Chief Secretary: 'Our future is one of ever-greater devolution'

'We have seen that the devolved model works', says Chief Secretary to the Treasury, Danny Alexander.

This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

The Rt Hon Danny Alexander

I’m delighted to be here in Glasgow – or down south, as we call it up in the Highlands.

The regeneration of Glasgow is one of the great success stories of the past three decades.

For those of us who, like me, believe that the success of the United Kingdom should not be dependent on a small corner of the south-east, it is inspirational.

It was popular, not so very long ago, to say that the only way the UK could deal with the post-industrial period was through the managed decline of the great manufacturing cities. I’m glad to say that that nonsensical argument has been defeated. Our cities are seeing a new era of pride and prosperity.

Cultural renaissance. Specialisation in new industries. A revival of the old ones. The continued desire to improve, to reinvent, to showcase yourself to the world, to prove the naysayers wrong.

We see it in Glasgow, which last year delivered the most spectacular Commonwealth Games in history, and this year hosting everything from the All Energy Conference to the European Judo Championships to the Turner Prize.

In Manchester, where there are 300 investment projects in the pipeline worth £1.3billion and creating 19,000 jobs.

In Bristol, which basks in the title of European Green Capital 2015 – the first UK city to receive this accolade.

In Liverpool, which now has a higher rate of tech start-ups than London.

In Birmingham, where Deutsche Bank have opened a trading floor – challenging the City of London on their own territory.

Our cities have a great past and they are on the threshold of a great future.

Work led by the Core Cities group suggests that their ten constituent cities – Birmingham, Bristol, Cardiff, Glasgow, Leeds, Liverpool, Manchester, Newcastle, Nottingham, Sheffield – deliver 28% of the combined economic output of England, Wales and Scotland.

And – it almost goes without saying – they do so as very different cities. Each is unique. Each has its own story, its own strengths, and its own ambitions.

I have always been motivated by allowing our cities to embrace those stories; play to those strengths; meet those ambitions.

If we want to be serious about unlocking growth – which I suggest we absolutely do – then we need to be radical about empowering our cities and regions, to put in place the policies that they judge will work best for them.

I am one of those unusual breeds of politician who came into politics to give power away.

My firm belief is in doing locally what is best done locally, regionally what is best done regionally, and nationally only what is best done at the national level.

So my message today is that our future is one of ever-greater devolution – ever-greater liberty – and ever-greater growth.

Through their ability to create and sustain a critical mass of people carrying out a diverse range of activities, cities are the engine of our economic growth.

Globally, the top 600 cities contain just 20% of global population but create 60% of global GDP.

The reasons are well-known. Cities provide opportunities for the exchange of knowledge, the diffusion of innovative ideas, and the development of more intricate supply chains.

Big cities are good things for wages and for productivity. Studies suggest that doubling the size of a city seems to increase productivity levels by 3-8%. And research shows a well-established tendency for wages levels to be higher in urban areas.

This is because as cities grow, they develop deeper pools of skilled labour – which in turn makes their citizens specialise and increase their efficiency.

Cities have a natural appeal to talented people, particularly when they offer a diverse range of social, cultural and recreational amenities. Here in Glasgow, for example, 30.8% of the working age population has a degree qualification or higher, compared to the national average of 26.5%.

And a hallmark of the most successful cities across the world is that they have expanded the opportunities that people have to interact with each other in their roles as consumers, employers and employees. Greater interaction means greater innovation – leading to greater success.

In other words, a well-functioning city provides a virtuous economic circle, creating opportunities for everyone.

So how can we make sure that our cities are the best they can possibly be?

For a start, we’ve made devolution a reality.

We passed the Localism Act, taking power away from Whitehall and putting it into the hands of local communities, providing elected mayors, giving local authorities greater power over business rates, and radically simplifying the planning system.

We agreed bespoke deals with each of the eight largest cities outside London – and then, in October 2012, invited a second tranche of smaller cities to negotiate their own City Deal.

These City Deals have seen landmark initiatives:

Preston, South Ribble and Lancashire’s Infrastructure Delivery Programme and Investment Fund – a catalyst for commercial and housing development, including up to 17,000 homes.

Youth Guarantees supporting every unemployed 16-to-24 year old in Greater Ipswich and Leicester and Leicestershire.

Public sector land deals in the heart of the south-west, releasing MoD land to provide housing and advanced manufacturing jobs.

Here in Glasgow, a new £4m Centre for Business Incubation and Development in Glasgow’s Merchant City, and a £4m MediCity Scotland facility as part of the Glasgow and Clyde Valley City Deal, which will bring academics, entrepreneurs, clinicians and business support services together.

And Accelerated Development Zones, allowing Newcastle and Gateshead to retain all growth in business rate income for 25 years – over which time 13,000 new jobs could be created as a result.

And we set up the Local Growth Fund of £12 billon, to ensure that Growth Deals provide benefits to the regions around cities too.

Every local area in England has the opportunity to share the Local Growth Fund to spend on projects that matter to their people and their local economies.

Just two weeks ago we announced the second tranche of Local Growth funding, worth £1bn.

In addition, we’ve reached groundbreaking devolution deals with Greater Manchester and with Sheffield – giving new powers over transport, housing, business support, skills and strategy.

And we want to do more along these lines. I hope that cities here in Scotland will have a look at what is happening in Manchester and Sheffield – including on devolution of tax powers, which was a feature of the Greater Manchester City Deal – and think about if they would like to do such a deal themselves.

We’ve done all of this in the last 5 years - in a coalition with a party that has never been a champion of local empowerment. And we are seeing the benefits.

In the next 5 years, I want us to go a lot further. To forge a permanent rebalancing of power in the British state, a new era of municipal empowerment. This is right in itself - because power should be held as close to people as possible - but it is also essential to unlocking the growth potential of our country.

Here in Scotland, you are in the most centralised part of the UK, and becoming more so.

Over the last 5 years, the UK government has devolved funding, removed funding ring fences, entered into partnerships to deliver better services.

I believe the next major step needs to be devolving revenue streams. That drives accountability, and provides a far greater incentive to grow your local economy.

For example, we should be going further with the devolution of business rates. We are already reviewing how business rates operates as a tax - I’d like to see us go even further by allowing cities to feel the full benefit or loss of their growth policies through. Some cities have argued for the devolution of stamp duty, and though it would be complex, we should look at that too. So if there are areas you want to take control over, step forward and say so.

Here in Scotland we’re passing over unprecedented tax powers to Holyrood - delivering home rule for Scotland. I’d like to see some of these new responsibilities passed on to cities and regions like the Highlands and Islands. After all, we know better how to grow our economies than the Holyrood elite.

Aside from devolution, we have also revolutionised our approach to infrastructure – both physical and digital.

Raising productivity depends on reducing transaction costs between suppliers, producers and the customer.

That means providing effective transport networks – both within and between cities.

For the first time ever, we have a national infrastructure plan which sets out the infrastructure we need all around the country.

We are investing billions in making sure that, whether it’s on road or on rail on through a wire or wireless, our infrastructure is world-leading.

High Speed 2 – and indeed High Speed 3 – will radically improve the connections between our major cities.

Through a long-awaited package of measures, corridors to the north-east and the south-west are finally opening up.

And the infrastructure delivered through our Growth Deals will have transformational local effects. Here in Glasgow, for instance, a £1.13 billion infrastructure fund in Glasgow and Clyde Valley will be established from April 2015. This funding will be used to enhance transport infrastructure, unlock new sites for housing and employment, and improve public transport over the coming years.

£500 million of funding will be provided by the UK government, £500 million will be provided the Scottish government, and a minimum of £130 million will be provided by local authorities across Glasgow and the Clyde Valley.

As well as physical infrastructure, digital infrastructure also has an increasingly important part to play in fostering networks and promoting productivity. High speed broadband isn’t a luxury. In 2015, it’s a necessity.

And today I can announce that I have extended the broadband connection vouchers programme – which provides grants to small businesses needing to upgrade their broadband – to four more cities across Scotland.

Businesses in Glasgow, Inverness, Stirling and Dundee will benefit from faster connections, downloads and uploads, meaning that they can communicate better with customers across the world.

From 1 April, small businesses, charities, social enterprises and sole traders in those cities will be able to benefit from the scheme, which is already running in Edinburgh, Perth and Aberdeen as well as 19 other cities across the UK.

It is extremely frustrating that some small businesses in cities can’t get the broadband connection they need – these vouchers will help them to change that.

This is, of course, within the wider context of government support for broadband. Having grown up on a remote island, I know what a huge difference being connected makes to our rural communities.

That’s why I’m also proud to say that the UK government’s rural broadband programme has now passed 200,000 premises across rural Scotland, 2 million across the UK. For the first time, people in these areas will be able to sign up for superfast broadband, and experience the benefits of being able to stay in touch, do deals and communicate more effectively than ever before.

It is this approach – devolution, but backed up by targeted government activity and government funding – which we believe offers cities the best of both worlds. Where the economic power of the UK can have a positive effect, then we will deploy it.

And where we can give greater autonomy to our cities and regions, then we will do so.

This is the approach which we have taken on the other great devolution story of the past 4 years.

The Scottish referendum in September of last year was a momentous moment. Anybody who lived through it will remember the passion and the energy on both sides.

I said afterwards that our challenge was to channel that passion, that energy, into the best settlement possible for Scotland within the UK.

Robert Smith – Lord Smith of Kelvin – was set what many believed to be an impossible task: to bring together disparate parties who had argued so vehemently, to work closely and collegiately, to deliver a fair and lasting settlement for Scotland – and to do so by Burns night!

This settlement makes Scotland one of the most devolved nations in the world. It makes the Scottish government the third most powerful sub-central governments in the OECD – just behind the Canadian provinces and Swiss cantons, and ahead of arrangements in federal countries such as Spain and Germany. And it gives Scotland the best of both worlds.

An economy backed by the resilience and security of the United Kingdom.

But with a majority of the budget coming from tax raised here in Scotland; with new powers relating to disability, housing systems, and the ability to create new discretionary welfare payments, on top of the wide range of powers over public services and the economy that the Scottish Parliament already has.

We saw the benefits of this approach at the start of this year, with the collapse in the global price of crude oil.

This may be welcome news if you’re filling up your Vauxhall Astra, but I know as a Highland MP how hard this is hitting the offshore oil and gas industry.

But together, with the security of the fastest growing major advanced economy in the world, we can ride out this storm.

Our Treasury analysis suggests that if the oil price were to remain at $50 a barrel, a newly independent Scotland’s fiscal deficit would have been more than 6% of GDP in 2016-17 – meaning it would have the largest deficit of any advanced economy.

In cash terms, the sum we would be talking about is in the region of £11bn – which is almost as much as the Scottish government currently spends on the NHS in Scotland.

Compared to remaining part of the UK, every Scot would have been almost £1,400 per head worse off in the first year of independence alone.

So that is a bullet we have dodged. And I am confident that the new devolution settlement for Scotland will continue unlocking Scottish growth while protecting Scotland from unacceptable risk.

The Barnett Formula will continue – with Scotland’s new fiscal framework working alongside it.

Scotland will get extensive new tax powers without losing the essential elements of our unified tax system that support the single market and make the UK an attractive place to do business. In particular, Scotland will control all rates and thresholds on income tax on earnings – the biggest tax in Scotland and a powerful redistributive tool.

And the Scottish Parliament will have greater powers to ensure that welfare provision in Scotland is tailored to local circumstances. At the same time, the package maintains the benefits of the single jobs market, the UK’s ability to pool risks and for different parts of the UK to support each other when necessary.

The Scottish Government will have tremendously increased accountability – because it is the economic decisions it makes which will increasingly determine its budget.

So if Scotland makes good economic decisions that allows it to grow its devolved tax base faster than the rest of the UK, then it will keep the upside.

We are devolving powers to our cities. We have devolved massive and wide-ranging powers to the Scottish government. But that will only really work for Scotland if power is devolved within Scotland too.

What will the Scottish government do to devolve powers more widely within Scotland?

Let me quote Lord Smith. “There is a strong desire to see the principle of devolution extended further with the transfer of powers from Holyrood to local communities.” However, as we saw with devolution to cities, giving away powers works best if wider government policies continue to support every part of the United Kingdom. And I am proud of our record on policies which have helped Scotland.

From tax cuts for computer games, scotch whisky and motorists in remote areas to the income tax cuts for workers in every part of the UK.

And Glasgow, too, has reaped benefits:

£15m scheme to tackle youth unemployment as part of the City Deal…

£10m in funding to the restoration of Charles Rennie Macintosh’s Glasgow School of Art…

And in shipbuilding, such a core industry to this city, we’ve seen repeated successes. The £350 million contract in September 2014 to build three Off Shore Patrol Vessels on the Clyde, safeguarding over 800 skilled roles; the £3.2bn MoD contracts with Babcock and BAE Systems to maintain British warships, submarines and naval bases; and the naming of the first Queen Elizabeth Class aircraft carrier by Her Majesty in Rosyth on 4th July 2014.

We remain committed to building complex warships in the UK. And none are more complex than the two aircraft carriers we are constructing in Rosyth.

And it will be on the Clyde that our new Type 26 Global Combat ship – which will become the workhorse of the Royal Navy – will be built. This is a central part of our naval strategy as well as to maintaining our brilliant shipbuilding industry here, and I look forward to making rapid progress to securing that work in the coming weeks.

And we are actively looking at what more we can do to ensure that Glasgow’s proud shipbuilding tradition continues to lead the world well into the 21st century.

Let me finish where I started. The huge changes in the devolved areas open up huge opportunities for every part of the UK.

The great debate about where power should be held across our country is just beginning. It needs to be much more than an arid debate on voting arrangements in westminster, with proposals more about party advantage. By combining economic and democratic renewal we can unlock new opportunities for all our people.

More power for cities and communities can also help to re-engage people with politics, provided it is matched with high quality civic leadership. You in this room have an unprecedented opportunity to shape and lead that debate.

In terms of devolution to cities in the UK, we will without a doubt see more City Deals as more and more cities see the benefits of the devolved model.

We have seen that the devolved model works. It incentivises smart decision making. It delivers the right projects for each area. It harnesses the expertise and enthusiasm of people who know their own area far more thoroughly than the career civil servant from Whitehall. It empowers cities to determine their own future.

These are exciting times, creating exciting opportunities.

Let’s make the most of them.

Published 9 February 2015