BUDGET 2017: SUBMISSION FROM THE KEY CITIES GROUP

Dear Chancellor

BUDGET 2017: SUBMISSION FROM THE KEY CITIES GROUP

I am writing to you as the Chair of the Key Cities Group. This group represents 21 medium size cities in England and Wales, with political leaderships from both main parties. Our ambition is to work with government and other regional and local partners to deliver an economy that benefits all our people and places, and contributes to a strong and successful Britain.

Empowering and investing in Britain’s medium size cities will support the ambitions within the Industrial strategy to build on our strengths and extend excellence into the future, close the gap between our best performing companies, industries, places and people and those which are less productive, and to make the UK one of the most competitive places in the world to start or to grow a business.

Linked to this is also the Government’s objective of having an economy that works for all. Addressing poverty and inequality is one of the fundamental ways of creating more prosperous cities.  Key Cities are committed to ensuring that that growth is inclusive and not just trickle down, and believe that whilst labour market participation rates are important, it is quality of employment and opportunity that will help effectively to respond to social and other issues in our communities.

Global evidence, e.g.  Lewis Dijkstra’s recent work on growth patterns in major and 2nd tier cities across Europe increasingly shows the importance of smaller cities in stimulating not only regional and national economies, but succeeding globally.  Recent economic research has also highlighted the tendency of diminishing returns of investment in larger places, e.g. work by Professor Ron Martin at Cambridge University in 2016 found that relatively modest effects of agglomeration on productivity, with the doubling of city size associated with a 4–8% productivity increase. 

Given the above, Key Cities can be considered critical to the success of the Industrial strategy and by association, to the future of the United Kingdom – we should be recognised and engaged as a key stakeholder.

Investment in and greater powers for in medium size and small cities would not only deliver improved productivity returns, but also boost wider regional economies and housing markets through recognising and building on the already existing benefits of  multi-polar economies, both within our regions and within the wider UK.

Medium size cities are also major engines for exports by the UK economy. The Centre for Cities ‘Cities Outlook 2017’ found that no Core City is above the UK average in terms of exports per worker – however, seven Key Cities are. This pattern is even more visible in terms of exports of goods. Of the Core Cities, only Birmingham outperforms the national average in terms of goods exports per job, with eleven members of the Key Cities Group exceeding the national average.

There are also major advantages in location and scale for medium size cities to act as platforms and pilots for trialling economic and social initiatives by government. 

Much can also be done at city level without the need for further drawn out devolution negotiations. Existing city governments in the UK have a strong and sustained track record in delivering both efficiency and innovation, as well as having strong relations with both communities and business.

In terms of suggestions for the forthcoming Budget, I would like on behalf of the Key Cities Group to ask you to consider the following:

1) A review of Infrastructure pipeline projects and investment opportunities portfolios to better stimulate growth in small and medium size cities. Government should review investment plans and strategies at both local and regional levels to maximise opportunities for small and medium sized cities to attract and benefit from improved infrastructure, in particular better transport linkages and broadband infrastructures that go significantly beyond current ambitions. Investment and marketing portfolios for external and foreign investment, including for the Northern Powerhouse and Midlands Engine, should also be reviewed to give a greater focus on medium sized and smaller cities.

2) Greater support for the wider manufacturing sector. Whilst the emerging industrial strategy includes a number of proposals that should in theory be of benefit to a wide range of industries, there is a risk that most of the new funding may be focussed on an extremely narrow range of sectors clustered at the very highest end of technology. A broader manufacturing focus for government support beyond the new Industrial Strategy Challenge Fund sectors would help broaden and rebalance the economy.

3) Recognising welfare and employment support as a local and national economic cost. Government cost benefit analysis in investment decision making should take into account opportunities from reductions in Treasury spend on welfare and employment support (in particular Working Tax Credit and Universal Credit). Refocused spend through tax breaks or financial support directed through LEPs to medium sized and smaller places is likely to be of significantly increased benefit once these factors and costs are taken into account.  Greater investment in small and medium sized cities have the added benefit of growing local and regional economies at a faster rate, thereby offsetting as well as reducing welfare costs. 

4) An Export Hubs Fund: Targeted at coastal and port cities, this should seek to develop export focused industries growth in these places.  Government should also consider the piloting of an export focused free trade zone (similar to the Shannon Free Zone in the Republic of Ireland – which generates over 3bn euros per year, 90% of which is in exports) in a medium size UK city area.

5) Recommencement of the DCLG Review of Statutory Duties placed on local authorities. If cities are to give a greater focus on growing their economies and reinforcing success, then this can be supported by removing historic burdens. This could be facilitated by a wholescale review of authorities’ statutory duties.  We would urge the government to undertake this in partnership with key stakeholders with a view to eliminating or reducing those duties which negate the capability and resources of authorities to focus on growth and their key sectors.  A similar review was commenced by DCLG in 2011 but appears not to have been completed. The review should also explicitly take into account opportunities for local growth following any changes to state aid regulations post Brexit.

6) Greater city level powers to stimulate housing growth and increase housing affordability. Tackling the housing crisis and reducing the burden on the taxpayer through the costs of housing benefit and other associated costs of economic and social current housing market failure can be a key role for cities, both large and small. Key Cites recognises that the housing crises is causing multi-faceted damage to all areas of society, and are keen to play our part in addressing it. 

We strongly urge the government to empower authorities to levy increased council tax charges on long-term empty homes as a partial solution. Successful examples from overseas (e.g. the Basque government ‘right of first refusal’ for housing providers to purchase houses going onto the market) and landlord licensing schemes should be trialled at city level with councils working in partnership with major local Registered Social Landlords.

Local areas should share benefits of any reductions in Housing Benefit with the Treasury, with the proviso that any local funds retained are reinvested in new builds or improving local housing quality.  Refunding of elements of Stamp Duty to city level, again with the proviso that these are invested locally in improving housing quality and affordability, should also be trialled by Government.

I would welcome your comments on our proposals and look forward to working with the Treasury, other Government departments and agencies, and cities and towns of all sizes across the UK in developing and taking forward ideas to deliver an inclusive and balanced economy that works for all. Finally, I would reiterate the importance of Key Cities in being the drivers of economic growth and as potential pilot areas for co-developed initiatives which aim to iron out the imbalances in society.

 

Councillor Peter Box CBE,
Chair, Key Cities Group.

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