September 18, 2012
Allowing British cities greater freedom to take decisions about their own destinies could boost growth in the UK.
Britain: the Rural Idyll in the Urban Context
Britain is famed for its ‘green and pleasant lands’. As the Olympic stadium was transformed into the British Countryside by Danny Boyle for the spectacular Opening Ceremony, spectators from overseas could be forgiven for thinking that the UK is all about our countryside. The economic reality is very different. Cities are the economic powerhouses of the UK economy, and they are where most of the population live.
Taking up just 9% of the UK’s land, cities contain 53% of the UK’s businesses (70% of its knowledge-intensive businesses) and generate 61% of the UK’s Gross Value Added. And cities are vital not just to the UK economy but also dominate economic production in their regions (as shown in the map below). Many of the most rural areas in the UK, from Norfolk to Northumberland, Suffolk to Surrey, depend upon major cities for much of their residents’ employment.
London – leadership or domination?
London is the major city in the UK. It is a global city, the centre of government, a banking powerhouse and a centre of world-class businesses and universities. Its travel-to-work area stretches north into the Midlands and south and west along the coast. London also offers interesting insights for other global cities because of the mutually beneficial relationships that have developed with nearby cities and rural areas. Some of these places have become prosperous commuter towns. Others have become economic hubs in their own right – Reading, for example, has become a thriving Information Technology centre because of its position between London and Heathrow.
London’s dominance creates interesting challenges for the UK’s second-tier cities, with concerns often raised about ‘imbalances’ in the UK economy. Second-tier cities such as Manchester and Leeds – many of which have implemented innovative policies to adapt to a post-industrial economy – have responded by trying to define a distinctive role for themselves. Eight second-tier cities and their hinterlands have also formed an alliance to ensure central government understands their particular challenges and to campaign for greater investment, for example in infrastructure.
Beyond City Limits
Across the UK, the last decade has seen an increasing focus on cities forging stronger relationships with one another and with their hinterlands, whether rural or urban, in order to grow the local economy. As a result, there is a growing patchwork of relationships across the country, with joint working within a local functional economy (often in the form of a public and private-led ‘Local Enterprise Partnership’) as well as alliances across geographic boundaries.
Yet the UK as a country has long had an uneasy relationship with its urban centres. The cultural idyll in the UK remains country life and since the Second World War governments have been uneasy about leaving too much power in the hands of local areas. Power has gradually been pulled towards the centre, with national government gaining responsibility for public services such as health and welfare, utilities and, in the 1990s, decisions about how to spend the money that local authorities raise.
Centralisation and low levels of self-governing powers
Today, the UK is one of the most centralised countries in Europe, with the majority of decisions of economic importance taken in Westminster and Whitehall. English local authorities raised just 17 percent of their income from local taxation in 2005, compared to the OECD average of 55 percent.
Why does this matter? Because every city is different and policies often work better when tailored to local circumstances. Because operating all policies at a national geography ignores the way the economy really works, with cities and rural areas linked together by commuting patterns to drive economic growth. And because UK cities have few direct benefits associated with supporting local economic growth, as all the costs are borne locally and all the benefits move centrally.
New Localism in the UK
Interestingly, the current Coalition Government has recognised the importance of greater devolution. Having abolished Regional Development Agencies, they encouraged local government to form Local Enterprise Partnerships, bringing together local authority government and businesses to work across political borders. Government is also introducing more localised policies, like devolving local transport powers.
The Government is taking a few steps to give cities greater autonomy over funding too. Local authorities will be allowed to retain a greater proportion of their growth in business rates, which Centre for Cities research suggests could encourage places to permit the development that would encourage private sector growth. For example, they could keep a portion of the business rates from a new office development and use the money to improve local services. Yet some of the momentum of this reform has been lost as Government tries to balance the needs of high growth cities, slower growth cities and rural communities.
Government has also recently signed bespoke City Deals with eight of the UK’s largest cities. These are designed to give cities additional powers, responsibilities and freedoms over areas such as transport, housing, skills, employment and finance to support economic growth in their areas. In return, cities are required to deliver specific outcomes, usually jobs, economic growth, infrastructure or improved skills.
Manchester, for example, has signed up to a deal that enables it to ‘earn back’ some of the national tax revenue it generates. It has set up a £1.2 billion infrastructure fund, to which the government is contributing around £30 million per year. The idea is that this enables the city to invest in the next phase of big infrastructure projects that will deliver extra growth, and these generate revenues that the city can then plough into the next round of infrastructure projects. To other countries this may sound like business as usual; in the UK, it’s a big step towards greater autonomy, although time will tell whether it is rolled out any further.
From devolution to growth
There is much further to go before the contribution that cities make to economic growth is fully recognised in national policy. Some of the policies being considered by the national government to stimulate economic growth, such as investing in housing and infrastructure, need to be adapted to the needs of different places in order to work. And for many cities, simply having greater autonomy over funding would allow them to make the most of their distinctive assets. Allowing cities greater freedom to take decisions about their own destinies could make a big difference to the economic fortunes of the UK as a whole.
By Alexandra Jones, CEO, Centre for Cites, UK.
Image: Flickr-Crystian Cruz