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Loosening Whitehall’s grip

The cities are central to economic growth but not the whole story

By James Wharton  

Clifton Suspension Bridge,

Read more from Prospect’s “The Future of Cities” supplement

Cities are critical to the UK’s economic success. Following rapid urbanisation since the 1980s, our 64 largest cities now house more than half the country’s population and generate almost two-thirds of its wages. In Britain, more people are now in work than ever before. Of the 1.3m jobs created since 2010, almost one million were in cities.

London is the UK’s largest city by population and economic output. Sixteen years ago the position of London Mayor was created, and it has provided a powerful voice for the city ever since. Steadily, more responsibilities have been devolved from Whitehall to City Hall. Where London has led, the historic cities of the Northern Powerhouse are now following. Ground-breaking devolution deals have been reached with Greater Manchester, Sheffield City Region and Liverpool City Region, the North East and Tees Valley. The devolution revolution is permeating from London, to the Northern Powerhouse and onwards through the whole country.

This is the most fundamental shake up of how decisions about your local area are made for a generation. It has shifted power out of Whitehall with a complete overhaul of local government finance, so that, now, decisions about spending on transport, skills, housing and other areas are made at a local level.

So why, given clear existing trends towards increased urban growth and economic significance, is devolution such a critical priority for this government?

First, our individual cities are not all fulfilling their huge economic potential. Seven of the eight largest English cities outside London have consistently performed below average in terms of national GDP per capita, with only Bristol bucking the trend. In Germany, by contrast, the eight largest cities outside Berlin consistently outperform the national average. London’s dominance—as a global capital, a destination for ambitious and talented individuals, and a focus for a variety of internationally renowned industry sectors—has led to concerns that other cities are being left behind. The government is committed to rebalancing the nation’s economy. Giving cities the tools and resources they need is crucial to enable all of them to play to their strengths.

Questions of whether and how government urban policy can add value, how civic institutions can link cities, and how different models of city leadership might affect performance—all of which have been explored by Future of Cities—are critical in understanding what that framework should look like in the longer term. Meanwhile, the emergence of the Northern Powerhouse, which is central to our plans to rebalance the economy, and which is recognised and trusted as a brand for foreign investors, highlights the immediate possibilities this offers.

“Whitehall’s hoarding of power has made difficulties. Currently only 17 per cent of local government funding is raised through local taxation, compared to an average of 55 per cent across the OECD”

Fundamentally, devolution must help ensure that all cities have the power to attract and retain firms and support business growth. A crucial ingredient is greater power for cities to prioritise and direct investment to build on their strengths, while addressing any gaps in the housing, transport and infrastructure that a successful city needs. Yet over the years, Whitehall’s hoarding of power has made this progressively more difficult. Currently, for example, only 17 per cent of local government funding is raised through local taxation, compared to an average of 55 per cent across the Organisation for Economic Co-operation and Development (OECD.) By the end of the decade, however, local government in England will retain 100 per cent of business rates collected and will be increasingly financially self-sufficient.

This will not only encourage investment to be directed where it can most effectively support economic performance, but will also help to ensure that local decision-makers are fully accountable for the money they spend. Their task is to unleash local potential for innovation across public service delivery and—critically—­to build and renew their area’s institutional capacity to deliver growth.

Much of the debate so far has centred around the formal means of devolved decision-making, including the creation of Combined Authorities and Mayors. Equally important, though, is the need to ensure a clear and varied business voice to help shape the future via Local Enterprise Partnerships.

But the devolution agenda has broader aims than this, and is increasingly reaching beyond large cities to smaller urban areas and their rural surroundings. In the 2016 Budget, three new deals were announced: for East Anglia, Greater Lincolnshire and the west of England, which bring together urban and rural areas and in many cases different tiers of local government. It is now critical that government and local areas demonstrate how devolution will improve people’s lives: how it will help businesses grow, boosting jobs, wages and rejuvenating local democracy.

Engagement from councils, businesses and communities will be essential to ensure that the devolution revolution helps our cities realise their potential. Be it the Northern Powerhouse or Midlands Engine, our regional cities are set to take control of their own futures, and government is providing them with the tools to build that future.

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