic development decisions are taken for our cities by Whitehall and by unelected regional quangos. This situation cannot continue. It is holding back our cities.
Over the next decade, we have two choices. We can either stick to the piecemeal and generic approach to devolution, with the same modest initiatives for all areas. Or we can take a series of bold steps towards differential financial devolution, with more powers for our biggest city-regions.
I am convinced we should do the latter. Here’s why.
England’s largest city-regions contain the highest concentrations of economic activity in the country, and are drivers of the national economy. To grow further, they need more powers. Greater devolution to city-regions over economic development would improve their performance, and their leadership.
Up until now, government interventions in cities have occurred at many different spatial levels – national, regional, subregional, local, neighbourhood. This has just confused the situation, with far too many funding programmes and initiatives. Every time they want something done, our cities have to grapple with a bewildering array of agencies at every level of government. This dispersal of functions and funding up and down the governance ladder is inefficient. It hampers the effective design and delivery of strategic policies.
Government needs to work out what functions are best delivered at what level. Economic development – including regeneration, transport and skills – would best be delivered at the city-regional level. That is because city-regions are the closest match to real, functioning economic areas. Regions are too big, and many local authority districts are too small, for economic development purposes.
Financial devolution should be selective. It will require different models for different places. A one-size-fits-all approach will not work. Ministers talk about “variable geometry”, but what does it mean in practice? In my view, it means that different places should have different degrees of financial autonomy, proportionate to the size of their economies.
The government should put our biggest city-regions at the front of the devolution queue, because they are the drivers of regional and national economic growth, and they are at the right scale for economic development.
Our recent City Leadership report proposes significant new financial devolution to our biggest city-regions, starting with Greater Birmingham and Greater Manchester. At present, only they have the scale, tax base, maturity of joint working and business buy-in to take on radical financial devolution.
The report recommends city-region contracts for Greater Birmingham and Greater Manchester, negotiated with central government. These would give them control over their budgets for regeneration, transport and skills – over £600 million a year, for each city-region.
These city-regions should also have some modest revenue-raising powers, for example through a 5% supplementary levy on business rates, ring-fenced for specific transport projects. This would raise around £35 million a year in Greater Birmingham. Not earth-shattering, but enough to kick-start essential infrastructure investment in New Street Station, for example.
Such radical financial autonomy would require a step change in accountability. We have recently seen moves in Greater Birmingham and Greater Manchester to set up executive boards, made up of existing local authority leaders. These would be a step in the right direction, and an improvement on current governance arrangements. They could also be put in place with relative speed. But they do not go far enough. They do not have the legitimacy of a direct city-regional mandate, and are less likely to provide the clear leadership required by financial devolution.
Greater Birmingham and Greater Manchester need directly elected mayors. Not just mayors for the cities of Birmingham and Manchester, but city-regional mayors. They would be scrutinised by boards of existing local authority leaders, businesses and community representatives.
Mayors have democratic legitimacy and visibility, and are best placed to develop strategic plans and take tough delivery decisions. But they are politically difficult and controversial. Incumbent city leaders are inevitably going to oppose the idea; no surprise there. But will Whitehall devolve significant powers to an executive board? And could an executive board take really tough decisions on competing investment priorities? I doubt it.
City-regional mayors would be a hard sell. But they are the best governance model for city-regional devolution. London’s mayor has shown that Whitehall engages in serious city-level devolution only when a single individual is in charge, with a direct mandate. Our other big cities should watch and learn. To get the powers they want, our leaders will have to bite the bullet: city-regions and city-regional accountability are required. Ministers cannot force the city-regional mayoral model on them. But if Greater Manchester went for it, and asked for more powers, Whitehall could hardly say no.
So far, I have argued for three things. First, city-regions should deliver economic development. Second, our two biggest city-regions should have modest tax and substantial spending powers to promote economic growth. And third, they should be run by directly elected mayors.
This could happen over the next five years. Over a longer period, five other city-regions could follow – Liverpool, Newcastle, Leeds, Sheffield and Bristol. In the meantime, all cities and towns should be given greater freedoms and flexibilities over economic development. The evolving local area agreements provide an opportunity to make this happen.
But what about the regional development authorities? The fact is that the regional government experiment has failed. The “no” vote in the North East devolution referendum in November 2004 put an end to the prospect of accountable regional government in England, and blocked the scope for further significant devolution to the regional level. Not only are RDAs at the wrong level for economic development, but they are also undemocratic. Further devolution to them would therefore be unwise. Whitehall needs to accept this, and move on.
Instead, each RDA needs to start adapting to its own regional economy. The North West Development Agency, for example, should accept that Greater Manchester needs more control over economic development – and focus more on the rest of the region. By contrast, the East Midlands Development Agency will remain largely intact, given the lack of a major city-region there. In other words, each RDA will start to look unique. This is what variable geometry means in practice: different governance arrangements for different areas based on their different needs. Uniform devolution needs to be replaced by differential devolution.
What about smaller cities and towns? Up until recently, the focus on core cities has tended to exclude smaller cities and towns. Bradford, Barnsley and Oldham have felt shut out by Leeds, Sheffield and Manchester. City-regions offer them a clearer sense of their future economic role, and should help promote closer working between them and the core cities. And under our proposals, they would all get more flexibilities and freedoms, whether or not they fall within our major city-regions.
However, smaller cities and towns need to accept that they will not get the same powers as Greater Manchester, for example. Devolution cannot be the same for all areas. We still need to prioritise devolution around our biggest city-regions, as only they can make the major contribution to regional and national growth.
This is an ambitious agenda. Financial devolution is a huge economic challenge, with downside as well as upside risks. And directly elected mayors will not go down well with everyone.
But 2006 is a real opportunity for reform. The Lyons inquiry into local government is under way, the Greater London Authority review is about to give more powers to the London mayor, Minister for Communities David Miliband is keen to make his mark at the ODPM, and the local government white paper is due this summer. Now is the time to focus on empowering our city-regions.
First, Whitehall must get a grip of city-regions. RDAs must embrace them more proactively and positively, as some are already doing. Local authorities must recognise that economic development is best done not in isolation but across political boundaries. And smaller cities and towns should resist the temptation to call themselves city-regions. City-regions are not everywhere. They are selective. Greater Manchester is a city-region, but Central Lancashire is not. David Miliband and others should spell out these points very clearly during 2006.
Second, Greater Birmingham and Greater Manchester should move forward with their executive board arrangements. Not as an end in themselves, but as a transition towards directly elected mayors. Closer partnership working now will help deeper, more formal city-regional arrangements later. Meanwhile, RDAs and other quangos should explore how to devolve certain functions to their biggest city-regions.
Third, we will need primary legislation to enable city-regional mayors. This will take a while, but we could realistically expect mayoral elections early in the next parliament. And with the promise of significant financial powers, we can also expect some strong candidates to emerge. Not just incumbent city leaders, but business leaders and others. This is an opportunity, not a threat.
Finally, the voters in and around Birmingham and Manchester will need to be convinced of the need for an elected mayor. I believe the case can be made, if mayors are given the power to make a real difference – to fund major transport projects, to grow the business base and to foster job creation.
This article is taken from a new book on devolution from the Smith Institute, edited by Geoff Mulgan and Fran Bury of the Young Foundation.
Double devolution: the renewal of local government (isbn 1 905370 02 4) is available form Central Books on 020 8986 5488.