Birmingham 8^th September 2015

Devolution will have a profound influence on how the UK develops in the forthcoming decades. Mark Rogers, Birmingham City Council and Andrew Carter, Centre for Cities led a roundtable discussion recently in Birmingham to share what the implications devolution will bring to real estate and cities.

Galvanised by the Scottish Referendum, devolution is a top priority for the Government providing an opportunity for regions to work more collectively to develop, but will this lead to economic benefits on a local level or will the UK continue to be managed centrally? Fundamental challenges facing government include local government funding, how services will be run and financially managed (figure 1).

Figure 1. LB Barnett Council Graph of doom- local Government Funding Context

Many UK cities economically under perform in comparison to the national average, however this doesn’t truly reflect the impact and influence UK cities and regions have on national economy. The Midlands Engine is a recognition of the Midlands city regions potential to develop in much a similar way as the interlinking relationships between London, Reading, Brighton and Milton Keynes. Not all deals will get exactly what they planned for and there should be an acceptance to variations with the primary focus on new funding methods for public services, transport, supplementary business tax and rates.

Please refer to the UK City Performance slide in Andrew Carter’s Centre for Cities slides below.

Greater devolved control within the Midlands should lead to better land use planning and investment within 5-10yrs. Increased importance of localities with a significant tax base for funding will should lead to ‘no borders’ approach to global opportunities.

The West Midlands Combined Authority area in numbers and why devolution matters:

• £16 billion – annual private sector productivity gap compared to the national average (even grafter when compared to London)
• £3-4 Billion public sector spending gap
• Population of a little over 4 million enabling the recognition of a glomeration
• 3 Local Enterprise Partnerships as the footprint – based on an interconnected relationships with up to 20 partners, making processes efficient and effective
• Annual GVA/head of working age population is £4,000 lower than the national average and public services are becoming unsustainable

Current single ‘Global City’ approach by the Government is limiting the ability of the wider country to develop. No single Midland city is capable of competing on a global scale however Midlands Engine will create greater scale and ambition which will allow the region to be competitive on a global economy scale.

There is also a need to shift the balance of economic power and benefits around the country rather than everything referenced on London or the South. Devolution is therefore seen as a means of networked growth, reducing resources, re-balancing housing and addressing structure deficits in local economies such as skills.

The process of Devolution is not static with September 2015 seen as the initial negotiation period. Further refinement of the regions macro-economic analysis are yet to take place in alignment with the wider fiscal agenda and the regional planning control.

Attributes of the West Midlands Devolution Deal include:

1. Greater Fiscal Retention: An ability to raise revenue locally – creating sustainability from central Government (for example, where supplementary business rates are clearly attached to local economic conditions). Based on an £8 billion single investment plan focused on the regions transport, housing and wider commercial investment opportunities.
2. HS2 Growth Strategy: Exploit growth strategy and opportunity of the 3 LEP (including three major cities) across the West Midlands ensuring benefits are realised throughout the supply chain in areas such as employment, skills and regions infrastructure.
3. Transforming Land Supply: There is an unknown combined total of land and key too this is the opportunity to unlock areas for housing and employment purposes, with possible public sector and private partnership opportunities linked to new financial instruments to accelerate housing supply.
4. Employment and Skills. Focusing on growth opportunities for youth employment and addressing the wider skills gap.
5. Coherence to business support and inward investment. Working more closely with UK TI to review what could be managed regionally offering greater benefit to the region.
6. National Pathfinder for Innovation: Addressing the innovation opportunity across a range of sectors and a requirement for the region to gain a higher profile that attracts national attention allowing innovation support to flourish.
7. Culture: Rebalancing cultural investment to the region where a vast majority of this investment is directed at London.
8. Transforming Public Services: Addressing wider interrelated health and public services – such as mental health service which impacts an array of people and services such as the NHS, Criminal Justice System and regional productivity.

Commercial Real Estate market across the Midlands is positive with a belief the region is in the middle of cycle with further growth predicted. The transfer of office to residential is putting further pressure on this area but the wider market also needs to be supported by higher wages.

Opportunity that were highlighted include: Innovative sectors such as medical, science, life science and university partnerships, where the public sector can make a difference by providing the availability of laboratory spaces for small researchers to foster greater growth across these sectors. Devolution could accelerate this opportunity but the wider skills shortage and its interlinking relationship with housing and education also needs to be addressed.

A successful devolution across the midlands will require a coordinated agreement with the private and public sectors, possible reduction in the number of local authorities and ultimately confidence from the Midlands to recognise their unique position. Regional confidence is essential as the Midlands recognises its needs to change and devolution could bring much needed cohesion, leadership and possible path to deliver successful change.

Challenges still remain such as the deficit in local public spending while retaining talent in the Public Sector will require new approaches such as greater Public Private Partnerships with a stronger emphasis on Joint Ventures. Devolution is also seen as a mechanism to bring together the strength of the Local Enterprise Partnerships under a single elected mayor.

If a significant devolution deal is agreed with Government, then a West Midlands metro mayor will be in elected either in 2017 or 2018. Caution around how radical this person will be was a raised concern but as highlighted by Andre Carter, one should observe how the London Mayors influence over a regions agenda are not that radically different and both run almost identical programmes.

The meeting highlighted that Devolution should be seen a regional evolution where no single deal is perfect and ongoing negotiations will provide a platform for increasing regional recognition. Successful international devolution examples can be observed in areas such as Spain’s City regions, the Netherlands and Canada, but the success relies on the support of a joined up approach with an ambitious new vision to succeed.

Andrew Carter’s Presentation can be viewed here: Devolution Implications_ULI Midlands_Centre for Cities_September 2015

Thank you to our presenters Andrew Carter, Centre for Cities, Mark Rogers, Birmingham City Council and EC Harris for hosting this exciting debate.

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