Economic Leadership for Cities

Lord Shipley Excerpts

Thursday 11th December 2014 Lords Chamber

Moved by

[Lord Shipley]

That this House takes note of the case for enabling economic leadership for cities.

[Lord Shipley (LD)]

My Lords, I am grateful to have this opportunity to debate the case for enabling economic leadership for cities in the UK. I am grateful, too, to those noble Lords who will contribute today from all parts of this House. In particular, we look forward to hearing the maiden speeches of three Members on these Benches, each of whom has had personal experience as a council leader in driving economic growth and whose contribution to our debate will be very valuable.

My purpose today is twofold. First, it is reflective; that is, I want to look back at what the Government have done and what our cities have achieved since 2010. Secondly, it is about looking forward. We are experiencing a sea-change in our understanding of the economic importance of our cities; and by “cities” I mean the conurbation cities belong to—in essence, their travel-to-work areas. We are experiencing a rising self-confidence in our cities as local leaderships grasp the opportunity to do more to generate wealth and jobs and thus to reduce their reliance on London and the south-east. I am much encouraged by this, and, for the avoidance of any doubt, I do not mean for this debate to be exclusive: we should acknowledge the crucial role of shire counties and rural areas in wealth generation and the crucial role of London as a world city whose success means that it represents one-fifth of the UK economy. We may note that London has suffered less in the recession, but our aim should be to raise growth levels in other cities, whose tax revenues are very important to the rest of the UK, as well as London. It is, of course, now hugely expensive to live in London, with the result that there are many reports of young people moving out to other cities in the UK as employment clusters grow there, where the cost of living is cheaper and the quality of life is excellent.

I welcome the interim report by the Independent Commission on Economic Growth and the Future of Public Services in Non-Metropolitan England. It says that a handful of shires are now ready for devolved decision-making about public services and tax. It makes this debate on the economic leadership of cities even more important, because cities depend on rural areas and rural areas depend on cities. They complement each other, and they need to work closely together.

This is not about creating lots of independent city-states; it is about empowerment of our cities within a national framework so that they can grow faster and generate and retain higher tax revenues. It is about bringing local government closer together across boundaries so that it does not operate as geographical silos. Transport, skills and jobs, for example, all transcend an individual council’s boundaries in urban areas. This in turn means that governance structures are needed to which central government can effectively devolve. Such governance structures must have popular support. They need a direct link with voters, they must be inclusive of other political parties, and they must be able to demonstrate a clear capacity to share risk and investment and to deliver better outcomes. Simply dividing up the available cash in Whitehall and posting out cheques will not be enough.

We have learnt a lot since 2010 about what works and what does not. For example, we have learnt that devolution is a process, not an event, and that it is a two-way process. We have learnt that we must learn from doing things and that we cannot wait to move at the speed of the slowest. We have learnt that achieving growth in our cities is so very important because they have been underperforming for far too long and because it is through the tax generated by growth that they will be able to afford the public services that they aspire to. By any method of comparison that we might choose with similar cities across Europe, UK cities underperform. Seven out of our eight core cities in England outside London are below the national average in GDP per capita. Bristol is above, but Birmingham, Leeds, Liverpool, Manchester, Newcastle, Nottingham and Sheffield are below. UK cities represent 60% of jobs and output but, interestingly, they account for 73% of highly skilled jobs; they could, however, do much more. Similar second -tier cities in other countries are economically much stronger than ours. One of the problems is that, unlike those European counterparts, powers have been stripped away from local government outside London over recent decades. This has impacted on growth, so it is no surprise that cities outside London have been performing comparatively poorly. For example, in 2010, Manchester had a GDP per head half that of Munich and a fifth lower than that of Marseilles.

Having identified the problem, I want to pay tribute to the leadership on this issue shown by the Deputy Prime Minister and his ministerial colleagues, who in 2011 took the first initiative to strengthen our cities through city deals and who have led those city deals and local growth deals since. The initiative was a vital step because it put cities centre stage. It said that cities were important and it put the onus on them to come up with deliverable proposals that they wanted to implement. It was a subtle but vital change in approach. Defining those cities’ increasing responsibilities has unleashed a rising confidence which can only get stronger.

Cities were prepared for it, of course, because English core cities have been pressing the case for investment and further devolved powers for at least a decade, and had done a lot of the necessary preparatory work. So the Government are committed to devolving power. They appointed a Minister for Cities, introduced city deals and growth deals for local enterprise partnerships, and now devolution deals, of which Greater Manchester is the first, I hope, of many. There were 28 city deals; 95% of the first wave actions are on track or have been completed, while 82% of wave two actions are on track or have been completed. Examples of action taken include growth hubs, innovation centres, earn-back programmes, gainshare schemes for the additional national tax raised, freedoms to borrow against future business rate income and localised youth contracts and apprenticeship schemes. In governance, several combined authorities have been established, with others on the way. Three joint committees have been established and two more are to come shortly. The Glasgow and Clyde Valley cabinet has been established. I turn to the growth deals. The Government have committed £12 billion over six years from 2015-16 to 2020-21 for local growth. In the Autumn Statement, the Chancellor announced £1 billion of funding from that allocation for local enterprise partnerships to be allocated in January.

I conclude from all this that the pace of devolution within England is quickening. The speed and unity behind the announcement about Greater Manchester has been particularly impressive. The context is now one in which there seems to be general agreement that there is a relationship between growth and devolved powers. One has only to read all the reports published by organisations such as Centre for Cities, IPPR North, ResPublica, the City Growth Commission, the Local Government Association and the interim report of the Independent Commission on Economic Growth and the Future of Public Services in Non-Metropolitan England to realise this. But these were all preceded by the visionary report, No Stone Unturned: In Pursuit of Growth by my noble friend Lord Heseltine and by the work of the noble Lord, Lord Adonis, who led the North East Independent Economic Review, which made the case for devolved powers to drive growth and skills and for a combined authority, and talked about the importance of clusters.

There is now a public appetite for devolution within England; opinion polls show that. There may not be any more money for devolution unless it is raised locally, but there can be more effective joined-up delivery of public services, which would save money locally across Whitehall’s 50 spending lines and enable savings to be redirected into investment and growth. Devolution starts with a desire to take on the greater responsibilities that come from having more powers. Just expressing a wish for more powers is not enough. As Jim O’Neill, the chairman of the City Growth Commission, said recently, local leaders aspiring to take on greater responsibilities need to demonstrate that their councils and joint structures have the capacity to take control from Whitehall. That capacity-building is important.

May I make a plea here over words? I hear lots of demands for devolution of powers and freedoms, but it is not just about that; it is also about responsibilities. That is because you can have all the freedoms and powers you like; the real question is what you plan to do with them and how you will measure your success.

We have moved on a long way from the passing of the Localism Act 2011, which gave a power of general competence and helped to create the framework in which city deals, growth deals and devolution deals have been able to take place. It is clear that this is indeed a cross-party initiative at Westminster, as each of the main parties commits itself to the implementation of greater devolution. The crucial point now is this. Cities are thinking about their “functional economic geography” when making economic decisions. They are working across local authority boundaries for the benefit of their area as a whole, and they see growth as a central task of local government rather than just thinking in terms of local government being about provision of services.

One of the consequences of the Scottish referendum is that demands for further devolution within England have increased. We should note, however, that devolution within England is not dependent on what happens over devolution to Scotland; it would be happening anyway, but it may well be speeded up. I would make this further point: there is a huge difference between Scotland, which already had a Parliament, significant devolved powers and debated independence for two years, and English regions and sub-regions, which have no directly elected structures other than through their councils, many fewer devolved powers, and with a few honourable exceptions have not been thinking much about the detail of devolution at the sub-regional level. Defining what is wanted in detail, with clarity in governance and resourcing, is an essential prerequisite to successful devolution, whether it is urban or rural.

One of the indirect benefits of city deals is that they can have the effect of raising the aspirations of an area as a whole. I want to give an example briefly from my own part of the country. In October, some 300 north-east business leaders met in Newcastle to acknowledge the role of those who have helped to build the IT sector in the area into the thriving sector that it has now become, supporting some 32,000 jobs, with a further 2,000, I understand, expected to be added to the sector very shortly. Tech-based entrepreneurship is thriving in the area, fed by active early-stage investment and incubators, dynamic universities and a thriving corporate technology sector. Of course, one of the world’s largest business software firms, Sage, was founded and remains head -quartered in the city. Crucial to this success are the growing indigenous independents now coming together as a cluster to drive the local agenda for skills, collaboration and innovation in IT.

The north-east IT network, Dynamo, has established that the north-east’s current problem in IT is filling vacancies. Some 2,000 jobs were filled this year; for instance, Accenture hired 150 staff and the Government Digital Service expanded to 450 desks locally. Many local firms are now growing beyond 100 staff, some opening offices in other cities to tap new labour markets. Some of the growth is being absorbed by the boomerang Geordies, experienced locals who sought work away but are returning home as globalised markets offer career challenges on their doorstep. It is most encouraging. Indeed, to IT in the north-east we can add clusters in the automotive industry, pharmaceuticals, the process industries and the offshore, subsea and renewables industries. In a recent edition of the Observer, I read an article about Bristol, about its creative edge and about young people moving out of London to Bristol to share in its creative buzz. Clusters seem to be growing in our cities, and that is a very good thing. I conclude that Whitehall must now look increasingly to cities for innovation and growth.

In conclusion, what of the future? The Autumn Statement was very helpful, in particular, in outlining the things that are planned to put the north of England at the centre of growth. What we need now are cities that know what they want. That includes comprehensive city region strategies in transport, housing, skills and land use. They should understand how they will generate more resources locally. Secondly, the Government need to devolve fiscal powers. There is a danger that we will achieve devolution of functions only when we need greater fiscal devolution and three to five years’ funding of central government grant. We should accept and plan for differential devolution and ensure that city regions integrate with each other, particularly in transport.

In their 2011 report, Unlocking Growth in Cities, the Government stated:

“Cities are the engines of economic growth and they will be critical to our economic recovery”.

I hope we can agree. Recently, the City Growth Commission rightly said that sustainable growth and deficit reduction cannot be delivered from the centre. I hope we can agree. The House of Commons Communities and Local Government Committee said this July that cities such as London and the core cities were ready to take greater control over their financing and borrowing powers. Areas to which any fiscal powers were devolved should, it said,

“demonstrably function as an economic unit”.

I hope we can agree.

I conclude that cities need greater control of their funding streams and clear powers and responsibilities. They need fiscal powers and the powers to build up their own resources, and devolving powers to cities should be the start of a much more ambitious process of devolution for the whole of England. I beg to move.