Devolution confers responsibility for the collection and spending of taxes on local people and their elected local authorities. The aim is to deliver better outcomes across a number of areas – infrastructure, health, transport, housing – for the people and the areas.
Over the last few years, calls for devolution have been growing louder across many UK cities and regions. The Conservative government, under its mantra of localism and aided by the example of the Mayor of London and the effect of the “No” vote in Scotland, has helped accelerate cities’ growth plans for greater independence from Westminster.
But are the city authorities prepared? Will their regional growth plans stand up to the inevitable challenges of decentralisation?
The Cities and Local Government Devolution Bill provides a very broad framework for government to move functions from other public sector agencies to local government. As the Bill progressed through parliament, the government invited local authorities to make their devolution bids and received a total of 38, creating a patchwork of different proposals and structures to deliver new powers and spending freedoms.
In this financial climate, local government will fight for whatever powers and money it can get
While concerns have been expressed about the lack of a consistent framework for the power reshuffle, this has enabled local governments to try to get a good deal in their own areas, says Michael Mousdale, head of local government at business law firm DWF. “In this tight financial climate, local government will fight for whatever powers and money it can get. But this will not result in a clear redrawing of the legal framework for local government. If anything, it makes the local government landscape that bit more confusing,” he says.
PwC partner Jonathan House agrees that with 38 different devolution deals in England, ambition and vision is bound to vary between each one.
He says there is the risk that some of the requests being made are “not based on as much evidence as you would want to see. But nevertheless, every one of these cities has massive ambition.”
Central to devolution in any city is a thriving business community and a strong base for new business growth that will attract the right calibre of talent and the skills needed for the growth sectors.
And a lot of cities are getting it right, as highlighted in the Enterprising Regions report, compiled by ICAEW and Enterprise Nation.
It studied five locations with a good entrepreneurial track record, including Manchester, Bristol, Northamptonshire, Brighton and Sunderland, with the aim of identifying the characteristics that make a successful entrepreneurial hub.
The qualities valued most by entrepreneurs included access to useful networking (62%) availability of funding (34%), easy access to low-cost co-working spaces (28%) and good media coverage (27%).
ICAEW director of business Stephen Ibbotson says: “There is clearly a lot going on in our cities. The key to this is the availability of resources, such as broadband connections and working space, but also access to funding, and what I think will be instrumental to successful devolution; strong local leadership.”
Manchester was singled out by the report for having ticked many of the boxes, and is making huge strides along the road to devolution. At the end of 2014, Greater Manchester agreed an historic devolution settlement with the government, laying the cornerstones of a “northern powerhouse”, to quote the chancellor, to maximise the economic potential of the north.
Powers to be devolved to Greater Manchester include responsibility for local transport, with the government providing a longer-term budget to enable better planning and a more co-ordinated transport strategy, and control of a new Housing Investment Fund of up to £300m.
A spokesman for Manchester City Council (MCC) said: “Devolution in Greater Manchester is about the twin goals of growth and reform, creating the conditions for economic growth, while reforming public services to ensure they help support people to have the skills, facilities, confidence and indeed health to access these benefits.
“We are working closely with key employers, including those in the financial and professional services sector, to ensure that Greater Manchester residents have the skills that match those required in growing sectors.”
Across the Pennines, the city of Leeds and the wider region of West Yorkshire are “up for devolution”, according to Gerry McCormack, a professor of international business law at the University of Leeds.
He says: “I think there are questions concerning the scope of the geographical region to which devolved powers are being given, the extent of any devolution of powers and also the co-operation mechanisms in respect of any other devolved regional authorities, for example, the Greater Manchester authority in respect of the northern powerhouse initiative.
“But for the northern powerhouse to be given sufficient wings to fly, it must be more than a piece of political rhetoric. At the very least the plan for speedier rail links between northern cities must be brought back on track.”
While much attention has been given to the Greater Manchester area, and the devolution deals that are on the table for cities such as Liverpool and Sheffield, other core cities have been gearing up for devolution for some time, including Nottingham.
Since announcing its ambitious growth plan in 2011, and securing a City Deal the following year, Nottingham has been building strong foundations for independence.
Kathy McArdle, CEO of Nottingham’s Creative Quarter, winner of the 2015 Enterprising Britain Award for Improving the Business Environment, says: “We have a great opportunity to capitalise on our strong existing infrastructure and plans for growth with the HS2 rail line, further extension of high-speed broadband and to retain more of the huge talent pool in the region’s universities.
“The main challenge we face is how to meet employer demand for skills and ensure that education and training is equipping young people and residents with skills that will enable them to enter the workforce.”
As Nottingham and other UK cities work towards greater independence, each will face its own unique set of challenges, but one thing they all have in common is a reliance on their finance community and the finance professionals working in it. Many believe that ACAs and finance professionals hold the key to making devolution work.
Fraser Wilson, PwC partner in Glasgow, agrees. He says: “As we’ve seen in the past, major infrastructure projects can be complex, costly and potentially high risk, and against an economic backdrop where every penny counts, finance professionals have a vital role to play.
“The public sector is instrumental in driving economic growth and facilitating infrastructure development, however it’s clear that funding to deliver significant programmes will be scarce in the next few years. And while the economy may be improving, the recession has taught the private sector to be more measured in its approach to investment risk.”
Local government leaders and respective industries face a highly-competitive investment arena, and here finance professionals can deliver invaluable support, bringing expert knowledge of both their local markets and investor needs.
“This can include identifying the growth story, developing financial structures such as joint ventures, helping show the economic value of each project and demonstrating, for public sector investors in particular, how investment can help deliver fiscal improvement either through delivering more growth and tax or reducing spend on things like welfare,” says Wilson.
And as ICAEW’s Ibbotson points out, for SMEs caught up in or affected by the devolutionary process, the most important business advice they have will come from their accountant.
Among the many issues raised by the prospect of decentralisation is that of social responsibility. For example, will the rich metropolitan areas that are pushing for it be prepared to take on the support of the poorer rural areas around them, as the government must?
“We believe that the successful economic growth of areas such as Greater Manchester will be good for neighbouring areas and the country as a whole,” says the MCC spokesman.
“This is about empowering those places with the greatest potential to unlock it. It is absolutely not about taking resources or support from other areas.”
Then there is the problem of local government fatigue and people not turning out to vote. The way to counter this, says McArdle, is to have more public debate about devolution.
She says: “People, especially young people, don’t feel that it’s relevant to their local context and this needs to change. Devolution has the potential to give power back to the people, both economically and socially, and I think if more people were given the opportunity to debate this we’d see much higher levels of engagement.”
With an elected Manchester mayor in place from 2017 (subject to legislation), an accountable figure will be at the head of this, and the city council takes the view that people living in the region will engage with this process.
“As the role of the mayor becomes better understood, the benefits of devolution become more tangible,” says the MCC spokesman.
The arguments for and against devolution are set to roll on for some time to come. “Those in favour recognise the benefits that devolution could bring,” says Ibbotson. “Those against have expressed concerns, for example, about the process becoming overly bureaucratic.”
Given that the evolution of devolution is well underway, the obvious question is, just how far can it go?
“Local government rightly believes in its abilities to do more for its citizens if it had more powers and freedoms,” says DWF’s Mousdale. “But it needs to be recognised that for most primary authorities, devolution is not on offer to them.
Government wants to put the powers into the newly emerging Combined Authorities and newly created authorities formed by existing upper-tier authorities.
“There are no dissenting voices in local government against the proposition that it should receive more powers and fiscal freedoms from central government. However, some sense of perspective is necessary. Central government has limited powers it can actually devolve and while fiscal freedom could potentially change the whole tax base for citizens and businesses, the fact is that the government will at best only grant limited freedoms around business rate retention.”
But PwC’s House believes that in the absence of a one-size-fits-all solution, there will be a point at which devolution will become “comfortable”, and that will be different in each city.
“It will take time for cities to gear up to capacity, to get funding coming through and to realise regional growth plans. The real measure of success in devolution will be where you see outcomes changing for the better.”
Case study: Glasgow
Glasgow’s City Deal delivered a £1.13bn spending boost to the city and other west of Scotland councils.
Kevin Rush, head of economic development and regeneration services, Glasgow City Council, says: “It will bring tens of thousands of jobs to Glasgow and the Clyde Valley over the next few decades through 20 major infrastructure projects. It will drive innovation and growth through the support of key sectors such as life sciences and address challenges in the region’s labour market.”
One of the city’s flagship regeneration projects is the International Financial Services District (IFSD), which has transformed a run-down, unproductive waterfront area west of the city centre.
The vision set out by Glasgow City Council and Scottish Enterprise was to create a centre of excellence for financial and business services employers. Launched in 2001, the IFSD has attracted over £1bn of mainly private sector investment, and is now home to many of the biggest names in global finance, including Morgan Stanley, JP Morgan, Barclays and BNP Paribas.
The IFSD benefits from Glasgow’s City Deal in many different ways. Public realm enhancements and improved transport connections directly within the District itself will add to the IFSD’s attractiveness as a great location for business.
One lesson learned early on in the promotion of the IFSD is that the benefits of a specific district cannot be effectively marketed to inward investors without simultaneously selling the attractions of the city as a whole.
And so, the major infrastructure projects funded by the City Deal across the Greater Glasgow area will be instrumental in encouraging further interest and investment in the IFSD in the future.