Three quarters of our population lives in cities.
This is not surprising, as more than three quarters of jobs are in cities.
It is cities and regions, not countries and national governments, which drive economic growth.
This is true internationally and in the UK. London over the last 30 years has transformed from a grimy, worn-out city with a falling population, into a global economic and cultural powerhouse.
For the UK to grow, we need our great provincial cities to replicate London’s success – they cannot wait hopefully for HS2 or the man from Whitehall to arrive. They need to determine their own futures by retaining talented graduates, encouraging startups, and providing an attractive environment for later-life living.
There are three pre-requisites for success. Critical mass is the “table stake”, which enables a city to think about accelerating growth. That growth, in turn, requires productive capital investment: in infrastructure, housing, local businesses, and by putting patient capital into startups. The real magic comes about when excellent execution turns a bold vision into reality.
Many of our towns and cities have the necessary critical mass. Manchester, Birmingham, Cardiff, Edinburgh, Glasgow, Newcastle, Leeds, Sheffield, Liverpool, and Bristol could become powerful “second cities”, able to compete with Munich, Frankfurt, Boston or Austin (Texas).
City regeneration provides positive long term returns and a decent covenant (especially for long term funds which do not need to worry about daily liquidity). It can and should work in positive, constructive collaboration with civic authorities and leaders.
This is the basis on which we at Legal & General have invested over £12bn in UK real assets, and are well-advanced towards our goal of having £500m-£1bn invested in the UK’s major cities outside London.
Our cities and regions are developing their own particular blueprints for economic growth.
Newcastle’s growth is now running at around 4.5 per cent – among the highest in the UK. Cardiff city centre is undergoing a stunning £400m regeneration. Manchester’s relative prosperity is spreading to previously-deprived suburbs, including Salford, and a host of projects are combining in Leeds to spread productive growth to the city’s hard-to-reach north-eastern corner.
Devolution – with local empowerment – is a powerful catalyst to further progress and prosperity.
Three successive mayors of London – of different political stripes – have each made a difference. The government’s programme of city and city region devolution deals is a powerful spur to progress. New metro-mayors, like Andy Street in Birmingham, Andy Burnham in Manchester, Steve Rotheram in Liverpool and Ben Houchen in Teesside, will be largely judged on what they can deliver, much less on their ideology.
City devolution deals are good value for the government, financially and politically.
Since 2011, over 30 deals have been granted. The first 10 of these attracted new government funding of £250m per year over three decades, but with the associated long term investment funds and apprenticeship commitments comes much greater local accountability for revenue-raising – a genuine pump-priming initiative for cities and regions.
These deals are, moreover, real evidence that “the man from the ministry” no longer knows best.
Passing control from Whitehall to the town hall and spending political capital on giving back political power makes sense.
For Philip Hammond, a Budget with limited room for manoeuvre is the perfect opportunity to announce progress on further city deals.
Newcastle and Sheffield both need to move forward.
Newcastle is showing recovered dynamism under its current civic leadership, and it has the potential to grow further in science, engineering, and in the nascent industry of North Sea decommissioning. In conjunction with Northumberland, it can make real progress, and quickly.
Sheffield, meanwhile, needs to capitalise on its huge expertise in advanced manufacturing and engineering, including for the nuclear sector, and on leveraging the strength of its universities. The £900m deal needs to move forward – and at pace.
In both these cases, adjacent local authorities that want to see a different configuration should not hold up the process or the funding.
The onus is back on local leaders to step up, driving productivity, growth and jobs, and ensuring that local people are engaged and invested in their communities, rather than merely blaming “the centre” for economic failures.
Devolution creates real winners. A decisive but modest injection of catalytic capital from government can restore and revive a local economy, deliver a vision for the region and, married with institutional capital, achieve a major multiplier effect.
Centralisation, by contrast, too often drives resource misallocation and fosters a culture of victimhood and blame.
This needs to be a Budget for devolution – for Newcastle, Sheffield, Teesside and Bristol. That is, a Budget for real growth and empowerment.