Whitehall and Town Hall reset required to fix UK’s failed economic system, warns RSA Inclusive Growth Commission

• New social contracts between Whitehall and combined authorities giving local areas greater responsibility for – and control over – economic and public services spending to drive inclusive growth.
• A new £76bn Inclusive Growth Investment Fund to channel repatriated EU funds into projects that support growth for all should be created.
• A new official indicator of inclusive growth should be published quarterly alongside GDP growth.
• Stephanie Flanders: “We need to empower all levels of government to deliver a more inclusive vision of prosperity across the UK – otherwise there is a real risk that the country will become more divided outside the EU than it ever was within it.”

The way the economy and public services are run in the UK has failed and must be radically overhauled to create the “economy that works for everyone, not the privileged few” that the government has committed itself to, according to the final report from the RSA Inclusive Growth Commission.

Inclusive growth is broad-based growth that enables the widest range of people and places to both contribute to and benefit from economic success.  Its purpose is to achieve more prosperity alongside greater equity in opportunities and outcomes.

The Commission, chaired by Stephanie Flanders, concluded that successive governments have prioritised top-line national GDP growth instead of ensuring all parts of the country are able to contribute to and benefit from economic gains. Higher employment was meant to provide the answer to Britain's social problems, but focusing on the quantity - rather than the quality - of jobs created has produced a divided country. Many places are left behind and trapped in a low productivity, low wage cycle, over-reliant on over-stretched public services.

• Read the final report from the Inclusive Growth Commission

Every one of these failings is holding back the performance of the economy. The challenge is to shift from an economy based on ‘grow now and distribute later’ to one that sees growth and social reform as two sides of the same coin.

Stephanie Flanders, Chair of the RSA Inclusive Growth Commission, said:

"The way the economy and public services are run in the UK has failed. Chronic low productivity, weak growth in living standards and high levels of regional deprivation are all mutually reinforcing in the UK today. Together they help explain both our poor economic underperformance and the disaffection we see in so many communities across the country.

“The government is beginning to grasp the seriousness of these issues. But the gap between aspiration and reality is very wide and will not be fixed by Whitehall pronouncements alone. If we really are going to build a nation that “works for everyone”, then we need a reset in Whitehall and Town Halls which empowers all levels of government to deliver a more inclusive vision of prosperity across the UK. Failing to do so would mean a real risk the country becomes more divided outside the EU than it ever was within it.”

The Commission believes that reducing inequality and deprivation can increase growth. Investment in early years education, public health, skills and employment services, and childcare – what the report terms ‘social infrastructure’ – should be recognised not as stand-alone programmes but key drivers of national growth and productivity. 

Despite much talk of giving more power to local areas, fiscal austerity since 2010 has actually done the opposite; the proportion of spending controlled by local councils has fallen and the share of the total devoted to investment and preventative programmes has also collapsed.

Core local council budgets in England were cut by 40% in real terms over the last Parliament and by 2019/20 local government is expected to face a funding gap of £5.8bn, of which adult social care alone will amount to £1.3bn. So while in Sheffield City Region, for example, their devolution deal secured £900m funding over the next thirty years (£30m a year). This pales in comparison to the cumulative £1.1bn (£220m a year) cut from the city’s capital and resource budgets since 2010.

The Commission recommends that combined authorities be given much more control over – and responsibility for – economic and public services spending in their areas, as part of new social contracts with Whitehall to pursue inclusive growth.  Local places would agree with central government how they would work to deliver inclusive growth as it pertains to their particular area. They will be given control over economic and social spending in their place to achieve this, whilst working in partnership with national government to ensure minimum standards and achieve agreed, shared outcomes.

This approach builds on that pioneered in Greater Manchester through their health and social care deal, and should be extended to other areas and policy issues – particularly vocational education and skills, in which the current system is fragmented and ineffectual. For the six combined authorities, which are electing new mayors in May this year, the total under local control would amount to over £70bn.

The RSA Inclusive Growth Commission is kindly funded by Core Cities UK, Key Cities, Local Government Association, London Councils, Joseph Rowntree Foundation and PwC.

Charlotte Alldritt, Director of the RSA Inclusive Growth Commission said,

“The divide between the ‘haves and the have nots’ was an issue long before Brexit, but the referendum exposed the depth of the problem in the UK. And it’s only going to get worse – with a further squeeze on living standards expected as welfare cuts and higher prices bite, and automation threatens ever more jobs. A new model of inclusive growth is needed.”

“Inclusive growth cannot be mandated by the centre, nor willed into being by devolution on its own. We recommend new social contracts between central and local government, giving city and county regions flexibility over all the economic and social spending in their place – both between public services and over time. This radical proposal goes beyond ad hoc devolution deal making, ensuring we blend the ‘best of both’ central and local capacity to make inclusive growth a reality.”

 

For more information, contact:

Charlotte Alldritt, Director Public Services and Communities, RSA

charlotte.alldritt@rsa.org.uk +44 (0)7717804144

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Notes to editors

The inclusive growth gap

• In work poverty – of the 13.5 million people in poverty in the UK 7.4 million (55 percent) are in working families.
• Deprivation and productivity – across the 10 UK Core Cities (outside London) 38 percent of the gap between their combined average productivity and that of the UK average is associated with deprivation. Closing this productivity gap alone would deliver a further £24.4bn a year to the UK economy.
• Low business productivity – two-thirds of the United Kingdom’s workers are employed in businesses with productivity that falls below the industry average.
• British cities lag behind our European competitors – compared to the 10 UK Core Cities combined average productivity, Munich’s productivity is 88 percent higher, Frankfurt 80.7 percent higher, Rotterdam 42.8 percent higher and Barcelona 26.7 percent higher.

Recommendations

• New social contracts between Whitehall and combined authorities giving local areas greater responsibility for – and control over – economic and public services spending to drive inclusive growth.
  • Central government’s role would be to establish agreed common goals and standards and to monitor progress. Devolved authorities to have much more control over – and responsibility for – economic and public services spending in their areas.
  • In Greater Manchester, for example, this would amount to financial autonomy over £20.6bn per year across the city-region. For the six mayoral metros the total under local control would amount to over £70bn.
  • Places which successfully negotiated a new social contract should then transition to a new national place-based Spending Review, to link public sector spending and investment to concrete outcomes in a given place rather than individual departments. This would allow closer integration of expenditure and investment, between local government(s), public services and other partners and – crucially - multi-year finance settlements of 5 to 10 years.
  • This would radically extend the joint-commissioning approach pioneered by Greater Manchester in their health and social care deal, and moves the central-local relationship beyond a series of fragmented, small scale ‘deals’ towards a new, longer term contract – based on our nationally driven, locally designed and implemented mission of inclusive growth.
  • Create a new, independent UK Inclusive Growth Investment Fund worth £76bn over 20 years
    • Repatriated European Structural and Investment Funds should be used as the basis of a new Inclusive Growth Investment Fund with £76bn of funding to pump-prime interventions designed to create inclusive growth.  Applications for funding would be assessed on the basis of their expected impact on a new broad-based, quality GVA measure, rather existing narrow defined measures.

• The ONS should publish a new quarterly measure of inclusive growth alongside GDP, which should be subject to a similar level of institutional and national media scrutiny.
  • The new measure would make concrete the commitment to make inclusive growth the country’s new yardstick of economic success, and would include refined and locally available data GVA per hour worked, median wage growth and total employment.
  • The Office for Budget Responsibility should be tasked with making an annual assessment of the UK’s progress towards an inclusive economy.
  • Government to put social and economic infrastructure on a par when it comes to investment appraisal and commission an assessment of the social infrastructure gap
  • A new focus on creating the tools and institutions to deliver place-based industrial strategies, including New Civic Enterprise institutions, connect business, schools, universities and training providers to drive quality and raise productivity locally and nationally. 

Cllr Judith Blake, Chair, Core Cities UK said,

“Living standards across our cities have been too low for too long. Large numbers of people feel left behind, juggling jobs and childcare while being unable to find a home they can afford to rent or buy.

“Repeated under-investment in a fragmented education, careers and skills system has failed to provide people with the knowledge they need to get better jobs. That’s bad for people, bad for business and bad for the economy. Meanwhile our nation’s productivity continues to flat-line at a critical moment.

“But, as the final report from the RSA points out, it doesn’t have to be this way. The Commission’s recommendations are potentially game-changing, and we urge government, cities and businesses to come together and implement them as a matter of urgency.”

Cllr Richard Leese, Chair of the Local Government Association’s City Regions Board, said,

“This independent report gives the local government sector the welcome challenge of considering new ideas on what can be done to help a key priority of achieving more inclusive growth.

“Devolution is the key to achieving inclusive growth - one of the country’s most significant challenges.

“To meet this challenge head on we need place based solutions to meet local needs. This will be best addressed by devolving powers to councils to unleash the full potential of our local economies and radically transform public services by targeting money where it’s most needed and delivering better outcomes for our communities.”

 

Cllr Claire Kober, Chair of London Councils, said,

 “The Commission’s report makes clear that devolution is critical to delivering growth that everyone can benefit from. I could not agree more with the need to move away from the centralised form of government that currently exists, to a model where our cities and regions are able to direct investment and resources in a way that best fits their local ambitions.”

“That the Commission recognises the importance of councils’ leadership in ensuring we are not managing decline but encouraging growth is a welcome endorsement of what is already happening in many parts of the country.”

Cllr Paul Watson, leader of Sunderland City Council and Chair, Key Cities said,

“The Commission’s report is essential to understand the urgency of the task we’ve got ahead of us. It is now vital that the Government works together with councils, the voluntary sector and business to meet the challenge of building a more productive country. As local authority leaders, we will fight our corner and lead the drive for more investment in the social and built infrastructure that lets an economy thrive."

 

Campbell Robb, chief executive of JRF, said,

 “We welcome this powerful and timely report, which sets out a clear and compelling roadmap to delivering more inclusive growth – economic growth that benefits everyone.

 “It shows that city leaders do not have to wait for permission to put reducing poverty at the heart of their economic strategies, starting with metro mayor elections in May.

“But the Government must play its part too to deliver an economy that works for everyone, backing up its devolution deals with the powers and budgets to deliver more and better jobs.

“Brexit has put the spotlight on our worst-off communities. Now city leaders and the Government must use this opportunity to reinvigorate their prospects as part of a post-Brexit plan.”

Tina Hallett, PwC Partner commented,

"There’s more to the success of cities and regions than a stark measure of gross value added (GVA). A new definition of success, putting health, housing and quality of life alongside jobs, skills and incomes, will define this good growth and help create places where people want to live, work and prosper.

“Delivering this placed-based strategy requires an empowered public sector and an enlightened private sector, each playing their own part in making productivity improvements that not only boost growth, but improve living standards and social mobility for the citizens

“As a major employer in every region of the UK, PwC is pleased to support the Commission and to play our part in delivering on these ambitious outcomes.”

 

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About the RSA Inclusive Growth Commission

The Inclusive Growth Commission was a 12-month independent inquiry chaired by Stephanie Flanders, former Economics Editor of the BBC.

Building on the previous RSA City Growth Commission, it sought to answer two key questions: Is there a model or models of place-based growth that also addresses social and economic inclusion? If so, what is this and how might it be implemented in a UK context, building on the opportunity that local devolution presents?

The Commission seeks to influence policy makers and practitioners in the context of the new government agenda post-Brexit, the evolving devolution agenda and the combined authority mayoral elections in May 2017.

About the RSA

The RSA (Royal Society for the encouragement of Arts, Manufactures and Commerce) believes that everyone should have the freedom and power to turn their ideas into reality – we call this the Power to Create. Through our ideas, research and 28,000-strong Fellowship, we seek to realise a society where creative power is distributed, where concentrations of power are confronted, and where creative values are nurtured.