Restoring Britain's City States: Devolution, Public Service Reform and Local Economic Growth
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Society Society Society
February 2015
Restoring Britain’s City States:
Devolution, Public Service Reform
and Local Economic Growth
Phillip Blond & Mark MorrinAbout the Authors Phillip Blond is the Director of ResPublica. Mark Morrin is a ResPublica Research Associate. ResPublica Acknowledgements The authors of this report would like to thank the Core Cities for commissioning this independent report from ResPublica. The views and statements expressed in this publication are those of the authors only. The authors would also like to thank New Economy for their research inputs, particularly their analysis of public spending and tax receipts in the English Core Cities; Professor George Jones and Professor Tony Travers for their advisory role and Professor Colin Copus for his input and drafting suggestions on the constitutional aspects of this report. We would also like to thank Hannah Merron for project and editorial support. Design, layout and info graphics by BlondCreative, www.blondcreative.com. About ResPublica The ResPublica Trust (ResPublica) is an independent non-partisan think tank. Through our research, policy innovation and programmes, we seek to establish a new economic, social and cultural settlement. In order to heal the long-term rifts in our country, we aim to combat the concentration of wealth and power by distributing ownership and agency to all, and by re-instilling culture and virtue across our economy and society.
Restoring Britain’s City States Contents Headline Findings 2 Executive Summary 5 1. Introduction 18 2. The Call for City-Based Devolution 20 3. The Case for Change 27 4. The Barriers to Devolution 43 5. The Way Ahead 53 6. Recommendations 64
Headline Findings
This report sets out the shared ambition For cities to achieve their economic
of ResPublica and the Core Cities Group potential, they must not only grow
for the fullest possible devolution of businesses and create jobs but also
public spending and tax raising powers to effectively tackle the problems of low
the UK’s largest cities and city regions. It skills and worklessness in order to increase
argues for a rebalancing of the relationship resident tax revenues and drive down
“For cities to achieve between central government and cities, the human and economic cost of public
as the only real solution for addressing service dependency. The UK’s fiscal
their economic potential, the interconnected challenges of local position continues to present the greatest
they must not only grow economic growth, public service reform challenge for public services which, as
businesses and create jobs and better governance. the last Autumn Statement made clear,
will have to operate at 35% of GDP and
but also effectively tackle
stay there. But traditional cost cutting and
the problems of low skills The need for change efficiency savings will not be sufficient
and worklessness in order to control existing levels of demand.
to increase resident tax There will be little prospect for sustained
The Core Cities produce 24.4%1 of the economic growth without extensive and
revenues and drive down combined economic output of England, qualitative reform of public services.
the human and economic Wales and Scotland. This report finds that
cost of public service cities are net wealth producers, generating This report argues that new, transformative
a surplus of work based taxes compared ways of working are required to deliver on
dependency.” to local public spend (+£2.4 billion across the twin objectives of growth and reform.
the English Core Cities in 2012/13). Cities will need far greater control over
However, with large resident populations public resources to shape local economies
on low incomes and with high levels of and design integrated place-based services
dependency on public services, much of that meet local needs and achieve local
this wealth generated in the English Core outcomes. The international evidence
Cities – some £10.7 billion – flows out into shows that cities perform better in those
surrounding sub-regions. countries that are less centralised and
where cities have greater powers, resources
It is the mutual recognition on the and responsibilities. UK cities must enjoy
part of cities and their surrounding equivalent levels of self-governance to
boroughs that they are all interconnected other international cities and municipalities
and interdependent which has led to if they are to compete and prosper.
the development of city regions and
combined authorities. The great potential
of devolving powers to these emerging
structures is that for the first time cities will
have the capacity to change and transform
their social and economic environment.Restoring Britain’s City States
The proposals, powers and • Local control of all public spending to local consultation with affected
resources required on housing, including housing capital
budgets and the ability to determine
stakeholders.
housing benefit levels and vary broad Parliament should also:
The recent devolution deals in Greater rental market areas
Manchester and the Sheffield City Region • Ask the independent Devolution Agency
could mark a historic turning point in the • Devolved responsibilities and budgets which we advocate (see below) to study and
long-standing demand for city-based for all employment and adult skills make recommendations on the possible
devolution in the UK. The two agreements programmes to city regions benefits of local income and corporation tax
combine different elements of devolved variation on the basis of place. The Agency
departmental budgets (such as Transport • Devolved business support budgets should encourage a city region to come
and Housing) and enhanced influence over and a proportion of UKTI budgets and forward and pilot these measures
how some services are delivered (such as functions to enable cities to take a more
employment and skills). Extrapolating the direct and proactive role to local trade • Allow borrowing on Housing Revenue
per capita value of the Greater Manchester and investment opportunities Account subject to Debt Deals with
deal across all the English Core Cities would individual cities and city regions. Such
total £11.7 billion per year, exceeding • Responsibility for strategic spatial deals to be related to the growth
the policy pledge that Labour has planning at the sub-regional level to engendered in the regions by devolution
made for devolution to cities in England include powers to acquire and designate
over the course of the next Parliament land use and housing development • Enable earn-back deals for investment in
(approximately £6 billion per year). infrastructure, transport and housing.
• Devolved responsibilities for energy
This report argues that what has so far been efficiency and decentralisation of the energy Furthermore, the report proposes that
agreed in Manchester and Sheffield should market to create local energy companies. over the course of the next Parliament,
signal the beginning of a differential and cities should begin to pilot ‘whole service’
incremental process that can lead to full devolution packages, and that further fiscal
place-based devolution for all Core Cities in Public services devolution should be progressed to include:
the UK. As they stand, both deals fall some
way short of a whole-system place-based • Devolved Education Funding Agency • All property taxes and other locally
approach or ‘Devo Max’ settlement. Arguably (EFA) for schools and all 16-19 provision determined taxes
what has been devolved are separate silos with local responsibility for school
of government spending, not integrated performance and careers advice • The retention of income tax for all
services across departments. And it is the full qualifying local authorities/combined
place-based devolution of all services and • Co-commissioning function for integrated authorities – with the level of income
their integration which is the real social and health and social care, with oversight by tax retention to be decided through
economic prize that should be pursued by Health and Wellbeing Boards a process of research, discussion and
government, opposition and all the cities and negotiation mediated through and run by
regions of the United Kingdom. • Integration and devolution of current the Devolution Agency.
differentiated funds for Early Years to
The report calls for urgency to devolve more local/combined authorities and Health
budgets and services, across departmental and Wellbeing Boards How this will be achieved
boundaries much further and much faster.
This would build on apparent cross-party • Devolved and integrated budgets for
consensus about the need for devolution emergency services across a defined city The report recommends that the next
to cities and harness the existing political region footprint government should set up an independent
momentum to deliver immediate results, body or ‘Devolution Agency’ to oversee
starting now with the roll-out of additional • Devolved responsibilities to place-based devolution in the UK. This
city devolution deals and bridging into neighbourhood panels. should be a standing body for the duration
the first 100 days of a new government. of the next Parliament, independent of
Following the first Comprehensive Whitehall and the devolved administrations
Spending Review, cities would expect to Fiscal devolution in Scotland and Wales. With clearly defined
agree five-year funding settlements for terms of reference, its purpose will be to:
wider devolution packages to include: • The removal of controls on levels of
council tax • Define the parameters of devolution to
cities and places (along the lines of the
Economic powers • Extension of full business rates flexibility Smith Commission in Scotland)
and retention to local authorities
• Fully devolved local transport funds, • Assess the readiness of individual
decentralised bus and regional rail • Freedoms to introduce new local taxes, propositions from cities for new
regulation to city regions, and earn-back including for example recycling and devolved powers
deals for major local transport funding tourism/hotel room/traffic taxes, subject
3Headline Findings
• Facilitate negotiations between cities and Recommendations
individual departments/administrations
to agree deals
1. 6.
All major political parties The next UK Government
• Inform and ideally direct any other should set out their should enact a ‘Duty to
government commissions relevant to this commitments to a radical Collaborate’ to commit all
agenda, such as the implementation of programme of devolution city authorities to collaborate
fiscal devolution, new models for local to the UK’s Core Cities in with neighbouring
accountability, and cross-boundary working. their 2015 General Election authorities and all public
manifestos. and private sector actors at
The Queen’s Speech should outline a the trans-city level, to form
‘Devolution Enabling Bill’ to allow a full combined authorities or
2.
range of city-based devolution. It should The next UK Government other models of collaborative
include or be supplemented by supporting should establish an working and association.
legislation to: independent body, the
Devolution Agency, to take
7.
• Codify the relationship between central forward the process of Cities should commit to
and local government devolution for all the UK’s new levels of accountability
cities and regions in general and governance.
• Devolve primary legislative powers (in and England’s in particular.
line with powers of the Scottish and
8.
Welsh bodies) Cities should commit to
3.
The next UK Government devolving still further to
• Strengthen local governance and should commit to extending their own localities.
accountability with the facility to create the legislative framework for
Metro Mayors and establish Local Public city-based devolution.
Accounts Committees, where desired
• Protect the freedom of cities to associate
and collaborate across boundaries
including the formation of new combined
4. The next UK Government
should achieve full place-
based devolution and avoid
authorities, where desired by cities siloed decentralisation.
• Enable local authorities to devolve powers
and responsibilities to the neighbourhood
level and where necessary to create
neighbourhood councils.
5. The next UK Government
should deliver fiscal
devolution to the Core
Cities by the end of the
next Parliament.
1 The economic contribution of the wider urban areas of the Core Cities (measured by travel to work areas) remains at approximately 28% of the combined
economy of England, Scotland and Wales or 27% of the UK economy. For the purposes of this work and to provide consistency with other figures, the new Local
Enterprise Partnership (LEP) administrative areas have been used which reflect a smaller, more tightly defined geography.
4Executive Summary
Introduction the status quo for English cities and regions
– continued governance from the centre
The devolution debate which is now and direct rule from London. What has not
“The issue for England, sweeping across Britain has resulted in yet been recognised at Westminster is the
dramatic changes to the United Kingdom’s widespread belief in England herself that
and indeed for Wales and constitution and its method and manner the cities and the regions outside of London
Scotland, is not devolution of governing itself. The home nations have and the South East have been ignored and
from one capital city to increasingly claimed and successfully argued left to wither on the vine. Popular political
that the central state governing from London support has yet to fully mobilise around
another but genuine is failing their countries and their people. English city-based devolution but the
transformative devolution At the time of writing, Northern Ireland fragmentation of core and base support for
from capital cities down to has been offered the ability to vary its own established political parties in the regions
corporate tax rate. Meanwhile, Scotland’s outside the south-eastern economy is clear
the nations’ own constituent vote to stay in the United Kingdom has won testimony to widely-held dissatisfaction
cities and regions.” it such a range of powers – including the with the current social and economic status
ability to vary and levy income tax – that it quo. And this impatience with a centre that
has redefined the Union. can only advance itself is not restricted to
England; cities of the devolved nations, such
All of these ‘top down’ developments as Glasgow and Cardiff, are also anxious to
devolving from national capital to national secure devolution for themselves so that
capital, welcome as they are, have served the benefits of new powers do not just
to overshadow and suppress a perhaps recreate a local version of the unresponsive
more radical and transformative mode of centralised state.
devolution. That is the ‘bottom up’ demand
for devolution coming from our cities and We at ResPublica have long believed
their surrounding and defining boroughs. that the issue for England, and indeed
In the maelstrom of the Scottish debate for Wales and Scotland, is not devolution
we have forgotten the political and social from one capital city to another but
demand for a defining devolution that can lift genuine transformative devolution from
our city states out of their present condition capital cities down to the nations’ own
and finally speak to the needs of the ignored constituent cities and regions. Until now,
and the potential of the unaddressed. the national devolution debate risks arguing
for continued centralisation, but this time
The radical option for English devolution is from Cardiff and Edinburgh as well as from
not the proposal of English votes for English London. No, the real task and the real gains
laws (delightfully entitled EVEL). While are to be had from genuine devolution
seeking to correct a perceived anomaly downwards from the English capital to
in intra-national influence, English votes English cities and regions, and from the
for English laws disguises the fact that an Scottish and Welsh capitals to Scottish and
English Parliament would mean settling for Welsh cities and regions.Executive Summary
Why? Why should we devolve power to environment for local start-ups, through they are of such potential (and for central
cities, city regions or combined authorities which cities and their regions could help government unimaginable) magnitude
and their contiguous and constituent develop their medium-sized businesses by that it would be deleterious not to pursue
boroughs? What is to be gained from such connecting them into integrated support the at-scale gains located in full and holistic
an exercise? The answer, as we show in this networks which encourage them to link place-based provision of public services.
report and have argued elsewhere, is that together and begin to compete at home
devolution is now an economic, social and and abroad. The solutions to the current Finally, of course, there is a moral imperative
moral necessity. The economic demand for imbalances of growth are many, but they in the devolution debate. Central dictate,
devolution has two aspects. Firstly, because must be co-ordinated and systematic if they especially when it fails to deliver, no longer
the central state’s cuts to direct support are to create a new environment within commands public support. What voters in
under the seeming imperative of austerity which local economies flourish. the often ignored hinterland of our nations
are happening at such a scale and pace that want is the genuine transformation of
local government in its current form simply Devolution also has a deep social their cities and areas. Neither they, nor we,
cannot survive. The demands upon the local imperative. Once again, the old model want a country where it is only possible
state are so extreme that just one service, of centralised public services, delivering to succeed if one relocates to London and
adult and children’s social care, is projected the same thing to everybody regardless bases all that one does and hopes for in the
to swallow up the entire expenditure of of need, has resulted in service provision South East. The millions of people in the
most councils within the next 10 years. But where all too often nobody gets what cities in the rest of the UK also want a future
the economic necessity for transformative they actually need. If a local authority is for their children and, rightfully, hope for
and (at-scale) devolutionary reform is to be able to tackle, for example, mental a better place for them in terms of health,
not just due to the demands of fiscal health issues in the north of the city and education and opportunity. It is a telling
contraction, but also because of the skills shortages in the south, it will need a failure of modern politics that no political
extreme economic imbalance now present budget that is pooled, free of ring-fences party has been able yet to offer this to them.
between many parts of the country on the and not determined by external and often We and the Core Cities would argue that a
one hand and the South East on the other. conflicting outcome measurements. Place- city-based renaissance cannot take place at
based public service integration can deliver a distance and through the orchestrations
Devolution is one of the necessary absolute transformations of public services. of Whitehall. And given the history of
conditions for the economic renewal The new place-based offer eliminates the centralised governance, many fear that
of Britain’s cities and regions, especially disaster of centralised departmental silo- Whitehall itself had written off the rest of the
those that lie outside the charmed circle driven services, removes the management country as in terminal decline and thereby
of London and the South East. Devolution and multiple back office costs of the peripheral to the interests of UK PLC, whose
would and will allow for several changes inappropriate division of services, and sole vehicle is London and its environs.
which could, and we believe will, shift the for the first time allows early holistic This is why the language of city-based
economic growth prospects of our cities intervention and prevention. But these devolution and the ‘Northern Powerhouse’
and regions by several orders of magnitude. gains can only be realised if place-based is potentially so transformative. For the first
The Core Cities Group has calculated that integration is at scale and if the powers time since the Second World War it is now
its ten member cities deliver 24.4% of the devolved are free from external constraint recognised that transformation of the rest
combined economic output of England, on implementation. Unfortunately, city of the country needs a radically reformed
Wales and Scotland, and are home to over deals and the new devolved settlements for local state with a vast increase in power and
21 million people. Independent forecasts Manchester and Sheffield have really just influence if the hopes of the people who
have demonstrated that, with additional devolved silos of public money, rather than live there are to be realised.
devolved powers, the eight English Core achieving the ‘whole-system’ integration of
Cities alone could generate an extra £222 those silos which is where the real savings But voters will only endorse new powers
billion and 1.16 million jobs for the country are to be found and the transformative and new possibilities of local governance
by 2030.2 outcomes achieved. if they come with new models of
transparency and accountability. Local
How can devolution deliver this? By Nationally, the potential magnitude of government cannot simply defend the
directing the resources of the local state these gains is so high that estimates institutional status quo at a local level while
to help create the conditions for genuine vary widely. Ernst & Young has estimated arguing for wholesale devolution and the
economic growth – from the skills and that place-based integration of public complete transformation of its powers from
education of the resident population and services would save the taxpayer £9.4- the centre. And indeed this is implicitly
their mental and physical health to the 20.6 billion over five years if such schemes recognised in the strides Core Cities have
business support and infrastructure that were implemented nationally and at made in transforming their governance. If
local businesses need to grow. By creating, scale.3 The current Secretary of State for local government is arguing for change,
for example, an economic ecosystem that Local Government and Communities, Eric it too must be open to change and to
will allow the cities, working with their Pickles, has suggested that the figure lies creating the structures and institutions
local companies and manufacturers, to “somewhere towards the middle” of these necessary to deliver on the new promise
re-domesticate the supply chains that two extremes.4 Given the current fiscal of devolution. So we have a real moral
these leading business have lost over environment, it is clear that we must realise and democratic opportunity to renew the
past decades. And by fashioning the right these gains, whatever they might be; British constitution and recover its great
6Restoring Britain’s City States
cities. Given the depths of local contempt democracies. For example, in Canada, as the Northern Super City or Powerhouse
for the system as it is, the contemporary Germany, Spain and Sweden the taxes as it is known) and has made plain his
loss of faith in politics and politicians is determined by local and state/regional commitment to greater devolution in
unlikely to be restored at the national level government exceed 10% of GDP, compared exchange for new Metro Mayors. Of the
through national intervention. Devolution to 3% in the UK, where only council tax three main parties, it is the Conservatives
to the cities is much more likely to recreate a and a proportion of business rates have who appear to most favour this model
participatory politics through empowering been retained locally.7 The disparity is of city governance, while Labour and the
localities and creating a sense of a ‘shared even more pronounced at city level – for Liberal Democrats have emphasised the
state’, operating successfully at local and example, London receives 74% of its income need for local determination in this matter.
national level. All of this means that, rather through transfers from central government,
than seeing the state as a purely national compared to 37% in Madrid, 31% in New Currently, the main parties in Scotland and
entity which is weakened by devolution, York, 26% in Berlin and less than 8% in Wales are less engaged with the city-based
the opposite is true – through popular Tokyo. Furthermore, the UK operates a devolution agenda. The recent Smith
devolution the national state will be higher level of central control over public Commission expressed the desire to see the
strengthened, refreshed and empowered. expenditure. According to McKinsey, central principle of devolution extended to local
government’s share of public spend in communities in Scotland but has yet to
Germany is 19%. It is 35% in France, but a set out ways in which this can be realised.
City-based devolution massive 72% in the UK. But despite having There is the strong possibility that English
the least control, our localities contribute cities could arrive at devolved settlements
the most: the UK’s 56 largest towns and ahead of cities in the devolved nations. We
Cities are the engines for growth, helping cities account for 61% of national economic hope therefore that there will be further
to drive strong national economic output; London alone contributes 21% of development of the parties’ thinking on city-
performance. Across the UK, cities take national GDP. based devolution taking into consideration
up just 9% of the land mass but account the evidence and arguments presented
for 58% of jobs, 60% of the economy and here in this report.
72% of high-skilled workers.5 And yet Current party proposals
they are also the place where some of the
country’s most difficult social problems are There is a broad consensus between the City deals
concentrated. High levels of dependency three main political parties about the need
on public services, especially welfare and for greater decentralisation. On the back of Over the course of the current Parliament,
health, are constraining the potential for the referendum in Scotland all parties have government has been devolving power
growth and the ability of cities to be self- now made commitments to devolve further and cities have negotiated bespoke deals
sustaining. The UK’s Core Cities have made powers to all the nations, as well as the cities
giving them new powers and freedoms
great strides in the past two decades. But in and regions, of the UK. This recognises, in to decide how public money should be
terms of economic growth and productivity, part, the asymmetry that currently exists spent and allowing greater local control
they have generally failed to outperform between nations, but also the importance over investment to drive growth, housing,
the national economy or narrow the gap of city growth to the national economy. planning, and economic development.
with London and second-tier cities across Some of the UK’s largest city regions have At the same time, the new Community
the world. If all the Core Cities in England populations and economies equivalent Budgets and the rollout of the Government’s
could perform just at the national economic to, or larger than, the current devolved Troubled Families programme have started
average, a further £1.3 billion would be put parliaments. to test how bringing together resources and
into the economy every year.6 funding for public services at a local level
Labour has pledged to introduce an ‘English to design integrated services can achieve
The international evidence shows that Devolution Act’ securing devolution to better outcomes. However, it is the recent
cities perform better in those countries the English regions by transferring £30 agreements on different devolution deals
that are less centralised and economically billion of funding over five years – for in the combined authorities of Greater
concentrated and where cities have greater transport, housing, business support, skills Manchester and the Sheffield City Region
powers, resources and responsibilities. and employment. The Liberal Democrats that could mark a historic turning point
Individually, second-tier cities may lag have called for ‘devolution on demand’ in the long-standing call for city-based
behind capitals, but their combined and the need to codify the constituent devolution in the UK. The two deals differ
contribution to national economic parts of the UK, including new legal not only in detail but also in their respective
performance is hugely significant. Many rights for local authorities to demand governance arrangements. Both build on
large democracies around the world powers – a statutory presumption in the successes of their combined authority
already operate various devolved systems favour of the decentralisation of powers status and the achievements to date in the
of government, and many other global away from Whitehall. And although the delivery of their City Deals (agreed in 2012)
cities and municipalities have long enjoyed Conservatives are yet to make any manifesto and Growth Deals (agreed in 2014).
greater levels of self-governance than commitments about devolution, the
equivalent cities in the UK. In terms of Chancellor, George Osborne, has been The agreements in Greater Manchester
taxation and public finance, Britain is the explicit about the importance of cities and and the Sheffield City Region combine
most centralised of the world’s major regions to the future of the economy (such elements of devolved funding of siloed
7Executive Summary
budgets (control) and the decentralisation The New Economy has undertaken analysis The problem with public services
of departmental functions and decision of public spending and tax receipts
making (influence) about how services in 2012/13 across the eight Core City Public services in the UK are delivered
are delivered. As they stand, both deals authorities in England.9 This identified a through a number of central government
fall some way short of a whole-system total of £39.7 billion in tax receipts by all departments – Health, Employment,
approach or ‘Devo Max’ settlement. workplaces within the boundaries of the Education, Skills – organised in large
Arguably what has been devolved are Core City authorities, a surplus of around policy and funding silos, separate and
silos of government spending, but the £2.4 billion.10 However, there is a substantial disconnected from one another. This highly
real impacts of integrated services across difference between the value of the tax centralised approach leads to standardised
departments have not yet been achieved. raised by those working in the Core Cities national programmes, ‘one-size-fits-all
and the taxes raised by residents (i.e. those services,’ that can deal with uniform needs
That said, if we estimate the per capita living in the city authority boundaries) – as they arise but are less able to proactively
value of the Greater Manchester deal and which totalled £26.2 billion.11 This means respond to, or get to the root cause of,
extrapolate this across all Core Cities, based that annually more than £10 billion more difficult or localised problems. The
on population, we can see that this would moves out of the cities themselves and challenges facing many local communities,
approximate to £14.2 billion a year (£11.7 into the broader city region, suggesting families and individuals are often complex
billion across England).8 The scale of the that although the Core Cities deliver and deeply entrenched, requiring multiple
Greater Manchester agreement if rolled out significant value, much of this value flows and simultaneous interventions across
across the other Core Cities already exceeds out of local authority boundaries and into a range of issues – housing, training,
the policy pledges that Labour has made the surrounding city region, while many employment, childcare. This demands a
for the next Parliament (£30 billion to cities residents of Core City authorities live on low holistic approach to more effectively ‘join
in England over the course of Parliament or incomes. This implies that: up’ government and integrate delivery
approximately £6 billion per year). at the local level, and to better meet the
• The performance of all the Core Cities is increasingly complex needs of service users.
What has so far been achieved in critical to UK economy – without them
Manchester and Sheffield signals the we do not have a viable economy Cities have a long history of partnership
beginning of a differential and incremental working to develop arrangements between
process that can, in time, lead to full place- • The prosperity of their surrounding local government and other public sector
based devolution and provide a template sub-regions is highly dependent on the agencies. The more recent experiences
for other cities in the UK. economic performance of the cities of the Whole Place Community Budget
Pilots, and the national rollout of the
• As well as net wealth producers, the Troubled Families Programme, have
Connecting economic growth and Core Cities are also home to large demonstrated the benefits of addressing
public sector reform populations on low incomes, with the complex dependency through the ability
attendant challenges this brings to co-commission and pool budgets at
the local level. By adopting a ‘whole-place’
The case for devolution is not purely • They are capable of producing a higher approach, local partners and agencies have
economic. It’s also about better democracy, economic output if their relatively poor been able to connect and concentrate
better governance and more cost-effective and service-dependent residents can their efforts in the most disadvantaged and
service delivery in a time of austerity. The be helped into work and good health. troubled neighbourhoods. However, the
UK’s fiscal position continues to place public ways in which most of our public services
services under pressure. City authorities have In order for cities to achieve their economic are delivered means that they frequently
experienced some of the most dramatic potential, they obviously must make full operate at a level and scale that restrict the
reductions in funding over the past five use of their assets and strengths to attract potential for genuine service integration.
years. And yet despite these cuts across local investment, grow businesses and create In the main, and for the vast majority of
government and other public services the jobs. Growth and jobs are integral to cities services users, top down ‘vertical’ funding
next government will inherit a deficit of over becoming net contributors to the national arrangements deny the flexibility needed to
£90 billion. As the Autumn Statement made economy. But this growth must also focus work across departmental boundaries and
clear, public services will have to operate on those currently trapped in dependency effectively align services to meet local and
at 35% of GDP and stay there. According to and immobility in our Core Cities. Effectively individual need. Funding is already locked
the Office for Budget Responsibility (OBR) tackling low skills and worklessness is in, contracted and committed, and services
the greater reduction in spending (60%) will central to addressing both the potential for already specified, with pre-determined
need to come under the next Parliament. But growth – through increased tax revenues – targets and outputs, long before local
public services are struggling to cut much and driving down the cost of dependency partners are able to influence delivery.
further. Savings in one part of the system, on public services. It is a sobering thought
including significant reductions by local that in times of great fiscal challenge there Cities simply lack the necessary control over
authorities, have merely resulted in spending will be limited prospects for sustained public resources to shape and design services
and demand increases elsewhere, fuelling economic growth without extensive and in order to achieve distinct local outcomes.
longer-term dependency and reducing the qualitative reform of public services. Consequently, many local communities
capacity cities have to invest in growth. and individuals experience a system that
8Restoring Britain’s City States
provides overly prescriptive and reactive addressed and the barriers overcome if That said, local government itself must
services, deeply disjointed and fragmented, significant powers are to be transferred and adjust to meet the opportunities offered by
with multiple points of access, assessment full place-based devolution achieved. All devolution. City authorities are increasingly
and referral but with limited continuity of parties to this process must change their mindful of operating at the level of the city
care between agencies and providers. This assumptions, approach and organisation. region and some of those have formed
situation disincentivises local co-operation combined authorities. But others have yet
as delivery organisations compete with to develop a vision for the territory they
each other unnecessarily. It results in The Cultural path – develop the wish to co-ordinate or combine. What can
wasteful duplication of ineffective activity evidence, demonstrate the need, devolution allow to be done differently
across services. It limits innovation and the and where and how? What is the need, and
capacity to adapt to local variations, leading show the capacity given the powers, how could things be
to unintended policy outcomes – solving reformed such that finally this need, be it
easier-to-help problems but entrenching The gradual shift away from, and dismissal good health or better education, is met?
others – and, ultimately, poorer services at of, local political concerns has resulted
higher costs. Most importantly, it frustrates in a long-standing tendency of the Understandably, given the speed of
the public and undermines the quality of centre to limit and micro-manage local development, cities are in different places
the services they receive, resulting in poorer government as another agent of the with ambitions and visions yet to be
outcomes and a reduced trust or belief in state. This prevailing culture between realised. In some city regions, adequate
local and national governance to actually central and local government is based policy teams responsible for the whole
deliver public goods. The need for a on hierarchy, bureaucracy and models of combined authority or city region have
transformation in public services has been ‘command and control’. A lack of trust in the yet to be formed. In many areas, evidence
obscured by the cutting of often already- accountability of sub-national government is simply lacking, as is the idea as to how
failing services, and the debate about cuts and in the perceived competence of local precisely devolution could improve the
risks just salami slicing untransformed government to exercise additional powers problems at hand. But as this report shows
services so that people merely get a worse is an important feature of this relationship. in the case studies that follow, evidence of a
form of what they have already received. It is not too strong to suggest that local capacity to innovate and an ability to deliver
What austerity should provide, however, government and its abilities are often the transformed results abounds in all the cities.
is the occasion for a transformation of subject of ridicule or even contempt from What is required is a building out from such
public services – such as the place-based Whitehall, but this perception does not achievements, in order to collaborate across
integration which we are arguing for. survive rational examination. For example, boundaries and institutions to develop
The succession of centralised public service it is the central state that has run up vast an ambitious across-the-board vision for
reforms over several decades has not debts while the local state closest to the the new city states. From this sense of
resulted in radical change to the system front line has always exercised a very tight what ought to be, evidence as to what
or achieved significant improvements control on its debt and liabilities. And even currently is and how it falls far short of what
in tackling the most complex and government ministers admit that the ability is needed can be collected. Presented to
interconnected social problems. It has of local government to manage debilitating government along with a plan as to how to
been argued that the prevailing system cuts in funding speaks to the adaptive use devolved powers to meet local need,
of ‘command and control’ management powers of councils. this evidence would make a persuasive case
– where decision making is distant from that Westminster, Holyrood and the Welsh
the work – has remained unquestioned A more likely explanation of ongoing Assembly would find hard to ignore.
in public services, whilst the underlying central control is the belief that ministers
paradigm, developed to solve the and Parliament should be responsible All of this requires capacity and long-term
problems of mass production which and accountable. This, along with the personal commitment by city leaders and
modern industry and service organisations fear of what might go wrong, outweighs their officers. It requires co-ordination
no longer face, has outlived its usefulness.12 the impulse to devolve. But if trust must between cities and all the other bodies
The devolution debate allows cities to be earned through the competent that influence an area to come together
imagine how a transformational shift in exercise of powers, it follows that some and collaborate. It necessitates, as we
public services can be achieved that finally decentralisation must occur in order for have argued in our report Devo Max –
allows complex problems to be addressed places to demonstrate their capability. Devo Manc: Place-based public services,
holistically and successfully. Policies for genuine localism must start that common city- and city region-wide
from change in central government itself, outcome measurements be developed
as the Local Government Innovation Task such that all the performance indices
The pathway to devolution Force has recommended. The behaviour of for public expenditure meet and match
ministers and civil servants towards local in terms of the outcomes pursued. But
government needs to change to challenge given that we are doing this in order to
The complexity of the cultural, the institutions and processes of public establish the appropriate economic and
organisational, constitutional and administration and the silo mentality of social ecosystem for further growth and
legislative forces which underlie the current central government. public service transformation, it makes no
dysfunctional nature of local-central sense to restrict this duty to collaborate
relationships must be recognised and to just the constituent boroughs of a city
9Executive Summary
region. We need to bring all the actors Similarly, we also argue for a new what might be done, then this could and
within a city region to the table to develop independent body to be created, The should change the dynamic of devolution
the most integrated and holistic ways of Devolution Agency, which in England to one where cities and their neighbouring
working together for the common good. should have all the stipulative, regulatory boroughs seek to expand their influence
We suggest that anyone in receipt of public and advisory powers necessary to act as into city regions. But to achieve
money and operative in the devolved area the mediation agency between local and transformative change, localities must not
be required to collaborate with city regions, central government and deliver devolution rest easy in the structures they have; these
from Local Enterprise Partnerships (LEPs) to to all the cities, city regions, towns and structures must also change alongside
Welfare to Work providers to government counties. In the other home nations, dispassionate and clear thinking about what
quangos. In addition, some external private the Agency could have an advisory or the needs of the cities and their regions are
agencies like the utilities companies should consultative role if its function in England and how those requirements might be met.
also be required to engage and come was seen by the home parliaments as
to the table. To facilitate both common meriting introduction in their own nations. With the obvious exception of the Scottish
outcome measurements and common We believe such a body is required to Referendum, public apathy has been a
working, we argue that Local Public force Whitehall departments to act in common feature of most attempts to
Accounts Committees should be set up and a co-ordinated manner and deliver not decentralise powers via referendums
tasked with ensuring common outcome decentralisation of departmental funds for regional assemblies, city mayors and
measurements, and that they should be but genuine full-budget place-based police and crime commissioners. These
responsible, in consultation with all parties devolution. The Devolution Agency should experiences suggest that the public will
including the new Devolution Agency, for also encourage cities and city regions to be only support institutional changes if they
drafting a ‘Duty to Collaborate’ on a city ambitious, and call on them to produce the can see that they are relevant and will make
region basis and compile the list of those evidence for the policies that will benefit a real difference to them. Crucial, then, to
who should be subject to this Duty. from devolution and aid them in putting the success of city-based devolution is
together the right proposals to central that the powers offered and asked for are
government. of a sufficient depth and breadth to effect
The organisational path – the transformative change. Devolution will only
proposals, powers and resources The Agency needs to have this dual role be popular if it can change things and it can
because not all resistance to devolution can only change things if sufficient powers are
needed be isolated at the centre of government. devolved at a scale and across such a range
Local communities – the electorate and that outcomes for the devolved areas are
Centralism has become so deeply embedded the politicians that represent them – have markedly enhanced.
in the workings of government departments all presented barriers in some form. Local
that the institutional structures struggle to government has on occasion opposed To that end, we also call for additional
relate to local concerns. Central government attempts to decentralise political powers, tax raising powers for cities and city
departments have their own interests and especially where this has involved changes regions. We would want the devolution
priorities that do not necessarily cohere across to boundaries or the creation of new sub- of the five property taxes, in line with
government. Ministers are often personally national structures (e.g. regional assemblies) the recommendations of the London
invested in their departmental policies and and governance (e.g. mayors) which were Finance Committee. This should allow the
are understandably reluctant to give them up, also voted down in public referendums. flexibility to vary business and council
while civil servants are incentivised to focus on tax rates and freedoms to introduce
ministerial and departmental responsibilities Part of the local resistance to change new local taxes including, for example,
and therefore protect all the powers that allow was that it was all too often driven by the recycling and tourism/hotel room/traffic
them to do this. centre with little regard for the localities taxes, subject to local consultation with
it was meant to serve, especially in the affected stakeholders. We would like the
Unless the commitment to decentralisation case of regional assemblies. Localities introduction of the retention of a certain
forms a central plank of all policy decisions are understandably nervous of being proportion of income tax for all qualifying
across all government departments, the subsumed into larger governance structures local authorities above an agreed level.
process of devolution will continue to be where they could lose identity and forfeit In addition Parliament should ask the
fraught with inter-departmental tensions. control. That said, operating at the right Devolution Agency to study the benefits
Informal or one-off arrangements, concordats geographical scale has been a consistent of local income and corporation tax
and accords will not be enough to reform requirement of central government in variation on the basis of place, subject to
the relationship between local and central granting devolved powers and one that fuller place based devolution of public
government and make the machinery of has been resisted at the local level. Rightly, services to at least one core city region.
Whitehall up to the job of devolving powers. in our view, government has wanted to Variation of income and corporation tax in
A clearly specified manifesto commitment give greater powers to those authorities a particular city is harder to argue for, since
to a statutory presumption in favour of city that were bounded by the wider functional the Treasury tends to assume it is a fixed
region and place-based devolution would be economy, hence the development of pot and that other cities would lose out if
an enormous accelerator to the devolutionary combined authorities. If cities are now one gained such an incentive. However, if
process, and we therefore argue for this in our imagining a different and better future we are serious about addressing regional
recommendations. and if they are coming up with ideas as to inequalities, then this measure, in a city of
10Restoring Britain’s City States
low business start-ups, might genuinely and central government. The adoption devolution, it seems unwise to assume that
help to turn things around and is worth by the Core Cities of the clauses from their demands of local government in return
exploring and piloting. the draft Bill for Local Government for devolution will be much different. To that
Independence will help in building the end, it appears that the debate on Metro
Finally, and perhaps most controversially, we case for the constitutional protection and Mayors will not recede and that simply
believe that the case for professionalising freedom of local government in England. defending the institutional status quo is
local politics in England needs to be However, the draft Bill does not address not an option for cities that aspire to fully
examined. In the light of the new asks elected councils in the devolved nations devolved powers.
being made of devolved cities, an analysis or explicitly address or make provision for
of the merits and demerits of continuing the devolution of powers. The proposals That said, there are different ways to
with the system of part-time politicians is presented to Parliament by the Coalition resolve and deliver new structures of
long overdue. If we are serious about the Government include the Liberal Democrats’ accountability. It must be remembered
potential of city regions and combined option for an English Devolution Enabling that Greater Manchester had many years
authorities (and on the basis of the evidence Bill. Again this speaks only to localities in of trust-building and inter-authority
we should be), we do need to consider England, while not addressing the issue working before it formed its combined
whether staffing the city region authorities of their freedom and independence from authority and agreed on a Metro Mayor in
with part-time local politicians, rather than Whitehall.13 Devolution to cities and other return for its devolved deal. People need
full-time and properly paid ones is the right places will need to be underpinned by new directly accountable authorities if these
way forward. Given the oft-mentioned legislation – in all nations of the UK – to new and extensive combined powers are
concerns about the quality and the strengthen the constitutional status of local- to function successfully in a democracy.
importance of local government leadership, central arrangements and to provide a more But one cannot simply impose trust upon
we believe that successful city regions may protected and democratically accountable an elected authority – it has to be learned
well need full-time, properly paid politicians system of local governance. The discussions and ‘earned’. Many combined authorities
and that the new Devolutionary Agency about what structures are necessary to are engaged in what one might call
should examine the case for such a model. deliver devolution have all tended to ‘energetic discussion’ on who should lead
be about the democratic accountability the new authorities and what structures
that is proper to and commensurate with are needed. This is all necessary and
The constitutional path – the these new powers. Overwhelmingly this is welcome. Indeed, a number of combined
structures that will deliver discussed through the prism of the mayoral authorities have adopted an appointment
debate and it is to that that we now turn. model whereby each constituent authority
devolution selects a member to attend the combined
authority and this body in turn elects a
The outcome of the Scottish Referendum The debate around direct leader; this is probably a necessary and
has reignited the arguments for an English accountability and Metro Mayors apposite measure but it should not be a
Parliament. It is within this fast-moving final end goal. A selected ‘senate’ governing
debate about the UK’s constitutional a city region is no substitute for a directly
arrangements that the call for city- and other
So far, devolution has rightly walked hand elected and accountable body, but this
place-based devolution is taking place. in hand with local institutional change. All current arrangement is probably required
of the UK Core Cities have some kind of city as a transitional phase to engender trust
The UK’s highly centralised constitution region governance mechanism. Of the eight and inter-authority working so that the real
makes devolving powers to localities English Core Cities, five have now formed debate on how to realise the potential gains
more difficult, although not impossible, combined authorities, all with different for the city and the region can take place.
as the different agreements in Greater and bespoke structures of accountability
Manchester and Sheffield demonstrate. The and delivery. Those cities that are not yet In our view, the real question for cities
existing legislative framework prescribing combined authorities are engaged in and government in the Metro Mayor/
the duties and responsibilities of local internal discussions as to the best structure devolution debate is not the institution of
government is complex, but the current to advance their own areas. Other city the mayor itself but what it represents. And
constitutional and legislative arrangements region governance arrangements may what is that? It is the evidence, policy work
do not delineate or outline a clear local emerge and flourish as a result, in order to and vision for the city and city region. A
autonomy in terms of legal responsibilities, benefit from improved devolutionary offers, mayoralty is one possible outcome of that
fiscal powers and funding. The present and in Cardiff and Glasgow, where city debate, insofar as it is part of an institutional
arrangements remain highly centralised region governance is very well developed, structure created to realise the policy and
and provide little formal protection from the argument for city rather than national aspiration of the city region. In that regard,
the interference of central government. devolution is relatively new. government should not in this, the first,
phase of devolution impose mayors on
The history and tradition of centralisation It seems clear that for the present city regions – it should instead properly
present the case for a new constitutional Government the magnitude of devolution ask, in managing the progressive tide of
and legislative settlement, one that can is dependent on new structures of capacity devolution: What is the vision of each city
address the statutory relationships that and accountability. Although the opposition or city region in return for devolution, and
exist between nations and between local parties have not yet spelt out their terms for how does each authority plan to realise that
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