Supplementary memorandum by the Centre
for Cities (RG 55(a))
FULL RESPONSE
This full response follows our initial response
of 19 January 2006.
CITY LEADERSHIP
1. Our response to the Committee's Inquiry
is based on our City Leadership report, due to be launched on
24 February. This report sets out the economic case for financial
devolution to England's cities and towns, using original research
in Birmingham, Liverpool and Barnsley.
Cities matter
2. We argue that financial devolution should
focus first of all on our biggest city-regions. England's largest
urban areas contain the highest concentrations of economic activity
in the country, and are drivers of the national economy. Large,
well-connected urban areas offer the best opportunity to boost
regional growth and narrow the productivity gap. Strong city-regions
are key to improving wider regional performance and driving national
economic growth.
3. Cities would make a stronger contribution
to the national economy, if they had more revenue-raising powers
and spending flexibilities. Greater financial autonomy would also
improve their leadership. But devolution must be done at the appropriate
scale. Urban areas perform better when administrative and economic
areas match up. This suggests that city-regions are the right
level for financial devolution over economic development.
City-regions
4. Our report therefore concludes that economic
development is best delivered at the city-regional level. Regions
are too big, and many local authority districts are too small.
5. City-regions are both economic and political
entities. They already exist as economic areas. But drawing political
boundaries around these areas is difficult. They include a core
city, as well as surrounding areas that have close economic relationships
with that city. These relationships can be measured in a number
of different ways, including labour markets, housing markets,
retail catchment areas and business-to-business linkages.
6. If governance arrangements are imposed
at a level that matches specific economic flows, then city-regions
become political entities, with administrative boundaries that
broadly reflect an economic area. Our definition of city-regions
explicitly excludes small urban areas (eg Stoke-on-Trent), polycentric
city networks (eg The Three Cities of Nottingham, Leicester and
Derby) and shire counties (eg Kent). It also excludes some of
the smaller so-called city-regions in the Northern Way.
Variable geometry
7. Financial devolution should be selective.
It will require different models for different places. A one-size-fits-all
approach will not work. We recommend "asymmetric devolution",
with different places having different degrees of financial autonomy,
proportionate to their economic importance.
8. Where local authority boundaries cover
a functioning economic area, devolution should be to the local
authority level. But in England's biggest urban areas, local authority
boundaries have little relation to economic flows. Here, city-regional
governance arrangements are required to maximise the effectiveness
of devolution.
9. That is why we propose a priority focus
on our biggest city-regions, with substantial new spending and
revenue-raising powers for Greater Manchester and Greater Birmingham.
City-Region Contracts
10. We recommend City-Region Contracts for
Greater Manchester and Greater Birmingham, with control over their
own budgets for regeneration, transport and skills. This is over
£600 million per year, for each city-region. These two city-regions
should also have revenue-raising powers, for example through a
5% levy on business rates—hypothecated to specific transport
projects.
11. City-Region Contracts must be selective.
Only our two biggest city-regions are ready to try them out. Only
they have the scale, tax base, maturity of joint working and business
buy-in to take on radical financial devolution.
12. But over time, five other city-regions
could follow—Liverpool, Newcastle, Leeds, Sheffield and
Bristol. In the meantime, we recommend more modest financial flexibilities
for smaller cities and towns. Economic Development Contracts within
Local Area Agreements would give local authorities greater discretion
over regeneration.
Accountability
13. Radical financial autonomy for city-regions
would require a step-change in accountability. We make the case
for directly-elected city-regional mayors, scrutinised by boards
of local authority leaders, business and community representatives.
SUMMARY RECOMMENDATIONS
14. In summary, the City Leadership report
makes eight recommendations.
15. Radical devolution to Manchester and
Birmingham city-regions:
— City-Region Contracts that devolve
key economic development powers and budgets to city-regions, starting
with Greater Manchester and Greater Birmingham. These would comprise
£600 million of existing funding from Regional Development
Agencies, Transport and Housing Boards, Passenger Transport Executives
and the Learning and Skills Council.
— City-Regional Supplementary Business
Rates, hypothecated to key city-regional infrastructure priorities.
For example, the ability to levy up to 5% on the business rate
would raise £35 million per year in Greater Birmingham, and
cost small businesses less than £150 per year.
— City-Region Growth Incentive would
re-focus LABGI (Local Authority Business Growth Incentive) at
the city-regional level, allowing city-regions to retain increases
in business rate revenue resulting from growth. This would promote
cross-boundary collaboration and reward city-regions for growing
their business base.
— Clear city-regional policy framework,
with Whitehall departments, RDAs and other agencies sharing a
common focus on city-regional growth.
16. More freedoms for all cities and towns:
— Economic Development Contracts within
Local Area Agreements, giving local authorities greater discretion
over economic development.
— Enabling greater take-up of existing
powers, including prudential borrowing, Business Improvement Districts
and user charging.
— Improving capacity and skills in
local authorities, to further public-private co-operation and
promote investment.
17. Our report will feed into the Lyons
Inquiry, Local Government White Paper and Comprehensive Spending
Review.
18. We will send copies of the report to
the Committee, once it is published on 24 February. We would be
very happy to deliver oral evidence to the Committee, if that
were helpful.
RESPONSE TO
INQUIRY
19. Here are our responses to the Committee's
issues.
The potential for increasing the accountability
of decision-making at the regional and sub-regional level, and
the need to simplify existing arrangements
20. England is one of the most centralised
countries in the developed world. Major economic development decisions
are taken by Whitehall and by unelected regional quangos, such
as Regional Development Agencies. Greater financial autonomy to
major city-regions over economic development would improve the
performance and leadership of our major cities and their surrounding
areas.
21. Scale matters. Economic development
is best delivered at the city-regional level, not the regional
or local level. City-regions are the best level for running functions
such as transport, skills and regeneration. For economic development,
therefore, decision-making and accountability should focus around
city-regions.
22. 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. Further devolution to the regional level
would be unwise, given the lack of accountability and the fact
that regions are too large for economic development purposes.
23. There is a strong economic case for
devolving certain funding streams to the city-regional level.
This fits with the vision of "variable geometry", where
different places have different degrees of autonomy. The priority
should be to devolve regeneration, transport and skills funding
to the two biggest city-regions in England—Greater Manchester
and Greater Birmingham. This would require the two relevant RDAs
(NWDA and AWM) and the relevant Learning & Skills Councils
to cede control over regeneration and skills funding, for example.
24. For this to work, Greater Manchester
and Greater Birmingham should consider the case for directly elected
mayors in their city-regions. These would provide the greatest
degree of accountability, visibility and strategic decision-making
across existing local authority boundaries.
25. For Greater Manchester and Greater Birmingham,
this would increase the accountability of decision-making and
simplify existing arrangements.
The potential for devolution of powers from regional
to local level
26. Financial devolution has so far been
piecemeal and less than effective. Central government has taken
some tentative steps on the road to financial devolution: the
RDA single pot and regional funding allocations; Local Area Agreements,
the Local Enterprise Growth Initiative (LEGI) and the Local Authority
Business Growth Incentive (LABGI); Business Improvement Districts
and prudential borrowing. These are all useful, but they lack
ambition and their implementation is proving problematic.
27. City-regions are the most appropriate
scale for devolving financial powers over economic development.
Devolution should not focus on local authorities in isolation,
since they are too small for economic development purposes. Real
economic markets are bigger than local authority districts, and
more closely match city-regions.
28. Devolution should focus first of all
on Greater Manchester and Greater Birmingham, with other major
city-regions to follow after that. As well as gaining control
over funding for regeneration, transport and skills, city-regions
should be able to raise their own revenues—for example,
through a partial re-localisation of business rates (City-Regional
Supplementary Business Rates). The revenues would be ring-fenced
for investment in strategic infrastructure projects. This would
encourage our biggest cities to work across boundaries with their
surrounding smaller cities and towns.
29. City-regions make good economic sense,
but they are a "hard sell" politically. Financial devolution
to city-regions has downside as well as upside risks. And directly-elected
city-regional mayors are bound to be controversial. But they offer
significant potential benefits, such as effective delivery of
devolved spending, strategic decision-making and real accountability.
The effectiveness of current arrangements for
managing services at the various levels, and their inter-relationships
30. Our research backs up years of findings
from the Audit Commission, that the current arrangements for public
service delivery and economic development are too complex and
involve too many layers of governance. Regeneration, for example,
involves a bewildering array of agencies at every level of government—national,
regional, sub-regional, local and neighbourhood. This is inefficient
and ultimately hampers successful delivery.
31. Government needs to review what functions
are best delivered at what level. Devolution of economic development
functions offers opportunities to boost city performance, and
also national performance. Regeneration, transport and skills
would best be delivered at the city-regional level. Other levels
of government should step back from these functions and allow
city-regions to drive them forward. This will rationalise the
fragmented, disjointed and dysfunctional landscape of current
urban governance in England.
The potential for new arrangements, particularly
the establishment of city regions
32. Our two biggest city-regions should
gain significant new spending and revenue-raising powers and be
run by directly-elected mayors.
33. City-Region Contracts should co-ordinate
and devolve funding for regeneration, transport and skills. Contractual
approaches have been adopted in other countries—in France,
for example. They should be initiated in Greater Manchester and
Greater Birmingham. They would allow these two city-regions to
direct over £600 million of funding towards their own economic
development priorities.
34. City-regions should also have some revenue-raising
options. For example, the power to raise business rates by up
to five per cent, with additional revenues hypothecated directly
to strategic transport priorities. In Greater Birmingham, this
Supplementary Business Rate would raise around £35 million
per year. City-regions should also have a clear incentive to promote
business growth. A City-Region Growth Incentive would refocus
LABGI at a city-regional level, and allow city-regions to retain
increases in business rate revenue resulting from growth, up to
£200 million over five years.
35. Such radical financial devolution to
city-regions would require a step-change in accountability. City-regional
governance arrangements should be judged against four tests: democratic
legitimacy, clarity and visibility, strategic vision and delivery.
36. We believe that a directly-elected city-regional
mayor would meet all four of these tests. But directly-elected
mayors are difficult. Existing local authority leaders, for example,
strongly oppose the idea—not surprisingly. And it is not
yet clear that voters would embrace the idea.
37. Several areas, including Greater Manchester
and the West Midlands, have developed proposals for "Executive
Boards" at conurbation level, composed of the leaders of
existing local councils. Executive Boards would be a step in the
right direction, and an improvement on existing cross-boundary
collaboration. They could be put in place with relative speed,
and might usefully serve as transitional vehicles on the way towards
directly accountable city-regional entities. They could also perform
a scrutiny role, in relation to a directly-elected mayor. But
Executive Boards are not robust enough to take on the full range
of financial powers that we propose.
38. Directly-elected Commissioners for regeneration,
skills and transport are another route forward. They would be
harder to implement than Executive Boards, but would offer a higher
degree of accountability and transparency.
39. Overall, therefore, we favour directly-elected
city-regional mayors as the best model for delivering successful
financial devolution. But we fully understand the political difficulties.
The impact which new regional and sub-regional
arrangements, such as the city regions, might have upon peripheral
towns and cities
40. Up until recently, the focus on core
cities has tended to exclude smaller cities and towns. City-regions
embrace smaller cities and towns, not just core cities; and can
help promote closer working between them. City-regions can also
help peripheral cities and towns develop a better sense of their
economic role. Barnsley, for example, is now thinking about this
in relation to both Sheffield and Leeds, and stands to benefit
from the growth of both. However, there is a need to prioritise
policy around our largest cities, as they can make the biggest
contribution to national and regional economies.
The desirability of closer inter-regional co-operation
(as in the Northern Way) to tackle economic disparities
41. Closer inter-regional co-operation is
not a top priority, and should not be the Northern Way's main
objective. Rather than being driven by its three component RDAs,
the Northern Way should be focused around its principal city-regions.
However, the Northern Way's eight "city-regions" are
not all city-regions, in our view. The Northern Way also risks
losing momentum, because—almost two years since its establishment—it
has failed to prioritise on key investment priorities in the North's
most important cities.
42. To succeed, the Northern Way must recognise
the primary importance of its biggest city-regions, especially
Greater Manchester. Economic disparities between the North and
the rest of the country would best be addressed by releasing the
growth potential of the North's largest city-regions. Greater
financial devolution would help achieve this.
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