Stuart Howie: Devolution could help regional cities to prosper

AS growth returns to the economy, it’s clear that benefits aren’t being felt evenly across the country. When economists refer to growth, focus tends to be on the sum of the whole of the UK economy. If we say that growth in 2014 will be around 2.6 per cent, up from around 1.8 per cent in 2013, we are in a world of averages.

Averages can serve to confuse rather than inform, especially on important debates such as rebalancing the UK economy. For instance, an OECD study of regions across developed economies argues that growth rates were usually higher in “second-tier” regions – those with per capita income levels below the national average.

This has been observed in a number of European countries, but not in the UK. This seems to be a missed opportunity. In January, the IPPR think-tank argued that faster growth in the North of England would not just help to rebalance the economy but also improve overall national economic performance. Professor Michael Parkinson, a leading academic on cities, puts forward powerful arguments that strong regional cities are good for the national economy and offer an alternate model to putting all our economic eggs in the capital basket.

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For those of us based in strong second city regions such as Leeds or Sheffield, how do we get a greater economic growth dividend? What can we do to unlock some “second tier” city growth of our own?

Let’s not get drawn into the “them or us” debate. The regions need a strong London and London benefits from stronger regional economies. The often missed point in this debate is that growth is not a finite commodity; it’s not a zero sum game. If we can make our regions more competitive places for investors, we can share more growth.

The key to spreading prosperity lies in the competitiveness of our regional cities and their ability to attract the private sector investment needed to drive growth. That ability has many facets such as natural resources, connectivity and quality of life but we should focus on whether the region has appropriate financial levers or tools to do the job to make our region more competitive. Public investment and fiscal devolution are key.

There are finite public resources for investment. The only way to get a greater share of those resources is for the regions to lobby with robust arguments as to why the next £1 is better invested in Yorkshire than elsewhere. This is not an easy win, especially during times of austerity, but vision and leadership backed by compelling evidence and delivery capability are must-haves.

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Perhaps devolution offers greater hope in the short and longer terms to accelerate growth. It can offer certainty, flexibility and a greater share of success.

For instance, the private sector – whose investment drives growth – seeks certainty and transparency. If the region hasn’t got sufficient understanding of, or control over, future public sector investment budgets, it is much more difficult to invest it efficiently, creating uncertainty.

In addition, a lot of central government funding for things like transport, skills or housing, arrives in the region with conditions over how it is spent but need varies by location and over time. Greater flexibility is needed to use scarce public resources where they will make the biggest difference – not because national spending themes need to be met.

The UK operates one of the world’s most centralised public finances systems, with 90 per cent of taxation revenues from regions going to the Treasury. Giving cities a greater share in taxation benefits would give them more incentive to invest for growth as well as allow access to much needed revenue to fund investment. Why not go further and allow places to keep a material share of other public service savings, such as social care or benefits, to further incentivise delivery of growth and public service reform?

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Regions have been fighting for greater devolution for many years. There have been successes such as the City Deals, and Local Growth Fund deals are currently being negotiated to bring more funding and freedoms to the region.

If we are really going to maximise the region’s growth potential and develop a more balanced and resilient economy that is less dominated by a single city, we will need more devolution in the future.

So while we must continue to argue that the UK investment jam should be spread more evenly, the case for greater devolution should be sustained. PwC’s own Good Growth for Cities research supports the case for accelerated decentralisation where the costs, benefits and solutions are localised.

Greater regional prosperity will be secured through additional locally controlled spending that delivers greater benefits than “one size fits all” national plans, capitalising on the fact that growth is not a zero sum game.

• Stuart Howie is a director in PwC’s government and public sector practice in Leeds.