Political and Constitutional Reform CommitteeWritten evidence submitted by Core Cities Group

Core Cities Group is a network of the local authorities of England’s eight largest city economies outside London: Birmingham; Bristol; Leeds; Liverpool; Manchester; Newcastle; Nottingham; and, Sheffield. These cities drive local and underpin national economies. Working in partnership, we aim to enable each City to enhance their economic performance and make them better places to live, work, visit and do business. The Core Cities Group has a track record of more than 10 years, led by the City Leaders, taking in all three major political parties. Collectively, the Core Cities primary urban areas:

deliver 27% of the economy—more than London;

are home to 16 million people; and

contain 28% of the country’s highly skilled labour force.

Core Cities are critical to the delivery of increased private sector growth and jobs, as well as to the protection of the most vulnerable in society during tough financial times.

Response

1. Should the relationship between central and local government be codified? Should codification of the relationship between central and local government be considered in the context of a wider constitutional codification?

The devolutionary thrust of new Government policy has been welcomed by Core Cities, particularly the Local Growth White Paper and the announcements on Tax Increment Financing, long championed by our Group.

However, we do not see much appetite to codify the relationship with Central Government and, within the current parameters of the discussion, are not clear what added value it would bring. The issue for our cities is more one of autonomy in reality, rather than agreement on paper, that will allow us to drive public sector reform and efficiencies on the one had, and free us up to deliver greater private sector growth and jobs on the other. This is particularly important for Core Cities in their role as economic drivers.

We have recently received news on the first wave of Local Enterprise Partnerships, including most of the Core Cities, with more to follow. Core Cities’ provide the driving economic force at the centre of such partnerships, and this role needs to be recognised in future policy decisions. It is critical to reinforcing Core Cities as drivers of sub-national economic growth that they—and these partnerships—are provided with sufficient freedom to direct investment to the shared aims of creating private sector growth and jobs. This in turn will require that devolution of powers and resource (or control over resource) occurs to local government—and the combined authority in Manchester—in order to satisfy accountability and governance arrangements. This is particularly crucial in the most economically important areas.

Waiting until the relationship is codified to do this will undermine the good work already undertaken by local partnerships, and there are three priority areas for immediate action to support the delivery of economic growth, the primary aim of LEPs.

Firstly, Government needs to work closely and quickly with us to deliver the first wave of LEPs rapidly and help provide economic leadership to others. Core Cities have the capacity not only to establish LEP Boards quickly with our business partners but also provide leadership, support and advice to others. Speedy LEP implementation in city-regions will be essential to provide confidence to the business community, but this means working on implementation together and ensuring that all relevant departments across Whitehall work with us to assist front-runners and devolve to them. Our concern is that without the real ability to direct investment, LEP partners may lose confidence, which is not something we want. There is a real opportunity for change, but the moment must be grasped.

Secondly, we should work together to find the best ways of leveraging private sector investment for private sector growth. We can add value to the package of devolved funding, local economic incentives and stimulus by working with Government on creative ways of combining funding streams so that maximum leverage can be gained. For example, it is in all our interests to ensure that we have a right model of Tax Increment Financing, implemented quickly, that Business Increase Bonus and the New Homes Bonus operate in a complimentary way and that the best options are appraised for retention of business rates.

Thirdly, we want to work to strengthen our cities as economic hubs for innovation and sectoral growth. Many of the proposals and ambitions in the Local Growth White Paper can only be delivered through large urban areas. Core Cities have many of the building blocks already in place—the assets, skills and infrastructure needed. Therefore there should be an at least implicit “locational policy” about where some new initiatives will deliver most value. For example, Core Cities are natural locations for Growth Hubs and Technology and Innovation Centres, proposed in the Growth White Paper.

The critical issue is that central government respect the autonomy of local government and continue to cede responsibility to them. This is more of a priority than codifying the relationship.

2. If codification is appropriate, what degree of independence from central government and what powers should local government be given?

Regardless of whether codification occurs, local government requires a greater degree of independence from the centre than that currently enjoyed. There is overwhelming evidence (eg State of the Cities Report, 2006) that large urban areas which have more devolved financial controls are more economically competitive, across and beyond the EU. The OECD average for locally raised finance through taxation is 55%. In the UK this is just 17%, with local authorities in direct control of only about 5% of all taxation—Council Tax. This leaves our cities less able to enhance their competitiveness, which disadvantages the country’s economic recovery.

We therefore welcome the devolutionary thrust of the new Government’s policies and want to work with them to ensure that we all get the greatest economic return on public investment. Our recent report “Core Cities: Driving Recovery” (www.corecities.com) demonstrates how our cities can deliver more private sector growth, jobs and prosperity through a more devolved approach. The difference amounts to some £33.5 billion extra GVA in Core Cities’ authority areas alone, and more than 750,000 jobs, potentially contributing a significant level of alternative private sector employment.

Most powers that are required stem from the issue of a lack of local financial control. Tax Increment Financing, recently announced by the Government, is top of the list of new financing powers and mechanisms.

Because the proposed model of TIF for the UK effectively requires an element of business rate retention, our understanding is that it is being examined as part of the overall LGRR. Whilst there is a clear logic to this, it should not delay the implementation of TIF. Ministers have been clear in their announcements that TIF will happen and there is an ambition to enact it quickly. The groundwork for TIF has been done in detail and a robust model developed with Whitehall, with a number of schemes on the starting blocks in our cities, some already at Green Book standard. We understand that there is also an ambition to legislate following the LGRR by Summer 2011. However, as above, business rate retention is a complex matter and, should the outcomes of the LGRR be protracted, we would want Government to be in a position to make a start with TIF in Summer 2011. We believe that this is achievable either—ideally—through legislation, or some other route, for example Section 31 of the Local Government Act, the Secretary of State’s grant giving powers, to at least get a first wave of schemes up and running. The recent enactment of TIF in Scotland provides a further incentive not to delay TIF for England.

Although it is the maintenance of an existing rather than new power, prudential borrowing is central to the ability of our cities to drive growth and manage public spending reductions and should not be hampered by any reduced access to the Prudential borrowing system. Doing so would appear to fly in the face of localism and severely constrain our ability to:

support private sector growth;

create the conditions for increased employment;

undertake public sector transformation and reform; and

manage public spending reductions.

Business rate retention is an area of great interest to our cities, and something that will be explored in detail as part of the Local Government Resource Review. We are in favour of retaining the benefit of the increase of business growth locally, but this is a complex area. How, for example, would councils continue to be funded where rate take did not meet budget requirements? The right model would enable greater local control and determination, and would give a boost to the democracy of major cities, allowing them to more fully exploit local economies as drivers of growth. It could also assist in the move toward a “single pot” approach to capital finance advocated by many of our cities as part of driving efficiency, reform and private sector growth. However, the wrong model could drastically worsen the prospects of even quite large economic areas.

Skills delivery and welfare reform are critical both in dealing with deprivation and in promoting future economic growth within our cities. Previous attempts to align skills and welfare investment and commissioning within functioning labour markets have been patchy and, in our view, not gone far enough. We understand the Government’s desire to promote wholesale national reform of the welfare system through a set of national drivers, but we would argue that this can only be really effective when aligned closely with skills investment and when it takes account of the individual differences and needs within different labour markets. Indeed, this argument is supported by the Government’s own recent publication, Understanding Local Growth (BIS and CLG, 2010). This paper argues that previous economic policy failed to fully take into account the diversity of places, focussing primarily on correcting market failures from a national perspective in order to even out economic performance across the country. The paper highlights how circumstances in different places are uniquely subject to powerful market forces, arguing that attempting to act against these forces is unrealistic and ultimately unsustainable.

There were important lessons in the Total Place initiative that we would like to see go further. In particular, we are interested in enhancing the ability of places to pool capital finance, and to use this across the whole of the public sector including transport and other infrastructure finance, to create maximum leverage in attracting private sector investment. This will in our view create the best return on public investment for a place, not just in terms of public services, but also in private sector growth and jobs.

We would also be interested in working on propositions for local authorities and their partners, potentially through the LEP arrangements, to be able to set additional taxes alongside the business community that can then be reinvested in enhancing the business base.

3. How, if at all, should the status of local government be entrenched, or protected from change by central government?

Providing some long term certainty regarding any future change will be important, whilst balancing this with the ability to remain flexible to changing circumstances. Core Cities is a cross party group, and local government itself represents a wide democratic base, therefore any changes should wherever possible have broad and strong cross party agreement at the local level, as well as in the Commons and the Upper House. It would be a backwards step to institute change that lacked permanence.

4. What consequences should codification or other change in the relationship between central and local government have on the accountability of local authorities to elected local politicians, local people and central government?

Local authorities are already accountable to local politicians—their elected members. Codification is unlikely on its own to do much to change these circumstances. However, our view is that an enhanced package of local powers will go a long way to increasing local democratic engagement and to cohering and securing the delivery of Local Enterprise Partnerships. Additional local financial control will create greater democratic interest, engagement and accountability at the local level simply because there is greater influence to be exercised, and the ability to make a greater difference to important local issues.

5. Does the devolution settlement provide a relevant model for a possible codification of the status of local government?

A codification could provide the opportunity for a formal framework within which local government could work and know the boundaries of their responsibilities. This could also maintain clarity in the levels of autonomy that central government allow local government. It may help codify the role of local government in regards to shaping their local area and holding central government to account if it infringes upon local government roles and responsibilities. It is uncertain at this stage whether the devolution settlement would provide a relevant model.

6. Are there examples of constitutional settlements between central and local government in other countries that are relevant to an appropriate model for the UK?

The work undertaken for the State of the English Cities (ODPM 2006) and the EU funded COMPETE project may provide some examples. In addition the work on the EU funded ESPON programme (led by Professor Michael Parkinson and John Moores University, Liverpool) may provide some useful examples. The underlying issue however, is that we are a heavily centralised state in England relative to our EU and North American counterparts.

7. What is the value of existing attempts to codify the relationship between central and local government, through: the Central-Local Concordat or the European Charter of Local Self-Government? Should this Charter be placed on a statutory footing?

As above, the central issue for Core Cities is one of gaining greater local control over the levers of economic growth. These other attempts, whilst they may have intrinsic value, have not led to the required devolution.

8. How would the “general power of competence” for local authorities proposed by the current Government affect the constitutional relationship between central and local government?

A general power of competence is seen more as a mechanism to allow local authorities to act in the interests of their places, communities and businesses than something that has at its heart a constitutional shift. The effect may in fact be the same, ie that constitutional change is implied in the power, but its aim should, in our view, be to empower local authorities, through a very permissive piece of legislation, to do anything that is not expressly forbidden by law to advantage their places and fulfil their mission. It should avoid the pitfalls of the previous too tightly drawn Well Being power, which has run into legal challenge and complication.

3 December 2010

Prepared 28th January 2013