Devolve power to UK cities in order to boost UK economy by £79bn says Commission

The process of devolving power and responsibility from Whitehall to UK cities (‘Devo Met’) should run in parallel with that of ‘Devo Max’ for Scotland, with draft legislation put in place by January 2015, according to the final report from the RSA City Growth Commission.

Unleashing Metro Growth concluded that by 2030, devolution has the potential to boost economic output in the UK’s 15 largest metros by £79bn per year – worth approximately 5 percent of current GDP. Some of the report's key recommendations include:

• Encourage metros to collaborate to form regional powerhouses in the midlands, north and north east

• Introduce an ‘Oyster card for the North’ to encourage greater connectivity

• Devolve tax and planning powers to metro level 

View the Unleashing Metro Growth: Final Recommendations report

The Commission concluded that our current centralised political economy is ‘not fit for purpose’ and that centralised attempts to manage down the deficit and national debt will be futile (and unsustainable) in the long term.

Encouraging the government to introduce a tight timetable for ‘Devo Met’ in order to build on the momentum of the City Deals and Growth Deals, the Commission concluded that shifting power away from ministers and officials in central government to cities would drive up the UK’s long-term trend rate of economic growth.

There needs to be a radical reshaping of the UK’s political economy, with our metros given sufficient decision-making powers and financial flexibilities in order to become financially self-sustainable. The scale of the challenge is huge, the report said, with Greater Manchester – our second largest metro area remaining in an annual £4-5bn fiscal deficit to the Treasury.

Commissioners also concluded that the current national approach to both skills training and immigration is failing cities across the UK that struggle to find highly-skilled talent. The Commission called for skills funding to be the responsibility of city-regions, enabling metros to target skills training with the jobs they aim to create. Metros should administer Adult Skills Budgets with advice provided by Local Economic Partnerships, the report concluded.

The Commission found that SMEs struggle to meet their recruitment needs through immigration because the system is costly and complex. Commissioners concluded that if the UK persists in restricting immigration in order to meet its (growth inhibiting) net migration target, there is a risk that households in all metros will suffer in the long-term as GDP and GDP per person falls and average incomes are squeezed.

The Commission recommended reforming national immigration policies in favour of taking a metro-led approach, including lifting the cap on Tier 2 skilled immigration to signal that the UK is keen to attract the brightest and best. 

In response to the report, Chancellor of the Exchequer George Osborne said:

“I’ve been talking with Jim about many of these ideas for some time and warmly welcome the overall report. It makes a strong contribution to delivering the northern powerhouse I am determined to build.

“The Commission recognises that for cities to be successful they need directly elected mayors combined with real power and to be better connected both physically and digitally.

“This is what the Northern Powerhouse is all about – giving Northern cities the local power and control that a powerhouse economy needs – and I am determined to turn this vision into a reality.” 

The Deputy Prime Minister, Nick Clegg, said:

“We’re ending the era where Governments in Whitehall think they know best. Rebalancing and strengthening the economy right across Britain has been something the Liberal Democrats have been fighting for in government ever since we entered the coalition. We need to give our cities the space and the power to grow.

“Growth Deals and City Deals that I have agreed with every area of the country have freed up billions which can be spent at a local level, and for the first time councils have control over how they spend business rates raised in their area. But we must go further.

“This report is a welcome and timely addition to the conversation and I look forward to debating all these issues at my Northern Futures summit in November.

“We need to get this right, and the only way to do it is to work together to turn ideas into action.”

Jon Cruddas, Chair of Labour Policy Review, said:

“I welcome the recommendations of the City Growth Commission about how we can empower our cities. Many of these ideas about devolution and decentralisation are at the heart of Labour’s programme for Government. In Britain our cities will accelerate the forces of economic development. With better infrastructure and digital connectivity, and good skills and employment strategies, they will play to the creative strengths of their people.”

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

“The ambitious goal of the Commission was to think of specific recommendations to boost the trend growth rate of the UK economy. We conclude that bolder efforts to improve our infrastructure, both digitally but especially physically, are crucial for creating agglomeration. As I have become fond of saying, greater connectivity between ‘ManSheffLeedsPool’ and this 7 million person region could start to see the level of scale we need for change.

We argue all 15 metro areas should be able to take on different packages of devolved powers over time, and there’s no reason why other places could not come together to take on policy and budget flexibilities too. The current five metro areas that have Combined Authorities seem to be the best placed, along with London for warranting earlier steps towards full ‘Devolved Status’.”

Ben Lucas, Chair of Public Services, RSA and City Growth Commissioner said:

"With Devo Max being negotiated for Scotland, we need to see Devo Met for our British cities on a similar timescale. In a world in which cities are the new drivers of growth, decentralising our political economy will boost GDP and enable our major metros to achieve their social and economic potential."

Charlotte Alldritt, Secretary to the RSA City Growth Commission, said:

“During the 19th century, metropolitan industrial growth drove our national economic success and established a strong industrial heritage of which many of our city-regions can be proud. The challenge is now to ensure these places have the capacity to fulfil their economic potential in the 21st century – whether through better connectivity, leveraging the power of data in public service reform, or by fostering their creative, innovative economies.”

Taking evidence over the last year, the RSA City Growth Commission concluded that we need to maximise the productivity and growth potential of agglomeration if we are to tackle the fiscal challenge still ahead. Public finances are struggling to keep pace with mounting costs of an ageing population and growing demand for welfare support and public services. 

Most major cities have a ‘fiscal gap’ that reflects this discrepancy between their tax revenues, and their level of public expenditure, the Commission found. Agglomeration effects are crucial; sustainable UK growth will rely increasingly on our major cities doing for the North West, North East, West Yorkshire and Midlands – what London does for the South East – driving investment, productivity and growth.

Enhancing Connectivity

The Commission calls for accelerating digital and physical connectivity within and between large metros, building on schemes such as One North to drive the creation of a series of economic powerhouses including the North, North East, and Midlands. In particular:

• New hs3 tube system for the north

• An integrated payment system, an Oyster card for the North, to enable ease of travel across the One North transport area

• The Commission also heard repeatedly from organisations and local authorities about the need to enhance the supply of high-speed broadband. We should seek to emulate Singapore’s 1Gb/s broadband speeds in the near future, the minimum needed to drive additional inward investment to our cities

Housing and Planning

• Metros should take on strategic planning authority powers, aggregating up decision-making to Combined Authorities (or equivalent) to coordinate investment across the city-region. This should allow for cities to align housing and transport development across their travel to work area and would follow a similar model to that between London Boroughs and the Greater London Authority (GLA)

• Planning at the metro level will allow authorities to make it easier to reclassify poor quality Green Belt and promote Green Belt swaps, where applicable, engaging with local people to create buy-in for more flexible arrangements for enhancing economic, social and environmental value

Tailor-made Skills

The Commission calls for skills funding to be the responsibility of city-regions, enabling metros to target skills training with the jobs they aim to create. In particular:

• Metros should administer Adult Skills Budgets with reference to evidence-based skills strategies and other advice prepared by the Local Enterprise Partnership (LEP). Ultimately, devolution of skills funding should extend to 14-to-19-year-old provision so there are seamless employment and skills pathways for young people.

• Lifting the cap on Tier 2 skilled migration and license metros to become sponsors on behalf of small and medium enterprises (SMEs) would reduce the administrative costs associated with recruiting international talent.

Innovation and Higher Education

The Commission heard frequently of the potential impact universities could have on innovation, job creation and investment – as well the ability of cities to attract (and increasingly retain) talent and investment. It recommends:

• New freedoms and flexibilities for metros to establish Metro Investment Funds for Higher Education (MIFHE) from devolved skills budgets to provide additional funds for research and teaching within their metro area that impacts on local growth

• New initiatives led by metros should provide local graduates every opportunity to find employment in the metro labour market, including a centralised Graduate Clearing system which pools rejected graduate recruitment applications in metros and recycles them to local firms with vacancies

• Allowing ‘Core Cities’ to pilot a flexible ‘graduate entrepreneur visa’ which would encourage more international students to start a business in the UK after graduation

Decentralisation and Devolution

The Commission concluded that decentralisation would empower metros with the capacity to respond more dynamically to the needs and opportunities of their economies. Those metros with the most robust governance structures, which have a track record of delivery and risk management, should be considered for ‘Devolved City Status’. This would grant the same consultation rights as the Devolved Administrations within Whitehall decision-making and UK government structure. Powers and responsibilities would be agreed between the Devolved City-region and central government and might vary by time and place. However, they might include:

• Greater flexibility of capital reserves and more borrowing flexibility, including ability for the most devolved metros to borrow from sources other than the Public Works Loan Board (e.g. open markets)

• The freedom for the most devolved metros to raise and fully retain a suite of taxes (at the very least the whole of Business Rates, Council Tax, though preferably more in line with the Communities and Local Government (CLG) select committee and London Finance Commission proposals), offsetting these revenues in a net neutral grant settlement with HM Treasury

• Freedom to spend grants without ring-fencing, enabling city-regional pooling of budgets

• Multi-year finance settlements of between five and 10 years (depending whether resource or capital)

• The ability for metros to negotiate Payment by Results mechanisms, building on the work of Manchester, Glasgow and Cambridge, to benefit from the proceeds of growth

View the Unleashing Metro Growth: Final Recommendations report

Notes to editors 

1. For more information contact RSA Head of Media Luke Robinson on 020 7451 6893 or 07799 737 970 or luke.robinson@rsa.org.uk

2. Economic analysis by New Economy, Manchester for the City Growth Commission (October 2014). Uses data from the ONS and the OBR’s forecasts to calculate the boost in economic output in the UK’s 15 largest metro areas. London is treated separately and estimated to continue to grow at its historic growth rate since it grew above the national average for this period. If given greater flexibility, London may grow above this trend but this has not been modelled here. Regional economic output is measured annually by the ONS. The published data estimate the Gross Value Added (GVA) in each region in nominal prices. 2012 is the latest data that we have for GVA data so we estimate growth over the past 16 years as 1997–2012, and growth over the next 18 years we mean 2013–2030.

3. The Commission has been set up with the support of the Core Cities Group, London Councils, the Greater London Authority and the Local Government Association. Other project sponsors include the Joseph Rowntree Foundation, Universities UK and British Private Equity and Venture Capital Association.

4. Commissioners include: Jim O’Neill – Chair, retiring Chair of Goldman Sachs asset management (Chair of the Commission); Greg Clark – Chairman of the OECD Forum of Development Agencies and Investment Strategies; Bridget Rosewell OBE – Chair Volterra Economics, former Chief Economist to GLA; Professor Tony Travers – Leading British Government academic and Chair of London Finance Commission; Bruce Katz, is a vice president at the Brookings Institution and founding director of the Brookings Metropolitan Policy Program; Peter Vernon MRICS, Chief Executive of Grosvenor Britain & Ireland and previously Partner at IBM Business Consulting Services and PricewaterhouseCoopers; Rohan Silva, previously Senior Policy Adviser to the Prime Minister and Economic Adviser to the Shadow Chancellor George Osborne; Ben Lucas – Principal Partner, RSA 2020 Public Services.