2 Oct 2019 12:58pm

Close to home

The idea of granting local areas greater control over how money is spent has gained ground in the UK in recent years. But there remains much work to be done before benefits can be truly realised, as Nick Martindale discovers

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Caption: Illustration by Davide Bonazzi

Quite how countries and cities are set up in terms of governance and the degree of local control varies dramatically, often as a result of geographic size, culture or history. But in recent years there has been a shift in many parts of the world towards devolving more powers to local regions or cities, or for those areas to take on more responsibility where the opportunity arises.

“It’s a general trend toward city and municipal leadership, and is a positive way to go forward in order to meet some really big challenges,” says Andrew Walker, a policy researcher at the Local Government Information Unit, a not-for-profit local authority membership organisation and thinktank. “For a long time cities have been seen as places of inequalities, poverty, low wages and crime, but with population growth and economic change they’re now being seen more as vehicles for positive change.” The UK has made some moves down this route, albeit in a rather ad hoc manner, with the creation of 31 city deals since July 2012, and 10 city regions which have subsequently elected metro mayors. But, with the exception of the devolved nations, the UK generally remains behind the curve, says Simon Jeffrey, a policy officer at Centre for Cities.

“The UK is quite an outlier internationally in that our major cities, rather than being centres of highly skilled people and businesses and higher wages and opportunities, are actually concentrations of lower-skilled people, lower productivity and lower employment,” he says. “If you look across Western Europe or the US, that’s completely different. This is mirrored in the ability of cities to govern themselves, take decisions locally and raise money locally. We want to create cities that represent the local area in which people live and work their daily lives. That’s the scale at which the economy operates so if you’re going to make policy to try to improve that – through transport, skills and housing – you have to make policy at that level.”

There are a number of potential benefits in cities having greater control, says Benjamin Craig, R&D senior tax manager at business performance consultancy Ayming. “It creates an environment for local government that fosters investment and innovation to its own local economy,” he says. “Every town, city and region is slightly different and has different historical focuses, skillsets and economic strengths and weaknesses, and a one-size-fits-all national, and increasingly international, approach doesn’t necessarily foster the greatest environment at a local level.”

From a regeneration perspective, devolving powers to a local level can help get local communities more involved in shaping the areas in which they live, adds Ryan Manton, an architect and programme director at The Class of 2020, a thinktank for the future of living, learning and working in university cities. “It’s the basis of inclusive communities – people living in areas have a good idea of how local areas operate, what they need and how they might work better,” he says.

He gives the example of Switzerland as a model of a democratic planning process, with communities directly involved in making decisions about what is built in their towns. One of the main sticking points with any genuine move towards devolution is the extent to which areas have the power to raise their own funds. Currently, there is no means for any of the city regions in the UK to do this – in contrast to the devolution that has taken place in Scotland – but a pilot business rates retention scheme is currently underway which allows councils to keep 100% of any real-terms changes in business rates revenues.

“At the moment business rates are delegated with a certain degree of control, but rates are set by local councils,” says Craig. “It may well be that one of the flexibilities we want to introduce is that business rates are discounted by a particular local council for specific types of business or employment patterns that they want to encourage within their area. That could then be extrapolated to corporation tax or National Insurance, to encourage specific employment patterns in particular areas.”

Jeffrey believes there needs to be more of a link between investment at a local level in areas such as transport and the benefits that stem from it. “Incentives would be much better aligned at a regional level, so if you increase the housing by 5,000 or 10,000 per year, not all of that money flows to central government through stamp duty, income tax and VAT,” he says. “In other countries you see more of a growth mindset to these things, and there is a view of widening the tax base so growth more directly fits into local government finances and is able to pay for itself.”

The Local Government Authority has called for a number of measures to give councils greater powers around finance, including allowing them to keep 100% of Right to Buy receipts and set discounts locally, and to devolve replacement EU structural funding to nonmetropolitan areas, allowing it to be aligned with local economic priorities outlined in local industrial strategies. For its part, the government has pledged to publish a devolution framework, which should go some way to setting out a route towards greater localism in places which do not naturally lend themselves to a combined authority with a metro mayor.

“Cities like Leicester should probably have a route to getting powers over strategic transport, planning, funding and training/ development corporations, but don’t really need a combined authority,” says Jeffrey. “So how can they get the powers that metro mayors have and bring them more into line with international peers, such as New York, London, Lille or Lyon, in being able to set policy, work with local businesses and integrate national funding streams and policies so they all work together?”

With all of this, however, much depends on the desire to extend devolution from the very top of government; something that was all too evident in the transition from the Cameron/Osborne age to the May/Hammond era. The initial signs, says Jonathan Werran, chief executive of neo-localist thinktank Localis, are that Boris Johnson accepts the idea that greater fiscal devolution can bring significant benefits to local areas, but he also sounds a word of caution. “The old adage is that everyone is a localist in opposition but a centralist in power, and that reflects a political view that local leaders just aren’t up to the job,” he says. “If we’re going to have a rebalancing, it will require a paradigm shift in relationships, based on trust and respect.”

People power

Barcelona’s move towards a more localist-controlled agenda has been a case of building from the ground up. The city is currently controlled by the Barcelona en Comú movement; a populist group which sprang up on the back of a desire to give local people more say in how the city is run. Barcelona has a long history of local activism, and the movement was created on the back of the 15-M initiative, a populist movement across Spain that was set up to challenge the traditional party-based political system, which campaigned on issues such as electoral and banking reform.

In May 2015, the group succeeded in getting Ada Colau elected as the city’s first female mayor, funded largely by a crowdfunding campaign. Since being in power, the movement has pursued measures it pledged to tackle – including a new strategy to restrict traffic to a number of big roads to reduce pollution and to turn other streets into “citizen spaces” reserved for culture, leisure and community activities. Other pledges include tackling corruption and developing a new model of tourism for Barcelona.

Leading the way

The Greater Manchester Combined Authority (GMCA) is seen as the poster-child for city-region devolution in the UK. Made up of the 10 Greater Manchester Councils, the GMCA initially obtained a number of powers through the 2014 Devolution Agreement after agreeing to the creation of an elected mayor, currently Andy Burnham, and built on this with a unique £6bn health and social care devolution deal in February 2015. Since then further deals have granted powers over transport, social housing, criminal justice and local industrial strategy.

The origins of devolution go further back to the abolition of Greater Manchester Council in 1986, says chief executive Eamonn Boylan, who is also chief executive of Transport for Greater Manchester, but a significant moment was when the GMCA was set up as a statutory body in 2011. “We got sick and tired of having conversations with government or agencies about why nothing could ever be devolved to us because we weren’t a legal entity,” he says. The deal around health and social care is particularly significant, marking a new attempt to tie the two services together at a local level, in a radical departure from the traditional model.

“We’re jointly accountable with our Greater Manchester NHS colleagues for the totality of the health and care spend in the city region,” says Boylan. “We felt that if we were serious about creating an inclusive economy which would deal with the inequality that underpins our economic weakness, we had no choice but to take an entire-system approach to health, care and wellbeing that focuses much more on prevention and early intervention.” Despite the moves towards greater control in a number of areas, there has been no devolution of fiscal or tax-raising powers, although it is taking part in the government’s business rates retention scheme.

“It’s not about the quantum but the freedom and flexibility about how you spend it,” says Boylan. “The business rates retention schemes gives us greater flexibility about how we deploy that money in pursuit of our growth objectives.” Boylan is hoping for a “devolution settlement” rather than a series of further ad hoc deals. “It’s about trying to move to a more established and pure relationship, built around our current devolutionary powers but looking to deepen or extend those,” he says. In the long-term, the hope is that Greater Manchester becomes a net contributor to the national economy, he adds. Boylan believes Manchester’s experiences can be replicated in other parts of the country but says it’s not possible to apply a blueprint.

“Everything needs to be slightly different but the issues we’re dealing with – low skills, low productivity, poor educational and health outcomes – are no different in South Yorkshire, the West Midlands or Manchester,” he says. “But you don’t get that through a series of local deals. It needs a co-designed approach with commitment from localities and government.”

A city reborn

With a highly devolved federal model of government, US cities enjoy considerable powers and capital, so local initiatives are relatively easy to get off the ground. At the turn of the last century, Cincinnati was struggling after decades of falling population as a result of industrial decline, and reached a nadir following the race riots of 2001.

The response from the city’s then-mayor, Charlie Luken, and other corporate leaders, was to come together and create 3CDC, a not-for-profit corporation financed by local businesses including Procter & Gamble, which would seek to reinvent parts of the city that had fallen into decline. The transformation which followed in the city’s Over-the-Rhine district has been the subject of a case study produced by the Nowak Metro Finance Lab at Drexel University, written by Bruce Katz, Karen Black and Luise Noring, to demonstrate what can be achieved when cities take more control over their own destiny.

“We believe that cities, given their immense and growing responsibilities, require new governance and finance models that organise public, private and civic capital in novel ways,” wrote Katz. Over a 15-year process, 3CDC – led by urban practitioner Steve Leeper – transformed a 110-square-block area of the city, restoring 166 buildings and 14 acres of civic space. “It has undertaken strategies to avoid direct displacement of residents through a multi-pronged approach to rehabilitate vacant buildings, leave renters in place and create a sustainable, racially diverse, mixed income neighbourhood,” Katz wrote.

“Two-thirds of the rental units 3CDC builds are affordable to households earning below 80% of area median income, and 3CDC has helped to fund five new state-of-the-art homeless shelters. Its reclamation of iconic public and civic spaces has restored a sense of place and community.” The report authors believe the model adopted by Cincinnati could be deployed across the US and further afield, helping to anchor institutions in their local communities. Since 2010, Cincinnati’s population has been growing, reaching 300,000 that year for the first time in almost a decade.