Heseltine’s right: national prosperity requires local prosperity

Lord Heseltine’s Review, published today, is right about many things.  He is right that government has a role in shaping and stimulating economic growth through an active industrial strategy – something progressives have been saying for some time.  But importantly he’s right too in the localist stance he takes on how we should go about reinvigorating the economy.  And this is something that any progressive strategy for economic growth needs to take seriously.

He recommends bolstering capacity at the city region level, to enable local authorities and their partners in the private sector to identify the opportunities for growth in their area, coordinate funding to support those priorities and orchestrate the training system so individuals are equipped with the skills needed for gainful employment.

To achieve this he advocates a significant decentralisation of resources, arguing vast swathes of the skills, transport, housing, business support and innovation budgets be passed to city regions.

This localist approach is critical.  The UK economy is extremely diverse, and different places have differing assets and opportunities.  Yet we are outliers in the developed Western world when it comes to the amount of central control that is exerted by Whitehall – despite all the rhetoric about localism.

An active industrial strategy cannot be delivered by central government alone.  Detailed plans to realise local economic opportunities – such as supplying the offshore wind industry in the North East of England or developing the orthopaedic manufacturing industry in the Leeds City Region – simply cannot be delivered by central government.  This is why we need powerful local institutions. And the city region is the right scale for this task.

IPPR North’s Northern Economic Futures Commission – which is publishing its final report next month – along with many other international experts, has argued that stable and capable local institutions are essential for supporting local economic growth. But in England our approach to economic development has been anything but stable, with initiatives and institutions chopping and changing with each new government.

The emerging consensus that city region are the right scale for the coordination of local growth is encouraging.  But now we need to ensure city regions have the tools they need to grow their economies.

There is, however, one major issue where the Heseltine Review has not got it right.  He argues that every area should competitively bid for funding from a single central pot.  This, he argues, will encourage innovation and creativity.  But it will also mean central government still has the final say on local growth.  More importantly, it will not deliver the stability and certainty needed for local economic growth to be effectively coordinated.  Rather than making areas compete, the Whitehall budgets should simply be devolved to city regions once suitable governance arrangements are in place.

We don’t make the Scottish Parliament or the Mayor of London bid to central government for their funding, so if we’re serious about city regions driving economic growth, why would we do it here?

What we need are powerful local institutions in our city regions, working with private sector partners to drive forward growth through an active industrial strategy.  This should be backed up by long-term and stable funding and finance.  This is the route to sustainable economic growth.  It is also the route to breaking our dependence on the greater south east to drive the UK economy.

By giving places the tools they need to release their economic potential we can begin the slow task of rebalancing and diversifying our economy.  Localism should be at the heart of any progressive strategy for growth.

Katie Schmuecker is Associate Director of IPPR North