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WORKING TOGETHERDEVOLUTION IN THE NORTHERN POWERHOUSEBY LORD JIM O’NEILL VICE-CHAIR, NORTHERN POWERHOUSE PARTNERSHIP

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CONTENTS

Section 1 - Executive Summary

Section 2 - Introduction

Section 3 - The economics of devolution; past, present and future

Section 4 - A year on; what has been achieved

Section 5 - Devolution; Where next?

Section 6 - Places needing leadership and collaboration; but where devolution needs imagination.

Section 7 - Challenges and opportunities

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SECTION 2

INTRODUCTION

1. In October 2014, the Cities Growth Commission, which I chaired, published a number of recommendations to boost UK economic growth based around the 14 largest ‘metro’ areas outside of London, 10 of which were in England.

2. We only considered metro areas of 500,000 people or more as it was believed that increasing economic growth in these areas would be capable of boosting the UK economic growth rate. The Commission did not consider the case of smaller cities and towns, nor rural areas, even though it was impossible not to consider them.

3. This paper takes a wider focus than the Cities Growth Commission; seeing devolution at close quarters here in the Northern Powerhouse has encouraged those in different situations. Therefore, local authority leaders in areas outside significant urban centres, such as Greater Manchester and Liverpool City Region, are striving for a solution which works for them but is fundamentally different in character.

4. The Cities Growth Commission based its recommendations on a number of things, including evidence from around most of the 14 metro areas. In that spirit, this report was influenced by a visit to a number of Northern Powerhouse locations, none of which have yet had any kind of devolution. They included; Cheshire and Warrington, Leeds (and Yorkshire), Newcastle (and North of Tyne) and Carlisle. I am grateful to them for their time and ideas.

5. Three and a half years since the Commission's recommendations, less than four years since the then Chancellor and current Northern Powerhouse Partnership Chair George Osborne introduced the idea of the Northern Powerhouse, and one year since the introduction of elected Metro Mayors, there appears to be wide and strong acceptance of the concept of devolution. This acceptance and approval of existing deals has led to a strong desire for something similar amongst others.

6. Of the 10 English metro areas considered by the Commission, five lay outside the Northern Powerhouse, two of which now have Mayors and some devolved powers. Of the five within the Northern Powerhouse, Greater Manchester, Liverpool City Region, and now Sheffield City Region have deals, and there is the basis for a devolved deal in North of Tyne. There is also a devolved agreement, of course, with a Metro Mayor on Teesside, Ben Houchen, who is also a Board Member of NPP.

7. The government still needs to complete elements of what they have committed to, such as local transport and adult skills in Greater Manchester. In addition, key opportunities, such as control of the Adult Education Budget, must be extended quickly beyond its current proposed reach, including to the Tees Valley and Liverpool City Region

8. In addition to the North of Tyne agreement, there is a credible deal put together by Cheshire and Warrington. There remains a strong

desire in the rest of Yorkshire beyond Sheffield but there are considerable challenges with the framework and geography. I believe there would be a rationale for Yorkshire county-wide health devolution but the economic rationale for other responsibilities on a county basis remains unclear.

9. In the context of the areas ‘left behind’ I believe the proposal for a Borderlands partnership based around Carlisle but also including two rural areas over the border in Scotland is compelling. Aspects of their approach, as well as those that pertain to Northumberland within this and the North of Tyne plan, may have relevance for other rural areas in England including some outside the Northern Powerhouse.

10. As far as the nature and scope of devolved responsibilities, I continue to believe – In the spirit of the Cities Growth Commission – that the ultimate resting place is unknown but we are probably closer to the beginning than the end. In this regard, it seems that potential future devolved agreements may have less in common with those already in place and will instead rely on the individual characteristics of the places involved.

SECTION 1

EXECUTIVE SUMMARY

Devolution is one of the six key ingredients required to realise the long-term ambitions of the Northern Powerhouse; once and for all closing the gap between the North and South of England. Together with transport, education, skills, business engagement and ambition, devolving further power and control to regions of the North could have a transformational effect in increasing productivity so the North truly pulls its weight in economic terms.

Based on economic analysis, as well as engagement with civic leaders, businesses and many others across the Northern Powerhouse, this paper assesses the effectiveness of devolution deals in Greater Manchester, Liverpool City Region and the Tees Valley, the prospects for Dan Jarvis – newly-elected Metro Mayor for Sheffield City Region – and the implications for the rest of Yorkshire, as well as many other regions including North of Tyne, Cheshire and Warrington and the Borderlands.

Working closely with the Ministry of Housing, Communities and Local Government, in particular the Northern Powerhouse Minister Jake Berry and new Secretary of State James Brokenshire, the Northern Powerhouse Partnership (NPP) expect to play a leading role in supporting those parts of the North with a credible case for devolution and ensuring the powers they are awarded by central government are employed to bring the maximum benefit to the people of the North of England.

LORD JIM O’NEILL VICE-CHAIR, NORTHERN POWERHOUSE PARTNERSHIP

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SECTION 3

THE ECONOMICS OF DEVOLUTION; PAST, PRESENT AND FUTURE 1

a. Can we judge the success of devolution one year on?

In many ways it is not objectively possible to make such judgements, not least as it is only a year since the first elections of Metro Mayors. In fact, in the case of Greater Manchester, some committed devolution of funding – such as the Adult Education Budget – are yet to be implemented in full.

GVA per head growth in Greater Manchester in 2016 was 3.2%...the highest of any combined authority in the Northern Powerhouse.

Greater Manchester signed its city deal in 2012 alongside fellow Northern cities like Newcastle with a revolving infrastructure fund, economic development investment framework and skills and SME capabilities. Since that point, through signing the first of their devolution deals – Greater Manchester in late 2014 – there may be enough of a time horizon but there are significant data limitations. Using what is currently available, the Office for National Statistics GVA per head growth in Greater Manchester in 2016 was 3.2%. This was close to that achieved by Greater London, 3.7%, and the highest of any combined authority in the Northern Powerhouse. Interestingly, the Tees Valley, which at that stage was only a Local Enterprise Partnership preparing for a Mayor to arrive,2 saw GVA per head decline by 0.2% in the aftermath of the SSI steel works closure.

1 The City Growth Commission published its final recommendations in Unleashing Metro Growth and presented data based on the built-up area definition from the ONS as well as Centre for Cities data based on their Primary Urban Area definition. The short section that follows here will, however, use Combined Authority and regional boundaries to explore data about these areas. 2 The origin of the Tees Valley Combined Authority can be traced back to the Tees Valley Local Enterprise Partnership, a contentious decision at the time that the local government leaders decided to not remain within the previous North East regional geography that had been used by One North East – one of the most formidable and successful of any of the Regional Development Agencies due to its cohesiveness and the level of private sector buy in. 3 according to the regional Purchasing Managers Indices, a respected high frequency indicator of GDP.

SECTION 4

A YEAR ON; WHAT HAS BEEN ACHIEVED

It is beyond the scope of this paper to list all the individual achievements of the three Northern Powerhouse Mayors in their first year. Yet It is evident from their own profiles, the platforms they have locally and nationally, and what we heard across our engagement across the North, that their advent has been a hugely positive development.

All three Metro Mayors, Labour or Conservative, core city or key city at their heart, have one particular thing in common; despite limitations to their formal powers, their soft, or convening, powers have been considerable. Whether this was dealing with extremely challenging major events such as the Manchester Arena terrorist attack, to the day-to-day work of convening businesses around shared priorities – for example the future in digital in Liverpool City Region and Greater Manchester or skills in the case of the Tees Valley – our Mayors are making a significant impact. The Tees Valley has the first Mayoral Development Corporation on the South Tees, which, as well as being the most significant single regeneration opportunity in the North, also proves the case for what the Development Corporation chaired by a Mayor can do. In this case, compulsory purchase is commencing, and planning is underway to address challenging issues arising from previous private sector business failure. The strength of the

Combined Authority, despite its relatively short time period to prepare for Mayor’s election, is a lesson for others in North to learn from (as is the evidence from the West Midlands).

All three Metro Mayors have one particular thing in common; despite limitations to their formal powers, their soft, or convening, powers have been considerable.

There is also the crucial question of funding, and the capacity to deliver significant policy to address economic challenges. The contrast between the Mayoral authorities and those without deals is stark over the past year. A particularly example of the impact of a Mayoral authority was the Transforming Cities fund announced in the 2017

Budget; funding automatically given to devolved regions with other areas, such West Yorkshire, left to apply for the smaller pot that remained. Areas with Metro Mayors received an automatic amount based on their population without needing to enter into a competitive bidding process. Whilst far short of the fiscal freedom ultimately needed for Metro Mayors to achieve their full potential, this was a step towards greater trust following a more accountable and better-resourced infrastructure at the level of the functional economic area (rather than the traditional administrative boundary of local government).

It is possible that in the run up to, or at, this year’s Autumn Budget there may be further deals for those places that already have Metro Mayors, including in the North. It is just as likely, or potentially more so, that enhanced powers may be given to others as discussed below.

Transport is in the early stages of devolution at the Northern Powerhouse level, through the creation of Transport for the North (TfN). Further additional powers for TfN should be considered as a priority in the Autumn Budget, along with some clear central government commitments to the crucial links needed to transform this part of the Northern Powerhouse.

My assessment is that the 2017 figures are quite likely to show some narrowing between the North West and London, but the significant time lag in these statistics makes it hard for us to make evidence-based arguments. Among other things, there is a strong need for more reliable, up-to-date data on this sort of crucial regional issue.

b. Regional growth

At the end of 2017, when growth was slowing in much of the country 3, the North West posted its highest rate of growth in over three years, well above the national average. Though growth slowed in the most recent statistics for March 2018 (as it did in all English regions bar the South West), the North West remains above the national average and the level experienced in London. House price data also paints a positive picture across the North. According to ONS and Land Registry data, the annual change in prices in the 12 months to February was 3.3% in the North East, 3.1% in Yorkshire and The Humber and 4.8% in the North West compared with a fall of 1% in London. Prices within Greater Manchester have even outperformed this North West average, raising the possibility that GM

is playing a leading role in driving economic growth across the wider North West. As these small pieces of data suggest, the North West appears to be doing well and it is here where devolution action and spirit is strongest. This could be a coincidence but my suspicion is that it is probably not.

c. Labour market productivity

Ultimately, the success of devolution in the Northern Powerhouse is about stronger absolute and relative productivity. An encouraging potential indicator for future productivity growth is the increase in the proportion of the working age population with level 4 and higher qualifications. As seen below there are signs of improvement in the majority of regions considered here; In the Tees Valley for example, the proportion of the population with level 4 and higher skills has increased from 19.8% in 2004 to 30.1% in 2017. Providing further powers to local areas, in particular around skills policy, should add momentum to this trend, and indeed hopefully accelerate and intensify them, as they should ensure that the qualifications acquired are relevant to the jobs and industries in a particular area.

Greater Manchester

West Yorkshire

North East

West Midlands

West of England

Sheffield City Region

Liverpool City Region

Tees Valley

Cambridgeshire and Peterborough

GVA PER HEAD INDICIES (UK = 100)

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SECTION 5

DEVOLUTION; WHERE NEXT?

Despite the significant progress, the Northern Powerhouse has a number of notable regional gaps in devolution. I believe that a number of these are at an advanced stage of being resolved. In other cases, the way forward is less clear, and further thinking is needed. What unites them is the benefits that devolution could bring in unlocking economic growth. It is vital that government does not seek to impose a standardised blueprint or straightjacket based solely on existing models. Those places that have led devolution have proved the case for what can be achieved. It is important that others have their own identity and freedom, given their unique circumstances, and be convincing about their ability to deliver and take responsibility.

North of Tyne

In the North East, a North of Tyne devolution deal extending from Prudhoe on the south bank of the river to Berwick in the North, down to North Shields on the Tyne, and with Newcastle-upon-Tyne as a core city, is a distinctive proposal. Fundamentally, it is based on the economic opportunities in the area, and what is needed to unlock growth. The proposal promotes inclusive growth, as well as inclusive geography as it is both an urban and rural deal, responding to the specifics characteristics of the places it covers.

The policy focus is not simply a copy or version of the Greater Manchester deal, or wider devolution agreements. The proposal includes an Education Commission for the North of Tyne,

addressing many of the areas raised our 2018 Educating the North report – with an Opportunity Area to promote social mobility a component NPP believes government should offer. There are also specific pillars around housing, growth and economic inclusion. The remaining local councils on Tyneside, Wearside and County Durham have agreed to allow Newcastle and North Tyneside to proceed without them. In Tyne and Wear they will continue to collaborate on transport, including the Metro, for which funding for new rolling stock was agreed in last year’s Budget.

Despite the significant progress, the Northern Powerhouse has a number of notable regional gaps in devolution. I believe that a number of these are at an advanced stage of being resolved.

Yorkshire

In Sheffield City Region, there is a new Metro Mayor, Dan Jarvis, elected last

week. The deal itself still requires the agreement of the four council leaders in South Yorkshire before full powers, and the related resources, are made available to the Mayor and Combined Authority. There is a requirement from Sheffield and Rotherham to have their interests protected if Barnsley and Doncaster were to leave without them to join any future One Yorkshire deal, specifically to ensure longstanding transport arrangements would be protected – as has been provided in the North of Tyne deal. The willingness to consider further devolution for the Mayor, specifically for health, demonstrates the aspiration here to continue to think about the future, with housing perhaps surprisingly absent. The housing deal in the West Midlands and developments in Greater Manchester demonstrates what could, and should, be considered for devolved areas across the North.

As Sheffield relates to wider Yorkshire and the Humber, there remain significantly different views about the best model. It should not be forgotten that the original models, a Sheffield City Region covering the full functional economic area and a Leeds City Region crossing the traditional boundary between West and North Yorkshire, were halted by the interests of some in the Conservative Party. As elements have been put back together, the new Mayor of the Sheffield City Region joined some civic leaders in wanting to pursue a pan-Yorkshire deal. Now that the Sheffield City Region has a newly elected Mayor, those who wish to pursue a One Yorkshire deal need to establish the economic benefits with some considerable detail to convince

the policymakers. The largest questions remain around the economic logic; if this is to be the path, the economic rationale needs to be more persuasive.

Another significant concern is around the Hull and Humber; an area that seems to be a collective economic unit. South of the Humber, which is outside of Yorkshire, would not be part of any Yorkshire-wide deal, even though major businesses such as Associated British Ports (ABP) operate on both sides of the river. Bringing in the south bank of the river would demonstrate that One Yorkshire is about economic benefits and not just tribal and regional loyalty, or notions of the external brand.

It is worth noting that in the Cities Growth Commission final report, West Yorkshire and Greater Manchester were the only Combined Authorities highlighted as potentially being ready for devolved responsibility. Yet nearly four years later, there is a realistic chance that West Yorkshire might be the only major urban area in the Northern Powerhouse without a deal by 2019. Focused thinking based on economic rationale is needed rather than emotive judgements.

In this regard, health, which has not been considered by any local authorities as part of a notional pan-Yorkshire devolution deal, is an area NPP has identified a significant possibility. This would diverge from the rationale of the Cities Growth Commission to go beyond the metro areas, but it would potentially play a preeminent role in supporting employment and growth across Yorkshire. If there is a genuine basis for a pan-

Yorkshire devolved areas, this is the sort of rationale that needs to be developed, rather than repeated focus on the marketing brand of the name Yorkshire.

Cheshire and Warrington

Cheshire, like Yorkshire, does not correspond to the predominantly city-based model for devolution. However, I consider the strength of the proposition in Cheshire quite compelling. Alongside key economic centres such as Warrington and Chester and in particular Crewe which will be directly connected to HS2, key sites in advanced manufacturing and energy function alongside world leading assets like Alderley Park. This demonstrates the significant importance of the corridor in health innovation stretching out from Cheshire linking the wider assets in Liverpool City Region and Greater Manchester.

Furthermore, there is a high level of consensus between the local authorities involved, as well as the full support and input of the Local Enterprise Partnership and business, taking advantage of being the country’s second most productive place to contribute even more to the Northern economy. Specifically, the barriers of transport connectivity within the economic area, as well as priorities in skills, make a compelling case which demonstrates a combined authority and Metro Mayor government should have confidence in. My firmly-held view is that government should be prepared to conclude a deal immediately, ensuring it is one of many steps to decentralisation the Chancellor can deliver in this year’s Autumn Budget.

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SECTION 7

CHALLENGES & OPPORTUNITIES

Embracing devolution is key to the Northern Powerhouse. Giving evidence to the Education and Select committee this month, George Osborne and I made the case for the importance of devolution for skills in particular. A centrally-driven skills policy which does not seem to respond to the needs of business remains one of the greatest weaknesses of public policy, preventing the Northern Powerhouse from being delivered.

Devolution has been a considerable success for the Northern Powerhouse; delivering the right deals in the right way

I believe the first year of elected Mayors has shown that the proposals originating from the Cities Growth Commission, adopted and brought into policy by government, are indeed central to delivering more balanced and stronger economic growth in England, and therefore the UK. Delivering on the agreements already made, devolving more powers, especially skills, and agreeing fresh, varied devolution deals are all goals that I believe are feasible and desirable in the next 12 months. Devolution has been a considerable success for the Northern Powerhouse; delivering the right deals in the right way must be a priority for the Northern Powerhouse Partnership and all that want to see the North of England fulfil its potential.

SECTION 6

PLACES NEEDING LEADERSHIP AND COLLABORATION; BUT WHERE DEVOLUTION NEEDS IMAGINATION

One of the most exciting ideas in the North I came across is the Borderlands. Championed by the Rt Hon David Mundell MP, the Scottish Secretary and Jake Berry, Minister for the Northern Powerhouse, alongside the Scottish government, the Borderlands is an economy with a different model.

There are a million people who live and work in the Scottish Borders, Dumfries and Galloway, north Northumberland and Carlisle and its immediate surroundings in Cumbria. Economic priorities centre around digital infrastructure, energy and developing low carbon production, and there is a strong desire to attract energy companies, transport, and a lot of focus on boosting skills training.

One of the most exciting ideas in the North I came across is the Borderlands. Championed by the Rt Hon David Mundell MP

The uniqueness of this partnership, and the support of the UK government and Scottish government is admirable in its ability to focus decentralisation beyond only cities. It could have considerable merits in itself for a deal, but also for many other, more rural based areas of England.