Why Manchester works

The city is setting an example that others should follow
June 18, 2014

Manchester was the only UK economy to grow at a rate comparable to London in the decade before the recession. © Sakhan Photography Collection

How do you make a city work? We all know that London is an economic powerhouse and that other cities are too. Between them, eight urban areas—Birmingham, Bristol, Leeds, Liverpool, Manchester, Newcastle, Nottingham and Sheffield—generate a significant proportion of the UK’s GDP. But these “second tier” cities could be doing even better. One of them, Manchester, is leading the way in showing how.

One solution to urban underperformance often touted in the years since the financial crisis is improved infrastructure—schemes like HS2, the proposed high-speed rail network linking London with Birmingham, Manchester and Leeds.

An altogether more radical answer is to set our cities free. Jim O’Neill, the former Goldman Sachs economist who now chairs the independent City Growth Commission, says: “If you look at some of the most successful economies in the world, where many cities play a critical role, they enjoy some degree of independence over their finances and policy choices.” Launching the Commission in October, O’Neill declared that “great cities such as Manchester, my home town, should surely be encouraged to stand on their own feet.” He should have acknowledged that Manchester has already begun to do just that.

In promising to look at the “pros and cons of giving core cities [more] powers to determine and activate their own funding needs for growth,” O’Neill and his fellow commissioners are following an example set by the City Finance Commission, an inquiry established by several local authorities, including Manchester City Council. In a report published in June 2011, that commission concluded that the role played by cities, especially those other than London, in stimulating economic growth has been seriously underestimated by policymakers. It recommended giving cities responsibility for local growth spending, and proposed “devolution pilot” schemes, in which central government would formally recognise the ability of certain urban local authorities to develop economic strategies tailored to their own needs. It also suggested a business rate retention scheme that would allow cities (or “city regions”) to keep a share of the proceeds of local growth.

These stirrings of metropolitan self-assertion build on a large body of academic research—by economists, geographers and theorists of urban planning—which shows that cities and conurbations are, as the American policy analysts Bruce Katz and Jennifer Bradley put it in their recent book, The Metropolitan Revolution, “the engines of economic prosperity.” Cities benefit from “agglomeration economies,” the advantages that flow from the physical proximity of firms, workers and consumers. The bigger and denser the city or metropolitan area, the more significant the economies.

A metropolitan area, in Katz and Bradley’s terminology, is a collection of local authorities that form a single labour market or “travel-to-work area.” Manchester is a good example. The city of Manchester itself sits at the heart of a city region—the term more commonly used in this country—comprising 10 local authorities that now belong to the Greater Manchester Combined Authority (GMCA), which was formed in 2011, more than a quarter of a century after Margaret Thatcher’s government abolished the unlamented Greater Manchester County Council. The Manchester city region is the largest metropolitan area, in Katz and Bradley’s sense, outside London. Around 2.6m people live in Greater Manchester and 4.4m live within an hour’s drive of the city centre.

Size isn’t everything. Governance and democracy matter too. And the evidence appears to support O’Neill’s view that countries in which decision-making (and with it spending) is devolved to second-tier cities, as well as capitals, do better than those in which power is more centralised. A recent report by the European Institute for Urban Affairs at Liverpool John Moores University showed that Britain’s provincial cities lag behind their continental European counterparts on a number of measures. In a league table of European cities ranked by GDP per capita, London, with its panoply of significant advantages, came second. There were only two other British cities in the top 40 (Edinburgh and Bristol). Even though in the decade leading up to the recession it was the only local economy in the UK to grow at a rate comparable to London and the southeast, Manchester languished in 82nd place. Germany, by contrast, had eight cities in the top 50. There, local government accounts for 35 per cent of public expenditure. In the UK, the corresponding figure is around 25 per cent.

There are signs, though, of a gathering recognition among politicians at Westminster, if not officials in Whitehall, of the potency of the sorts of argument being made by Katz, Bradley and others. The Labour MP Jon Cruddas, who is leading his party’s policy review, speaks about devolving power to cities and regions with all the zeal of the recent convert. He has promised that if Labour wins next year’s general election it will “redesign the relationship between central and local government.” Ed Miliband, in his Hugo Young lecture in February, expatiated on the potential of Britain’s cities to “drive our future prosperity if we devolve budgets and power down.” Even Ed Balls, generally more leery than his colleagues of uttering warm words about “responsible capitalism,” got in on the act, declaring: “We will devolve economic power to innovative cities and regions.”

On the government side, a largely positive welcome was given to Michael Heseltine’s 2012 report, “No Stone Unturned: in Pursuit of Growth,” which described the “monopoly” exercised over growth policy by Whitehall as “dysfunctional” and called for cities to be allowed to “exercise their independence.” Eighty-one of Heseltine’s 89 recommendations were accepted in the government’s 2012 Autumn Statement, and his proposal for a “Single Local Growth Fund,” from which local authorities would be invited to apply for money, was included in the Comprehensive Spending Review in June 2013 (although the sum allotted to it, £15bn, was considerably less than that originally canvassed in the report).

Heseltine also suggested that other conurbations outside London should follow Manchester in establishing combined authorities shaped by “functional economic geography” (by labour markets or travel-to-work areas, in other words), rather than by outdated administrative boundaries. In his view, Britain has suffered because administrative and economic geography have too often been uncoupled. (New combined authorities have since been established in West Yorkshire, Liverpool, Sheffield and on Tyneside.)

In addition, Heseltine said that a “second wave of devolution” should build on a particular feature of Manchester’s “City Deal,” one of a series of agreements that the government entered into in 2012 with eight “core cities.” The aim was, as the title of the relevant white paper put it, to “unlock growth in cities.” And to this end the government promised to “give cities the powers and tools they need to drive economic growth” (these included investment funds, city apprenticeship “hubs” and greater control, at city level, over rail services). But there was one power that was given to Manchester alone: the government calls it “Earn Back,” and it’s a scheme that offers incentives to “invest in growth,” principally in infrastructure, in return for a share of national tax revenues.

Richard Leese, who has been the leader of Manchester City Council since 1996 (he now presides over a virtual one-party state, with Labour controlling 95 of the 96 council seats), sees “Earn Back” as a reward for stable governance. “It was only possible because we had a combined authority that was able to invest collectively and reap the rewards collectively,” he says. This is a view shared by Iain Deas, senior lecturer in urban and regional policy and planning at the University of Manchester, who is otherwise rather sceptical of the relentless boosterism of the city fathers. “There’s been great stability both politically and at officer level within Manchester City Council,” Deas tells me.

Leese thinks the city deals are “a good start,” but naturally he’d like central government to go much further. “They are a reversal of decades of centralisation,” he says. “[But] I think we need a lot more. Michael Heseltine had an enormous number of very positive things to say about how economic powers should be devolved. The current government’s rather timid approach to the implementation of [the Heseltine report] really does need a lot more beef to it.”

Leese is less enthusiastic, however, about Heseltine’s proposals for devolving powers and responsibilities to the Local Enterprise Partnerships (LEPs), which replaced the Regional Development Agencies (RDAs) created by the last Labour government.

The RDAs failed Heseltine’s economic geography test—too often they were set up in a way that didn’t bear any relation to patterns of economic activity. But, says Leese, “there are always concerns about the lack of accountability with LEPs. That doesn’t apply in Manchester, where the Local Enterprise Partnership is appointed by the Combined Authority.”

This is an important point: it’s not clear that LEPs on their own, without the right level of accountability, will deliver the dramatic economic benefits Heseltine seems to think they will. Manchester is a special case in which the enterprise partnership has been grafted onto existing, city region-wide administrative and political structures. If, as Iain Deas suggests, Manchester is “atypical” when compared to other second-tier cities in England, it is partly because of its relatively highly evolved administrative and political ecology.

There are other risks with the Heseltine model of fiscal and economic devolution that Leese doesn’t address. What happens, for example, to the rest of the country if cities like Manchester acquire more powers to raise taxes and keep the revenues? What about areas that have weaker tax bases? Will they lose out and decentralisation and devolution lead to “postcode lotteries” in which public services vary dramatically in quality from one area to another? These are questions that the new “localists” will have to answer. Leese sits on Labour’s Local Government Innovation Taskforce, whose first report, published in the spring, appeared to dismiss anxieties about postcode lotteries as simply the “defensive” response of “those who would resist devolving power down.”

Much of the infrastructure spending Manchester has already made has gone on transport, particularly on the Metrolink light rail system, which now serves all points of the compass, from Ashton-under-Lyne in the east to Eccles in the west, and from Bury and Rochdale in the north to Altrincham and East Didsbury in the south. You can now travel, without changing trams, from the Etihad Campus in east Manchester, where Manchester City Football Club is building an enormous new training facility and reviving a previously neglected inner suburb in the process, to MediaCityUK in Salford, the broadcasting complex built next to what used to be Manchester docks where the BBC transferred 26 departments in 2011.

ITV has also moved large chunks of its operation there, including CITV and The Jeremy Kyle Show, abandoning the old Granada studios in Manchester city centre. That site has been acquired by the developer Allied London, one of several large national players to have moved into Manchester’s commercial property market over the past decade. Another is Argent, which is responsible for One St Peter’s Square, an imposing office building that squats on a prominent corner opposite the newly refurbished Central Library. The first tenants will be KPMG, the professional services firm.

A friend who works as a project manager for one of Manchester’s biggest developers recently took me on a tour of several construction sites lying to the south of the city centre. We peered through the fence at what used to be the BBC’s northern headquarters on Oxford Road, the future of which remains uncertain after the council rejected the first scheme proposed for it. We tiptoed through what will eventually become a high-end hotel overlooking the Mancunian Way and kicked rubble on the ground broken for yet more student accommodation (106,000 people study at five institutions of higher education in the Greater Manchester region).

Mike Emmerich, Chief Executive of New Economy, the economic strategy arm of the GMCA, says all this frantic activity is the tribute that investors and developers are paying to Manchester’s unusually settled political leadership. “You should talk to Howard,” he tells me. He means Howard Bernstein, an officer of Manchester City Council for all his working life and, since 1998, the council’s Chief Executive. “In the early 1980s, a policy officer started writing a plan which became the 1984 City Centre Local Plan,” Emmerich says. “This plan said we’re going to rebuild the commercial office stock, repopulate the city and bring back public transport on a mass basis. That young policy officer is now Sir Howard Bernstein.”

In modern Manchester’s creation myth, the rebuilding, which Bernstein oversaw, of a large swathe of the city centre destroyed by a massive IRA bomb in June 1996 is treated as the pivotal moment in the city’s recent history. Bernstein prefers to tell a longer, institutional story that goes back to the abolition of Greater Manchester County Council (GMC) in 1986. “The GMC never worked,” he says. “It created a two-tier structure of governance in Manchester. It never created an integrated approach to economic growth in Greater Manchester. What the abolition of the GMC gave local authorities was the capacity to work together as unitary, single authorities in order to move Greater Manchester along. It’s been a long, complicated journey.”

That journey began after the demise of the GMC, with the creation of the Association of Greater Manchester Authorities (AGMA), a voluntary organisation to which the 10 constituent councils in the old structure signed up. There were growing pains, inevitably, and some injury to local pride along the way. Authorities in places like Bury or Wigan, with distinctive identities of their own, sometimes resented the imperial designs that the City of Manchester appeared to have on its neighbours. Indeed, as recently as 2002, one academic study of local

government in Manchester emphasised “the continuing potency of intra-metropolitan rivalries.” Nevertheless, a lattice of non-statutory bodies grew up around AGMA working at the level of the city region rather than where local government boundaries happened to have been drawn.

In Leese’s view, the scale at which the new bodies operated was crucial. “What Manchester was the first to do,” he says, “was to recognise the importance of scale and of operating as far as possible within the boundaries of the functional economic area. And it’s now over a decade since we had the first Greater Manchester strategy—the 10 local authorities joined up to agree a joint economic strategy and joint action to deliver it.”

Manchester was reversing a trend identified by Heseltine in his report. He observed that over several decades local authorities had come to focus on social provision at the expense of economic strategy and development. And this, he thought, was one of the reasons our cities, in particular, weren’t doing as they well as might. Heseltine recommended that local authorities have a legal duty to take economic development into account in the normal exercising of their functions. And they should collaborate on economic strategy where they share a labour market or travel-to-work area. In the conurbations outside London, he concluded, “it would make sense to follow the lead set by Manchester.”

In March, Bruce Katz was invited to speak at Manchester’s stand at MIPIM, the international property developers’ conference that takes place every year in Cannes in the south of France. He delivered a rousing battle cry from the frontline of the “metropolitan revolution” in the US to an audience that included Bernstein, Leese and Emmerich: “Let’s get very clear… about what [the] higher levels of government actually do—and then do everything ourselves.” It’s understandable that the spectacle of partisan gridlock in Washington DC should lead an American like Katz to overstate his case. But Manchester is certainly receptive to the spirit of his message, if not the letter. Other cities are now following suit.