Devo Met: How to boost growth by unleashing the power of our cities

Ben Lucas
A greater control over tax revenues would help London to continue booming

London is Britain’s global city. Between 1997 and 2012, its economy more than doubled, and that trend is set to continue. The mayor’s projections show the capital adding 1.4m jobs by 2050, assuming a 2.5 per cent annual growth in real gross value added. Its population is forecast to grow by 37 per cent to 11.3m over the same period. But this economic success is not God-given. Maintaining it will require substantial investment in infrastructure and services.

That means new bridges east of Tower Bridge to unblock the growing logjam between the Rotherhithe and Blackwall tunnels, new schools to respond to the needs of a growing population, a better start in life for kids in a city where obesity is now a major public health challenge, and much more affordable housing. Having a high-profile mayor helps – it certainly did with the Olympics, and getting the go-ahead for projects like Crossrail and London Overground extension. Yet unlike its international competitors, London still has to negotiate with central government for substantial infrastructure investment. That’s because only 5 per cent of the tax revenue raised in London is controlled locally, with the rest handled by Whitehall.

Centralisation runs against the prevailing economic and political trends of the time. Cities, with their high concentrations of productivity, innovation and creativity, are the drivers of prosperity, accounting for 80 per cent of global growth. For the first time in history, more than half of the world’s population now resides in urban areas.

The UK’s centrally-controlled system is at breaking point: Scotland has been promised “devo max”, and Wales and Northern Ireland are also demanding more powers. London clearly needs more control over its tax revenues, and our other British cities are now crying out for proper devolution.

It was against this background that the RSA set up the City Growth Commission. Chaired by Jim O’Neill, the renowned former Goldman Sachs economist, we have been looking at measures to enable British cities to achieve their economic potential, and how this could increase the overall trend rate of the growth for the economy. We call for a process of “devo met” for our cities, on the same timescale as devo max for Scotland.

Unlike previous inquiries into city devolution, we didn’t start from the assumption that London is a problem for Britain. Quite the reverse; we have been looking at how London’s growth can be complemented by growth in other cities, asking whether they can learn from the capital’s recent success. Much of this is based on what economists call “agglomeration” – the turbocharged benefits accruing from scale and clustering, which is crucial to success in our increasingly knowledge-intensive economy.

Could similar agglomeration benefits be achieved elsewhere in Britain? Given the potential for collaboration between metro areas in the north, north east and the Midlands, we think so. Take the four city regions around the Pennines – Greater Manchester, Liverpool, Leeds and Sheffield. They have a combined population of 7m – much larger than Scotland’s. But the connectivity between these cities is poor. It takes roughly an hour to travel the 40 miles between Leeds and Manchester – no wonder that fewer than 1 per cent of their workforce travels between the two cities. What could they achieve with the equivalent of a Tube system for the north and a northern Oyster Card?

Cities also need better broadband connectivity, and employment programmes fit for their local economies. The north east, for example, is the only region in the country with a trade surplus. It has skill shortages in engineering, which could be magnified if Hitachi goes ahead with plans to invest in Tyne and Wear on the same scale as Nissan. Surely local business and civic leaders are better placed to understand the needs of the area than officials in Whitehall?

We recommend new powers for metros to finance infrastructure, manage their own skills and work programmes, integrate and reform public services, and help their universities generate local economic innovation. They will need mayors, or something very similar, to provide the level of accountability that Ken Livingstone and Boris Johnson have given us in London.

The economic prize for unleashing our cities’ potential is considerable. If the UK’s top 15 metro areas were to realise their estimated potential, they would generate an additional £79bn in annual economic output by 2030. That’s why devo met isn’t just good for our cities, it’s an economic necessity for Britain.