Devolution and decentralisation: the lessons of ManSheffLeedsPool

Paul Terrington outlines the consequences of the UK Government’s devolution plans for the Northern English cities.

Plans to give English cities sweeping new powers over housing, transport, planning and policing were comprehensively revealed in George Osborne’s first post-election speech – comments that have underlined the new government’s commitment to accelerating and deepening the process of devolution and decentralisation across Britain.

Claiming that the old model of running everything from London was ‘broken’ and had unbalanced the economy, the Chancellor committed the government to present a Cities Devolution Bill in the forthcoming Queen’s Speech. He said that Greater Manchester – which will elect a mayor in two years’ time and take on the new powers – should become a blueprint for other large English cities.

The promise of a Cities Devolution Bill for England, a ‘Northern Powerhouse’ to rival London and the likelihood of further devolution to Scotland may not cut much ice in Belfast – but it should.  While the Corporation Tax (Northern Ireland) Bill is now an Act and Northern Ireland’s 26 old local councils have become 11 new ‘super-councils’ – albeit a mere 13 years after the launch of the Review of Public Administration – the local economy still lags behind the other UK regions, with no sign of the prosperity gap closing.

The welfare reform impasse is looking increasingly like a potential Assembly crisis, with the Chancellor and Secretary of State both reiterating that ‘switching-on’ the corporation tax powers and therefore ‘the rate and the date’ are contingent of delivering on the entirety of the Stormont House Agreement. That means not just sorting out the welfare reform but putting the Executive finances on a sustainable footing.

In the meantime, the devolution and decentralisation bandwagon goes rolling on. The new government has appointed the former Goldman Sachs Chief Economist Jim O’Neill as a Treasury Minister to make the Northern Powerhouse – the new northern mega-city – a reality. That’s a bold plan to unite the North of England’s 15 million-strong population into a collective force to rebalance the North-South economic divide by attracting new investment into northern cities and towns.  O’Neill – the man who coined the term BRICs – and who chaired the City Growth Commission that came up with the cities devolution idea, is now charged with creating a strategy to deliver the Northern Powerhouse, specifically around infrastructure, wooing foreign direct investment and attracting outside finance to regenerate the region he once dubbed as ManSheffLeedsPool.

At the heart of plans for English devolution is to reverse the UK’s position as one of the most centralised countries amongst the OECD group of nations. In England, around 95 per cent of local council spending is allocated from central government, including monies like business rates that are collected by the councils in the first place and remitted to London. Just 1.7 per cent of GDP is gathered and retained at local level. The Core Cities Devolution declaration plans to reform this so that cities can keep the proceeds from some taxes, with the long-term objective of fully devolving taxation to local control.

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This is a bold experiment and it has not met with the universal acclaim from some of English cities it’s intended to attract. Back in March, PwC’s fifth, annual survey, the Local State We’re In 2015, which surveyed local government chief executives and leaders showed a high degree of scepticism on devolution, with only 22 per cent agreeing that there would be significant devolution of powers and responsibilities to local government by 2020.  Nevertheless, nearly half of council leaders (47 per cent) surveyed expected their council to be merged into a larger, combined authority by 2020 because of financial pressures and the necessity to deliver economies of scale and to maintain service delivery, with nine out of ten chief executives expecting some local authorities in Great Britain to hit serious financial difficulties in the next five years. So, while the expectation of significant devolution of powers was low, the pressures to create larger – and ideally more efficient structures – remain and that’s where Manchester comes in.

Three years ago the citizens of Manchester rejected a proposal that the city should have a mayor; then, just last year, the leaders of Greater Manchester’s ten councils agreed to an elected mayor, who would lead a new Greater Manchester Combined Authority (GMCA). The new mayor will chair GMCA meetings, supported by a cabinet comprising the ten council leaders.  Collectively they will control an annual budget of around £7 billion and, if the scheme’s supporters are correct, enjoy consider spending autonomy and significant economies of scale.

While Manchester is the first to embrace the process of creating a larger, metropolitan area in GMCA, other cities, signing up to the elected mayoral process could enjoy the same benefits, the Chancellor has said. PwC’s recent Good Growth for Cities report, which showed that Belfast is the UK city that has demonstrated the single greatest improvement since the 2007-2009 recession, compared the performance of 39 UK cities against measures that extended well beyond the city boundaries. The report measured a basket of 10 categories defined by the public and business as key to economic success and personal and family well-being. These included jobs, health, income, skills, work-life balance, house-prices, travel-to-work times and pollution and all suggested that the performance of the core city was heavily dependent on criteria present in their wider metropolitan areas.

The Northern Powerhouse experiment and the Cities Devolution Bill follow a number of commitments on devolution already contained in the Conservative manifesto and, in the case of the so-called ’West Lothian question’ (English parliamentary votes for English legislation), a commitment carried over from the coalition’s 2010 Programme for Government. These followed March’s Budget and a commitment for a comprehensive transport strategy for the North of England; new city deals for the West Yorkshire Combined Authority, Glasgow, Inverness and Aberdeen; a pledge that Manchester and Cambridge could keep new additional business rates revenues; and negotiations are beginning for the Swansea Bay Tidal Lagoon.

The remarkable SNP showing in the general election has further upped the devolution ante.  Post-referendum, the Smith Commission recommended that the Scottish Parliament should have the power to set income tax rates and bands, enjoy an assigned share of VAT and the full devolution of Air Passenger Duty. And, while the Scottish Parliament recently claimed that the proposals of the UK Government’s draft legislation don’t meet the “spirit or substance” of Smith, the election result saw Nicola Sturgeon set as a minimum the further devolution of powers over employment policy, the minimum wage, welfare reform, business taxation (including corporation tax) and national insurance.
In summary therefore, while Northern Ireland has to solve the welfare reform and fiscal stability issues to get ‘the rate and the date’, things are happening elsewhere in the UK that are well worth watching – and perhaps learning from – as we look at what might be the next phase of devolution and decentralisation.

Paul Terrington is Regional Chairman of PwC in Northern Ireland.
Tel: 028 9041 5717
Email: paul.a.terrington@uk.pwc.com