Will city devolution tackle national inequality?

This article originally appeared in New Start.

Cities have been the font of economic growth and social progress since Mesopotamia 7000 years ago. So the recent English policy focus on regional cities is welcome, if a tadge overdue!

However, it’s only just begun, and we ain’t seen much real devolution yet. Furthermore, what seems to be on offer is quite meagre fare. City devolution must offer new opportunities to address systemic national and city-wide inequalities and be socially progressive. It cannot be a mere spatial reshuffling of the existing haves and have-nots.

Its important to note that the present city devolution is driven by a singular commitment to accelerate economic growth in large cities through the Treasury-backed agglomeration approach.

Agglomeration economics is where the benefits of proximity and concentrated networks of policymakers, companies, consumers and workers stimulate economic growth. Therefore the focus is on the larger cities, as this is where there is greater likelihood of smaller supply chains, cost reductions and increases in productivity take place and where the potential for profit attracts ever more investment capital.

There is more than one way to skin the devolution cat, and we must ensure that devolution is framed within a context of national fairness

In areas with no devolved powers, and maybe even those outlying boroughs (but still within the city region), there is likely to be an ebb in economic investment, worker flight, and business relocation. The retention, or even an acceleration, of inequality across the country is inevitable. Indeed it is the nature of agglomeration economics.

To be fair, if the global economy remains reasonably buoyant (which is in doubt), agglomeration could create greater levels of economic growth and jobs. Furthermore there could be a virtuous ‘trickle outwards’, toward outlying boroughs and neighbouring towns. We also know that any economic growth within the city region and city centre creates ‘problems of success’, such as an increase in land and property prices, rents and other associated ‘downsides’ such as congestion. These ‘problems’ may be good for outlying and poorer areas, as investment and businesses would start to look to cheaper locations, beyond the city centre and city region.

However, agglomeration, without national and global economic growth, would extract economic activity and energy from elsewhere. We also must question how a singular focus on city agglomeration can solve city or national inequality, without dealing with the arguably bigger questions of national and intra-city redistribution. Take London, a beacon of agglomeration and the sixth richest city in the world, it has huge inequality issues, and over 600,000 children are living in poverty , 12% above the national average.

There is also the thorny issues of public sector cuts and the potential of future fiscal devolution to cities. A recent report by the National Audit Office highlights how more than half of major local authorities are at risk of failing to meet their medium-term budget plans. This suggests that local government finance is unsustainable. If we couple this to tax intake, we see that in the present tax system, London is a net contributor to the public purse, i.e. it gives more than it takes.

In contrast, all core cities (bar Bristol), are net beneficiaries. Any fiscal devolution to core cities and London would mean cities retaining more of the tax they generate. Under this scenario, there could be even more pressure on national budgets and potentially less money for national public services and services in those non-city areas with no fiscal powers.

The solution must be that richer cities like London continue to give more than they take. However, this requires consideration of an enhanced national redistribution mechanism to ensure a local social safety net and decently funded public services for the whole country. Without this, any fiscal decentralisation could just exacerbate the problems of austerity and entrench, not solve, existing inequality.

Let’s be clear, I am not arguing against city devolution, but flagging up how it is being framed. England is oppressively centralised, which is bad for our economy, our democracy and for our social and cultural life.

However, there is more than one way to skin the devolution cat, and we must ensure that devolution is framed within a context of national fairness. A fairness which seeks to reduce inequality, not just create new forms of it.

Therefore there are a number of considerations:

  • We need a national constitutional convention, with a wider and deeper national conversation which moves to provide clarity and order to any devolution asymmetry.
  • We must reset economic plans and devolution. It cannot be shoehorned into an economic model which complies with the narrow Treasury version of the English economic state and the role of city economies in it.
  • We must adopt economic development approaches which are more pro-social. In this, ideas of agglomeration and economic growth needs to be penetrated by issues of environmental sustainability, inequality, and ideas of national and local fairness. We need devolution to grow a ‘civil’ economy.

The recent, but belated, English interest in city devolution presents a rare opportunity. However, we must be progressive in our aims and guard against a move from a centralised national economy riven with inequalities, to an equally divisive city-based one.