Deputy Prime Minister’s speech on economic decentralisation at Mansion House

Deputy Prime Minister Nick Clegg’s speech on economic decentralisation given at Mansion House on 18 February 2013. 

This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government
The Rt Hon Nick Clegg

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Tonight I’d like to focus on regional growth; enterprise outside of London. A topic I know is close to the Lord Mayor’s heart too. I’m told that in his first three months since taking office he’s travelled to Glasgow, Edinburgh, Liverpool, Leeds, to look at how the City can deepen its partnership with all of the UK’s nations and regions. The Corporation understands the point that was - sadly - missed by the mainstream political elite for too long: we need to rebalance our economy away from its overreliance on London and the South East.

London will always be at the heart of the UK’s economy, and the envy of the world: open, global, dynamic, diverse, unmatched in its talent and expertise. But we have other strengths too: in other industries, in other places. And there can and must be more than one jewel in our crown.

If all of our big cities closed their output gap - in other words met their potential - ippr North estimate we would see an additional £41bn on GDP every year.

Since last summer employment in the North East, Yorkshire and the Humber and the East Midlands has actually risen faster than the UK average, and faster than in the South East. Driven, importantly, by private sector jobs - proof of the entrepreneurial spirit growing across the country.  And, bluntly, there are things our great towns and cities can do better than anyone else. Zone One is exceptional for many reasons. But it’s never going to revive the car industry, or manufacture state-of-the-art wind turbines, or design and build bestselling planes.

As we continue to pick ourselves up from the economic crisis, and as we rebuild our economy so that it is stronger and more resilient, it is in everyone’s interests if we tap into the great potential that exists throughout Britain. Not least London itself.

The country’s businesses are London’s customers - firms in need of world-class financial and professional services. The regions are London’s trading partners. If the North was its own country, it would be the 8th largest in the EU.

And their breakthroughs are your gains. Successful cities draw on each other’s innovations. When you take the best from each city and put it all together, you create an economy that is greater than the sum of its parts. Think of offshore wind, where the UK is a world leader, with more offshore capacity than anywhere else. Those turbines are put up in the North Sea. The gear boxes assembled in Yorkshire. Teeside develop the underwater cabling. Humberside does the maintenance. All helped, of course, by London - a leader in green finance.

Cities and regions playing to their different strengths; their successes driving each other forward.

Our problem, over recent decades, has been a narrowing of the economic debate. The focus has been almost exclusively on London-based services as the principal source of UK growth. An orthodoxy has emerged which assumes that the profoundly centralised nature of our economy, where one city - containing just 13% of the country’s population is responsible for over a fifth of its total output - is somehow the natural order of things: fixed, inevitable, irreversible - when in fact it is none of those.

The decline of the regions has been the result of specific historical shifts. Over the latter half of the twentieth century developed nations moved away from heavy industry towards knowledge-driven and service based economies in order to remain globally competitive. And, for a variety of reasons, that shift was easier in the South than in other parts of the country. Following the Second World War, European integration also meant a reorientation of UK trade to the continent, benefitting London and the South East. As did the rise of air over rail.

But take a longer historical view. Across the 18th and 19th Centuries, where Britain’s Northern metropolises were the giants of the industrial revolution, and this concentration of commerce and wealth in the South East starts to look more like a historical anomaly. 
Look out at the world today. The most successful economies are driven not just by their capitals, but by multiple thriving centres. Germany: home to Munich, an economic powerhouse; Frankfurt, a financial centre; the Ruhr, a cluster of industrial cities; Berlin, the country’s creative heart. America: home to Washington, Chicago, New York, LA. India: driven by Delhi, Bangalore, Mumbai. Strong economies, built on independent, international cities; each with their own USP.   

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And all the while, behind the illusion of a growing, healthy, national economy, local economies across Britain became dependent on centrally allocated public funds. Local people were growing dependent on public sector employers for jobs and entrepreneurialism and sound business were suffering.  

Between 1998-2008 cities like Birmingham and Nottingham actually saw their private sector workforces shrink. Let’s just be clear on what that means: these were the years of plenty, the economy was booming, and yet our cities were being weakened - their economic strength diminished. That was a huge mistake. And when the banks went bust and the money stopped flowing, the extent of this regional dependence and underperformance was laid bare.

And not only did previous governments make the regions economically dependent on London - they made them politically dependent too. It is no coincidence that in their 19th Century hey day our great cities enjoyed much greater levels of self-government. Crucially they had much more power over the money they raised and spent. For every pound spent by the public sector, around 95 pence would have been funded by local tax payers. All of it directed by local leaders, who therefore had a real incentive make their economies a success. Liverpool, Manchester, Sheffield, Leeds, Birmingham - the reason these places became crucibles of entrepreneurship and civic innovation is because the city would benefit directly, reaping the rewards.

But in more recent times central government has systematically emasculated local government in England. More and more powers have been drawn into the centre. Only half of the money spent locally is raised locally, robbing our cities and regions of both the power and incentives needed to drive local growth.So the regions have been the victims of an over-centralised political system as well as an over-centralised economy. To put it crudely we’ve had Whitehall making all the decisions, the City of London making all the money, in a failed political experiment, which put the economic fortunes of the entire nation in the hands of just two square miles.
The Coalition is turning a page on this approach. Our vision is of an economy running on all cylinders, built on many more sites and sources of economic endeavour.

Clearly that requires serious investment. That’s why we have created the Green Investment Bank, we’re extending High Speed Rail, providing support through the Regional Growth Fund, as well as creating a network of German-style Technology and Innovation Centres. This Government is also providing for record numbers of apprenticeships. We’ve protected schools funding and reformed higher education funding to keep our universities world class. And we’re putting a big focus on infrastructure too. In terms of the quality of overall infrastructure the UK is ranked 24th. That is very disappointing, especially when you think that the World Bank rank us 7th for ease of doing business, based on our regulatory environment. So the Coalition is providing unprecedented Treasury guarantees for new infrastructure investment - up to £50bn.

But we’ve also learned the limitations of well-meaning handouts from Whitehall. Especially now, when money is so tight. The other side of this has to be freedom. Empowering our towns and cities so they can innovate and drive their own growth. Empowering them - crucially - to attract outside investment; raise their own money; spend it in the ways they need. 
That comes easy to liberals. We have never been part of the centralising impulse in British politics - that has been a feature of the two-party system.

The liberal creed flows from a deep faith in the capacity of individuals and communities to take the right decisions for themselves - certainly better than decisions taken by distant bureaucrats locked away in central government departments. Liberals are profoundly mistrustful of concentrations of power. Monopoly and vested interests are the greatest threat to competition and innovation. And we see our role in Coalition as pushing for as radical a dispersal of power as possible, pushing it as far down the chain as possible. So not just to local government, but to communities, businesses and individuals too.

And, for anyone who’s sceptical that this works in practice, we’d point them right here, to London. This City has been pioneering economic decentralisation since the creation of the Mayor and GLA in 2000, drawing more powers down from central government ever since. Uniquely, the capital’s elected representatives have been given autonomy over major funding streams - including in transport, housing skills. And their budgets are generally better spent, in ways that support growth and benefit local people. As a Sheffield MP I can tell you that other cities have looked on with great envy. Just because our big cities have voted to reject having mayors, they haven’t voted against having greater freedom.

So we’re giving it to them. You may not have noticed: it’s a kind of quiet, British revolution, but by 2015, as a result of our reforms, every part of Britain will feel more empowered than in 2010.

There are lots of pieces to that. For example, we’ve presided over the biggest transfer of financial freedoms to Scotland in 300 years - and Wales has seen significant new powers too. We’re also creating Local Enterprise Partnerships: getting rid of RDAs and creating proper vehicles for business to provide vision and leadership, driving the economic strategy for their area.

But there are two areas of reform I want to highlight specifically, because I believe they indicate both how serious we are, as well as how transformative this agenda can be.

First - new tax powers for every single local authority. From April councils will be able to hold onto 50% of local business rates - a massive incentive to draw in investment. And we’re making it possible for local authorities to borrow against future business rate revenues in order to invest in the infrastructure their private sector needs. Fiscal decentralisation is the bit central government finds hardest, but we’re doing it. And, in doing so, my hope is that we have firmly set the direction of travel.

Second, and most radically, the Coalition has introduced City Deals - an unparalleled transfer of powers away from government to our cities and regions. Each deal is different, depending on the needs of that particular area, but the principle is always the same: central government hands over a set of freedoms - so greater autonomy over capital pots, for example, or the power to combine different budgets, or direct control for local businesses over skills spending - and in return the city commits to a set of reforms that will drive growth. So strengthening governance structures, working closely with local business, matching Central Government money with their own - things like that.

We started, at the end of 2011, with the core cities - handing real freedoms back to the eight biggest cities outside of London. Leeds, Sheffield, Birmingham, Bristol and Greater Manchester will now be able to decide, for instance, what roads, trams, metro links and other critical infrastructure they want to prioritise, without having to go on bended knee to DfT.  Leeds is also coming up with its own plan to be the country’s first NEET-free city. In other words, they’ll develop schemes outside of national policy - unique to the area - to ensure every local young person is earning or learning.  

Sheffield’s businesses have been given direct control over some of their skills funding, in order to help design their own apprenticeship scheme, ensuring they create the engineers and technical workers needed to drive the local economy. Newcastle has been given the financial powers to invest in a massive redevelopment of their urban centre - construction will begin shortly creating thousands of new jobs. Nottingham will develop their own local venture capital fund to boost life sciences and creative industries.
These are real changes. Meaningful changes. And this was just the start.

Last year the Coalition invited our next twenty cities and regions, those with the biggest populations and the highest potential growth, to come forward with bold ideas to drive private sector growth. All twenty did so, with proposals to boost a wide range of sectors - from advance manufacturing, to construction; to green energy; life sciences, hi-tech firms. Proposals aimed at creating tens of thousands of jobs.

I can confirm tonight that we will aim to complete all twenty deals this year.

The Black Country, Brighton and Hove, Coventry, Cambridge, Hull, Ipswich, Leicester, Milton Keynes, Norwich, Oxford, Portsmouth and Southampton, Plymouth, Preston, Reading, Southend, Sunderland, Stoke, Swindon, Bournemouth and Poole and the Tees Valley.
Some of the proposals need a bit more work, but the majority will progress, without delay, to formal negotiations. Once all twenty are complete, waves one and two will, together, cover 67% of the country’s population and 64% of its jobs, helping us build a stronger, more diverse, more productive and more resilient UK economy.

For the communities which aren’t covered, as I’ve said in the past: come forward. Come to government with your ideas, your demands, your commitments. We’re working with some of those places already. The momentum in this agenda is now unstoppable. The first two waves show that the Coalition is determined to give real powers back to communities who show they will make good use of it - and that applies to every part of the country.

The Coalition will also shortly be responding to Michael Heseltine’s review into unlocking growth, which calls for local communities to have near total control over their spending. In many ways I think the City Deals have paved the way for that kind of radical thinking and I’m personally very grateful to Michael for raising the bar. The Chancellor also deserves credit for driving this work in Government.
In a few weeks, I’ll also be setting out our response to the Richard Review, which calls for skills funding for apprentices to be passed directly to employers. And, although not specifically about decentralisation, Vince Cable will shortly be making some announcements about our industrial strategy, which will enable greater collaboration within key sectors, driving growth across the country.

Which brings me, finally to you. Britain’s business leaders. The people with the power and money to keep this momentum going.
My team did a quick check through tonight’s guest list. For what’s supposed to be a London audience, it turns out lots of you aren’t even from London. You are from the very places I’ve been talking about. You grew up in Newcastle, Nottingham, Birmingham. You went to university in Loughborough, Exeter, Leeds. Many of you probably only came to the capital because, when you were starting out, you felt you had no other choice.

But you do have a choice now. And you can choose to make this city a force for regional growth, reaching out to the rest of the country.
You can finance the diverse and dynamic private sector that will support your companies long into the future.

You can help turn us into an island of exporters. We have millions of SMEs in this country, but only an estimated 20% of them export - putting the UK behind our European competitors. You can give those firms the equity and credit to put us among the best.
You can invest more in your domestic operations, working with Local Enterprise Partnerships to provide strategy and ambition.
You can make sure that just as you vigorously pursue international ventures, you are equally alive to the opportunities in your own backyard.

London leads in Europe. It leads in the world. And we need it to show even more leadership at home.

As a nation we have a chance, as we build a new economy out of the rubble of the old, to do things differently. We can learn from the mistakes of the past, rebalancing our economy, creating strong, independent, thriving cities, ensuring that this country is the best it can be.

That is a vision I hope we can all get behind - more than one jewel in our crown.

Published 18 February 2013