Society Society Society February 2015 Restoring Britain’s City States: Devolution, Public Service Reform and Local Economic Growth Phillip Blond & Mark Morrin About 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 their economic potential, as the only real solution for addressing service dependency. The UK’s fiscal 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, but also effectively tackle will have to operate at 35% of GDP and 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 stakeholders. budgets and the ability to determine 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