Radical plan to devolve power to cities proposed by RSA City Growth Commission

Giving cities the power to revalue council tax bands as well as pool and allocate central government revenue without ringfencing are just two of the recommendations made today by the RSA City Growth Commission, which has proposed the devolution of finance away from central government to city-regions.

The 4th interim report from the Commission, Powers to Grow: City Finance and Governance , concluded that the default mode of ‘Whitehall knows best’ still remains a significant hurdle to the UK’s future economic prosperity. Radical change to overcome this can be achieved, but only if all three parties are daring enough to take on a ground-breaking package of fiscal devolution measures.

View the Powers to Grow: City Finance and Governance report

The Commission found that some cities are ready and able to take on the responsibility and associated risks of devolution – they have the leadership, financial management and accountability structures to administer a devolved city-region – and should be freed to drive investment, job creation, inclusive sustainable growth and public service reform as soon as is practical.

The Commission concluded, however, that devolution should not be top-down blanket policy – not all metros are ready to take this leap and will have to wait until their economic performance and governance structures lend themselves to devolution and enable them to ride the difficult storms of decentralisation.

Taking evidence over the previous ten months, the Commission found that over-centralised decision-making is stifling economic growth and holding our metros back. Highlighting how the UK has the most centralised system of public finance of any major OECD country, the Commission argued that metros need to be empowered to tackle long-term causes of welfare dependence, manage their own share of the national deficit and - by more integrated, informed investment decisions – help put the UK economy on a more inclusive, sustainable footing.

The report said that with centralisation comes a tight ringfencing of capital and resource funding, most of which is awarded on an annual basis. Revenues are inflexible, uncertain and contingent on national politics. The economics of ‘place’ are not part of the complex Local Government Finance equation, leaving cities restricted in the degree to which they can respond to the current and future needs of their area.

The Commission concluded that whilst much has been achieved under the Coalition to further the cause of city-led growth (e.g. City Deals, Growth Deals and the formal establishment of five Combined Authorities) the UK’s default mode of centralisation which emerged over the last half century, still represents a significant hurdle.

The report said that fundamental reform of Whitehall and the civil service is needed to minimise the risk of falling back to the default mode of ‘Whitehall knows best’, with the creation of a single public service rather than separate central and local-level bureaucracies.

Commenting on the report, RSA City Growth Commission Chair, Jim O’Neill said:

“What is ultimately critical for our metros to thrive is for each to identify what is right for them. Just as it is the case that those in Whitehall are hardly in a position to know what is best for the future of different parts of our country, however well-intentioned, it is also the case that our central recommendations, again well-intentioned and evidenced-based, may work for some cities and not for others.”

“As we have all witnessed with the run-up to the Scottish referendum on independence, some of our citizens want to have more decisions made about their futures by those who live and operate in their communities. However, the economic importance of our metros is the basis of our medium and long-term economic future. What happens in the likes of Bristol, Cardiff, Edinburgh, Glasgow, Leeds and all of the other 15 metros we defined in our first paper will be more important for UK economic growth than what happens in the rest of Scotland combined.”

“Enabling the leaders of these major urban areas to decide what is right for them, and with it, for them to carry the responsibility for those decisions is crucial. In this report, we lay out the key areas of financial responsibility we believe should be transferred to some metros. Crucially and as clearly suggested by the Chancellor in early August, it is only sensible to devolve this fiscal responsibility to those urban areas that can demonstrate they can succeed with this greater autonomy. We have found from our evidence gathering around the country that some metros are more ready today than others, and it would not make sense to devolve responsibility to them all now. Indeed, it is probably the case that only the best organised and most focused should be given those responsibilities.”

The report concluded that an independent City Region Devolution Committee would evaluate metro applications for Devolved Status. Those metros independently assessed as meeting the economic and governance conditions should then be allowed to:

• Pool revenue streams and leverage assets

• Raise and retain funding through new and existing taxes

• Borrow more freely in open capital markets 

• Integrate public service reform and economic development with a new power to convene other public and quasi-public-sector bodies

• Take their seat at the table in national policy making

Recommendations

The Commission makes a significant number of recommendations which can be found in the full report and cover the following three areas:

• Reform across the board, for both central government and metros: including tax and local government finance reform; constitutional and Whitehall reform; and demonstration of metro commitment to competence and capability.

• Further decentralisation for those ready to gain greater autonomy: including multi-year finance settlements; greater borrowing flexibilities; and the ability to retain the proceeds of growth through outcomes-focused finance models.

• Devolution for those metros deemed ready to take on genuine risk: including devolution of property taxes; ability to set new taxes; the power to convene public and quasi-public service bodies to integrate public service reform and economic growth; and a seat at the table in national policy-making to enable more informed, strategic national decision-making.

View the Powers to Grow: City Finance and Governance report

Notes to editors

1. For more information contact Luke.Robinson@rsa.org.uk or call 020 7451 6893 or 07799 737 970

2. City facts:

   • 61 percent of UK growth is generated by city-regions

   • 75 percent of the world’s population will live in cities by 2050

   • In total, China’s 600 cities are expected to host 31 percent of all global GDP growth to 2025

   • In the last 10 years, core cities grew by 9.6 percent against overall UK population growth of 7.6 percent, while wider local economic partnership areas, anchored by core cities, grew by 6.1 percent.

   • Cities with populations between 200,000 and 2 Million had 7 percent global population in 2007, but are forecast to generate 19 percent of all global GDP growth through 2025.