27 June 2006
Speech by the Financial Secretary to the Treasury, John Healey at Core cities summit, Bristol.
Introduction
Thank you for the invitation to join you for this conference. And thank you for staying right to the end of this two-day conference.
This may be the graveyard slot to end all graveyard slots. The last thing that conference delegates want at this point is a keynote speech, when everyone is wondering what’s for lunch or thinking about train times home. I also had a moment of panic in the car from the station, when I saw I was billed to “respond” to this two-day event, at which I’ve only just arrived.
Before I start I want to thank Barbara Janke and Bristol City Council for organising this event so well. I'd also like to welcome Peter's involvement in this conference – if there’s a single figure who has consistently championed the case for policy devolution and the regions, including during the ‘80s and early ‘90s when this view was deeply unfashionable, then that is Peter.
And I want to pay tribute too, to the Core cities group behind this conference. You have contributed greatly in the last 18 months or so to public policy debate and to our Budget publication on the importance of cities to regional growth.
Regionalism and localism in Treasury economic policy
This was the latest in a series which over the last 3 or 4 years have looked at the economic role of regions, local authorities and now cities; and looked at how we can improve the economic performance and economic policy design for all regions and localities in the UK.
When I say "we", I mean the Treasury specifically and not just the Government in general.
Our active interest in regional policy has been a radical departure from past. And for anyone interested in policy for the future – as you all are – I think it’s important to understand the reasons behind this.
So tracking back briefly to 1997: we created – for the first time in a generation – a new national economic policy framework based on credible institutions, clear objectives to promote stability and growth, and maximum openness and transparency.
The impact, of course, has been that over the last nine years, we've enjoyed the most stable of major economies, rather than the most volatile – an economy with steady growth, historically low and stable levels of inflation and interest rates and record high levels of employment.
That’s why we have 2.5 million more jobs, 575,000 more businesses and 1.8 million more home owners in Britain today, compared to 1997.
In the Treasury, we knew that macroeconomic stability is a necessary but not a sufficient condition for longer-term economic success.
We knew that we need to reinforce the microeconomic drivers of growth and productivity – business investment, skills, enterprise, competition, innovation and science.
And we knew that we have to reduce the disparities in growth and economic performance between and within the regions and nations of the UK, if we were to secure a stable and successful national economy for the long term.
Disparities which are deeply entrenched, with output per person in the poorest regions of Northern Ireland, the North East and Wales 40 per cent below the level in London.
Disparities which represent a huge waste of potential, as levelling up the lowest six performing regions just to the national average would bring a £60 billion boost to the UK economy.
And as we considered our microeconomic policies, alongside the macro, it became clear that many of the decisions were better taken in the regions.
In economic terms, our guiding principles became: first, that there is evidence of regional disparities in skills, employment levels, business start-ups, levels of R&D, business investment and availability of venture capital; and second, that where the market failures that underlie these disparities are primarily regional and local, our policy response should be designed and delivered regionally or locally.
Beyond this continuing drive to raise levels of productivity and regional growth, the Government's big policy task in the next decade is to come to terms with the long-term policy challenges of the:
- expanding global economy with rapidly emerging new economies and competitive pressures;
- accelerating pace of technology change and diffusion;
- intensifying scarcity of national resources and threat of climate change;
- increasing insecurity in face of international crime and terrorism; and
- rapidly changing demography of our own country.
And in the Comprehensive Spending Review - the CSR - as we assess the implications of these trends and the contribution to the economy of new policies on skills, transport, planning, housing, employment, better regulation, science and innovation ….. we will need to consider in each policy area, the case for further decentralisation of decision-making.
But whether this may be to region, city or local level, proposals backed by evidence must meet the central policy test: Will this improve employment, economic performance and growth? And will it do so cost effectively?
The importance of local authorities
The background policy story for local authorities with this Labour government is similar.
Before 1997, local government was poorly funded, and often poorly focused and poorly performing.
Since 1997, we have increased resources substantially and consistently – by next year the central government grant will have increased by 39 per cent in real terms. We have introduced clearer targets - through the PSAs - and tighter controls - with ring-fencing, new inspection regimes and the Comprehensive Performance Assessment.
Again, at first, I would argue that this was necessarily top-down to ensure the additional money delivered.
But as a result, the capacity of local government to deliver has increased. There are now 40 four-star authorities - double the number when the CPA was introduced - and just one zero-star authority now, compared to 13 then.
Outcomes have improved in school results, recycling, the quality of housing and right across the range of other service areas.
So as a consequence, we have been able to introduce substantial new freedoms and flexibilities - from prudential borrowing to trading powers and local area agreements - allowing local councils to draw on their local knowledge and strengths to deliver more effectively.
In particular, councils have a key economic role that we want to do more to develop.
Of course, local authorities have a huge economic local impact directly and indirectly through their employment and procurement, and through the services for which they are responsible from planning to waste to education.
But I see this economic role as connected to directly to the community leadership role of local authorities - experts on the needs of their area, accountable to the people in their area, capable of aligning the interests and visions and efforts of other agencies serving their area.
That's why we introduced powers for local authorities to improve the economic well-being of their area.
That’s why we encouraged innovation through BIDs, URCs and enterprise areas.
That’s why we created the Local Authority Business Growth Incentive, to recognise and reward councils who see the business base in their areas expanding and why we launched the Local Enterprise Growth Initiative, supported by the creation of the fourth economic block of LAAs.
Sir Michael Lyons’ interim report last month on role and function of local government underlines the important role local authorities have in economic development.
Lyons links this to "place shaping" - local authorities taking responsibility for the identity and well-being of an area, and promoting the interests and future prosperity of that area.
The report questions whether councils currently have enough powers and policy tools at their disposal to make a real difference to local prosperity …… and following Lyons in the CSR we will build on the measures already in place.
But in developing a stronger economic role for our local authorities, it is important to recognise, as this conference has, that economic spheres are rarely consistent with council boundaries.
Labour markets, commuting patterns, transport networks, housing markets, or retail catchments do not respect the administrative boundaries of local government and local authority strategies must reflect these economic realities.
It means that the regional and sub-regional economic context is important, as are the relations with RDAs in particular.
There is no principled or pragmatic choice between either regions or cities and local councils.
Rather there must be close co-operation and consistency on economic strategies and activities between the leading agencies at regional, city regional levels, and central government must support such collaboration.
The importance of regions
Some feared that developing regional policy would weaken the role of local government. The reality is that, as a result of RDAs' sub-regional economic planning processes, there is now a much greater recognition of local government's role in leading economic development.
Some worried that regional agencies would be remote from the critical economic challenges local areas faced. But with Longbridge or the Selby pit closures or the Foot and Mouth crisis, RDAs have proved they can respond more rapidly than Whitehall and with more clout than a single council or city could bring.
Some anticipated that RDAs and Regional assemblies would be forums for conflict. Now of course there is competition for resources, but there is also much greater collaboration – between Leeds and Wakefield; Sheffield and Rotherham or Barnsley; Newcastle and Durham – and RDAs have been instrumental in making this co-operation start to happen.
I know that Richard Leese, as leader of Manchester city council, spoke to you yesterday. He will have told you that in Greater Manchester this kind of joint working across boundaries is nothing new - and the city region debate encourages them to go further. But in many parts of the country, it has been the RDAs and the need to agree sub-regional plans in order to win new resources that has fostered this collaboration.
Some believed RDAs would eclipse our core regional cities. But they rightly have a central place in Regional Economic Strategies – the eight city regions are at the heart of the Northern Way collaboration – and with science networks, indicative transport allocations, urban renaissance programmes and a host of other regionally-driven economic policies the cities themselves have benefited.
If we weaken the role of RDAs, or simply carve out city regions from the regional economic strategy, then cities - and in particular the smaller cities and towns - would be the losers.
The importance of cities
Regional Economic Strategies and our Treasury Budget publication confirm that strong cities are the future - round the world, as you've heard during this conference, successful economies have vibrant urban centres with the powers they need to shape the future.
But as we look to promote stronger local decision-making and greater collaboration between local authorities, this does require a regional strategic context.
The real challenge is to devolve more power and resources from Whitehall to the regions, and then on to local authorities.
Whitehall centralism is the biggest obstacle to progress, and we shouldn't be diverted either by a desire to prescribe new governance structures or unnecessary arguments between regions and cities.
Importance of the private sector
One other word of caution, if I may.
The programme for this two-day conference has been heavily dominated by speakers from the public sector.
We know enterprise drives national productivity and employment. It is also central to local performance - and here the greatest disparities and therefore the greatest challenges and potential lie. In England alone, our top three performing regions have more than twice the number of business per resident than our poorest performing region.
So we have to see skills, business support, development, urban planning, and employment services driven more by the demands of employers and the local economy. And because we want to increase leverage from the private sector in investment, skills, enterprise learning, community regeneration, environmental improvements, and tackling business crime we will look to strengthen the link between local authorities and local business, as we draw conclusions for the CSR.
CSR 2007
So let me turn to the policy period and process ahead.
The local government white paper, now planned for the Autumn, will be important.
But the central challenge in decentralised policy development for economic and social regeneration is to ensure this is linked to our national investment plans.
The cross-cutting review, launched at the Budget, and led by the Treasury with DCLG and DTI, will assess the sub-national investments we've made in economic development and regeneration.
Alongside final recommendations in the Lyons report, the review will also examine opportunities for releasing further the economic potential of our English regions, cities and localities.
I expect it will advance our policy approach in six key areas:
First, it will develop further our analysis and understanding of the importance of place in delivering the Government's economic aims.
Second, alongside the Leitch, Eddington and Barker reviews, it will help us define the greater degree of local and regional autonomy required on skills, employment, transport and planning needed to meet the new challenges we face with an increased pace of globalisation, technology development and demographic change.
Third, we recognise that increased devolution requires stronger scrutiny and clearer accountability, and so the review will examine options for ensuring that RDAs, and any collaboration of local authorities in city regions or elsewhere, are properly accountable for the decisions they take.
Fourth, as we build the necessary accountabilities, we need to have more streamlined and co-ordinated institutional arrangements in the regions. Too many bodies at present unnecessarily create confusion, complicate accountability and introduce delay in delivery of key projects.
Fifth, it is essential that public money is spent to best effect and we will toughen up the regime for efficiency, at regional and local levels.
And finally, the review will propose ways of strengthening our approach to neighbourhood renewal, so we can deal with the entrenched problems of very localised deprivations, many of which are in our big cities.
Taken together, fresh thinking and policies in these areas could be a very significant advance in linking national investment with regional development and local delivery.
The CSR contribution of cities
I hope as city leaders you will contribute directly to the CSR work, both through your RDAs and Regional Assemblies to whom I wrote last week formally inviting their input and through the series of seminars with me and with officials that begin next month.
I was also going to say, I hope you'll remain active in pressing your case from the cities during the CSR process …. but I know you will!
I look to the work we can do together over the next few months.