06-02-08 Birmingham City Briefing

CITY LEADERSHIP: GIVING CITY-REGIONS THE POWER TO GROW ADAM MARSHALL AND DERMOT FINCH

BIRMINGHAM CITY-REGION BRIEFING

The Birmingham City-Region Birmingham is one of the UK’s most important core cities – and the largest local authority in Europe (with 992,000 people). Together with the other six metropolitan districts in the West Midlands conurbation, Birmingham has recently launched proposals for financial devolution, resource pooling and cross-boundary collaboration using an Executive Board.

But Birmingham’s effective city-region is wider than the West Midlands, and contains a number of different employment and retail centres. Birmingham city centre is the largest employment and economic driver, but it is supplemented by a range of smaller centres with distinct economic profiles. The city-region includes parts of four travel-to-work areas, including Birmingham, two in the Black Country, and one focused around Coventry.

Since the 1990s, economic development efforts have been focused on growing the number of professional and business services jobs, as well as the advanced manufacturing and ICT sectors. The city-region still faces substantial economic challenges: Birmingham is the 15 th most deprived area in England, with Sandwell (16 th ) and Wolverhampton (35 th ) also featuring in the top 50.

City Leadership identifies a functional Birmingham city-region of 13 local authorities:

• The existing metropolitan scale : the seven West Midlands districts: Birmingham, Solihull, Sandwell, Dudley, Wolverhampton, Walsall and Coventry, plus

• Other areas with strong economic links. Six additional districts – Bromsgrove, Redditch, Cannock, Lichfield, Tamworth and North Warwickshire – are included in the city-region, as they form part of Birmingham’s travel-to-work area.

The total population of this city-region is 3.1 million, based on 2003 Census estimates.

Our work in Birmingham and the wider city-region City Leadership includes extensive research in Birmingham and the wider city-region:

• Detailed analysis of local/regional economic development budgets & funding streams • Case studies examining major infrastructure projects in the city-region • Over 25 interviews with public and private sector stakeholders • A Business Stakeholder Group, conducted with Birmingham Chamber of Commerce and Birmingham Forward in August 2005

Additional research was conducted in Liverpool, Barnsley, Manchester and London. The resulting mix of quantitative, quantitative and comparative research showed a strong case for greater financial devolution to the Birmingham city-region.

Key local research messages Transport links and skills were consistently identified as the biggest barriers to economic growth. Strategic economic development priorities identified in the city-region included:

• Redevelopment of New Street Station • Expansion of Birmingham International Airport • Skills programmes that respond to the needs of the local economy • Regeneration of Eastside • Extension of the Midland Metro light rail system

Public and private-sector stakeholders were frustrated by the city-region’s inability to press ahead with these projects without approvals and complex funding packages from Whitehall departments, government agencies, and regional quangos.

Public sector stakeholders The largest problem facing the city-region’s economic development officials was lack of control over existing public spending. Capital funding for major projects was fragmented, difficult to draw down, and subject to restrictions that were poorly aligned with local needs. There was substantial tension between local authorities and quangos, including the Regional Development Agency (Advantage West Midlands) and the Learning and Skills Councils.

City-regional working had progressed substantially, with the seven West Midlands districts advancing proposals for an Executive Board of local authority leaders with pooled and devolved funding streams. However, there was sensitivity over the name and brand for the city-region, and questions about whether Birmingham was too dominant within it.

Private sector stakeholders Private-sector interviewees in greater Birmingham argued that centralised policy-making and funding structures were holding back economic growth in the city-region. Businesses strongly supported the concept of devolution to the city-regional level, but felt that strong cross-boundary working could require fiscal incentives from central government.

Unlike national business organisations, business stakeholders in Birmingham were willing to talk about new local revenue-raising powers. Changes to business taxation were regarded as a possibility, provided that funds were clearly hypothecated to strategic priorities (e.g. transport) and that business had a clear role in prioritising and deploying funds. The depth of civic communication, and business buy-in to the city-regional agenda, was strong.

© Centre for Cities, February 2006 Page 2 of 4 What are the policy implications? City Leadership recommends radical financial devolution to the Birmingham city-region (as well as the Manchester city-region). As the largest economic driver in the Midlands, the Birmingham city-region needs greater control over spending and revenue-raising powers in order to boost the wider regional economy.

The report argues that a mix of devolved spending and revenue-raising powers, financial incentives, and new governance structures would enable the Birmingham city-region to tackle its own strategic regeneration, transport and skills priorities.

City-Region Contracts Contracts – between central government departments, local government and the business community – would devolve regeneration, transport and skills funding to city-regional control. In greater Birmingham, the City-Region Contract would pool and devolve substantial public spending from Advantage West Midlands, the Government Office for the West Midlands, the Learning and Skills Council, and the West Midlands Passenger Transport Authority to a new city-regional entity.

Based on 2005 budgets, this type of financial devolution would transfer approximately £675 million in strategic economic development funding to city-regional control:

FUNDING TYPE CURRENT CONTROL AMOUNT Regeneration, Housing, AWM, Government £313 million Transport Offices, Boards Post-19 Skills Budgets LSCs £209 million EU Structural Funding GOWM £85 million PTA Transport Grant DfT / WMPTA £69 million

APPROX. CITY-REGION BUDGET £675 million (based on 2005 figures)

Supplementary Business Rates City-Region Contracts would also enable the Birmingham city-region to use a small revenue- raising power – a 5% city-regional supplementary business rate – with receipts ring-fenced to strategic infrastructure priorities.

In the Birmingham city-region, a 2p (4.7%) Supplementary Business Rate would raise approximately £36 million per year, or £180m over a five-year period 1. This sum would be enough, for example, to close the funding gap for the redevelopment of New Street Station (which currently stands at £140m). If ‘geared up’ with debt financing, supplementary rate revenues could instead be used to tackle another transport priority (airport extension, Midland Metro) identified by city-regional businesses as critical to economic growth.

City-Region Growth Incentive We recommend that Government incentivise city-regional working in greater Birmingham by offering a City-Region Growth Incentive (CRGI). This would enable the city-region to keep up to £200 million in business rates, generated by growth in the local business base, over a five-year period. CRGI would not be a new tax on local businesses. Instead, it would enable the city-region to capture returns generated by economic development investment and business growth.

City-regional governance

1 These amounts are based on 2000/01 to 2004/05 National Non-Domestic Rate statistics for a city- region composed of 13 local authorities, as described above.

© Centre for Cities, February 2006 Page 3 of 4 City Leadership argues that new spending and revenue-raising powers for city-regions require a step-change in accountability. It recommends the creation of a directly-elected city regional mayor for greater Birmingham – with specific responsibility for strategic regeneration, transport and skills functions.

The report recognises that a city-regional mayor is not popular among West Midlands local authorities. They have proposed an Executive Board to handle city-regional functions, which would include existing council leaders, businesses, and the community and voluntary sector. Executive Boards are a good transitional step – but we believe that stronger accountability is needed to devolve large-scale spending and revenue-raising powers.

What happens next? City Leadership sets out the steps we need to take to boost local decision-making and economic performance in England’s biggest city-regions – starting with Birmingham and Manchester.

First, we need to build a consensus around city-regions, starting with the biggest. Central government needs to focus urban and regional policy around city-regions, and set out the case for them more proactively. This means creating a clear policy framework, with Whitehall departments, RDAs and other agencies sharing a common focus on city-regional growth. Actors in the Birmingham city-region need to continue to press Government for greater devolution, and further refine their fast-emerging city-regional agenda.

Second, we need to give the Birmingham city-region the powers it needs to succeed. Government should respond to the case for devolution by giving greater Birmingham the lead over key economic development functions – transport, regeneration, and skills. The spending and revenue-raising powers and incentives proposed in the City Leadership report build on existing schemes, but offer the Birmingham city-region the autonomy and flexibility needed to tackle key barriers to economic growth.

Third, we need to make city-regions accountable to their residents and businesses. In the Birmingham city-region, this means matching devolved budgets and powers with clear, transparent and accountable leadership. Directly-elected city-region mayors offer the best way to cut through the confusion – and convince Whitehall to devolve power to the most appropriate economic scale.

This paper accompanies City Leadership: Giving City-Regions the Power to Grow, a Centre for Cities report on financial devolution and city governance.

The full report is available from www.ippr.org/centreforcities

The Centre for Cities is an independent urban research unit based at ippr, the Institute for Public Policy Research. It is taking a fresh look at how cities function, focussing on the economic drivers behind city growth – investment, enterprise, innovation, skills and employment.