Labour must recover its spirit of federalism to take the lead on cities

If you are squeamish at mentions of the widening economic gap between the South of England and the rest of the UK, Cities Outlook 2015 will make for disturbing reading – perhaps even more so if you’re a Labour MP or council leader representing a city beyond the South.

The report – the Centre for Cities’ annual ‘health check’ of the UK’s 64 largest cities – shows that despite attempts by the previous Labour Government and the current Coalition, the gap between Britain’s best- and worst-performing cities has widened dramatically since 2004, with cities in the South pulling away from the rest of the UK.

The numbers are stark: for every additional job created between 2004 and 2013 in other UK cities, cities in the South* added 12 net new jobs. The people of Hull, Blackpool and Rochdale have seen thousands of local jobs disappear, equivalent to around 10 per cent of their total labour markets. Meanwhile, anyone looking for a job in Milton Keynes, Cambridge and Brighton has seen the market expand dramatically, with more than 10,000 net new jobs in each city – an increase of over 10 per cent.

This period also saw the number of businesses in Southern cities grow at twice the rate of those elsewhere – by 27 per cent to 14 per cent – while the population increase in the South, with newcomers attracted by greater job prospects, has outpaced that of the rest of the UK by 1.6 million to 1 million.

Some cities in the rest of the UK, such as Aberdeen and Warrington, have proven agile and dynamic enough in this period to buck the trend, but the general swing has clearly been heavily weighted towards the cities of the South, with the runaway success of a booming capital helping to spread prosperity amongst its neighbours.

Ed Miliband has acknowledged the political and economic imperative of addressing these growing imbalances, which have tended to hit Labour voting areas hardest. In July, Andrew Adonis published his review into regional economic growth, ‘Mending the fractured economy’. The Labour leader described the report as an historic reversal of a century of centralisation, and pledged to roll out more Combined Authorities – groups of local authorities across one travel-to-work area with powers over transport, infrastructure, skills and economic development – to a larger number of city-regions and county-regions.

In addition, the Labour leader pledged to triple devolved funding to £30 billion over the next Parliament, with few strings attached dictating how those funds should be spent. If tax returns from Business Rates go up due to economic growth, these would retained within the authority, rather than taken in by the Treasury, and the messy overlap of different administrative boundaries in many combined authorities would also be tidied up.

Reversing centralisation in this way will help for two reasons: first, moving powers and funding from Westminster to larger city-regions can reduce duplication and encourage cooperation between local areas. The last Labour Government’s Multi-Area Agreements, whereby local authorities could pool resources and services, were an important step in incentivising cross-boundary working, but much more remains to be done in the next Parliament.

Second, it will enable cities to tailor their own policies to suit the unique make-up of their people, skills, firms, infrastructure and geographies. The people and leaders of York, Liverpool or Newcastle know best where a new bus route might be needed, what skills local firms need from the workforce to expand, and where and when housing and commercial space needs to be built, but currently they lack the necessary powers to take the big decisions that affect their local economies.

Nevertheless, the truth is that Labour is now playing catch up on city devolution. In November, George Osborne signed a devolution deal with the Labour leaders of Greater Manchester, giving it London-style powers with directly elected mayor. It is a genuinely significant step in the UK’s devolution agenda.

The argument between federalists and centralisers was described by GDH Cole as the last great split in socialism. Although the centralisers have had the better of it in recent decades, if Labour is serious about growing the cities of its heartland, and if the party is to match the momentum that has been seized by the Chancellor on this issue, it must be prepared to be more ambitious and put fiscal powers for city regions on the table.

Labour should rediscover its spirit of federalism and offer city-regions control over property taxes raised locally. Currently, only five per cent of council spending is raised locally. In New York, the figure is 55 per cent. If Labour gave control of council tax, business rates, and stamp duty to cities, it would give city-regions across the UK the best chance to fulfil their economic potential, and those outside the South the greatest chance of closing the gap to the best performing cities in the country.

*Defined as the South West, South East, London and East of England regions combined

Andrew Carter is Acting Chief Executive of Centre for Cities