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Economic Prosperity: The Local Contribution

Date of speech	14 September 2006

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Transcript of the speech as delivered.

First of all let me say that I am delighted to be taking part in this Lyons Inquiry conference today. I understand that Sir Michael is making good progress with his wide ranging inquiry and I very much look forward to his final conclusions. He is certainly bringing his customary insight and energy to bear on these challenging issues.

As I said in my speech to the LGA earlier this summer, I firmly believe that this is a tremendously exciting moment for the way we govern ourselves. I think that we are at a tipping point for our democracy where, working together, we can usher in a new and unprecedented era of devolution. 

More than ever I am convinced, despite the speculation that is part of any White Paper process, that my colleagues across Government share my commitment and determination to seize the opportunity provided by the forthcoming White Paper to devolve power and accountability to the right level - to enable citizens to benefit from more responsive government.

Today is an opportune moment to look at the crucial role and contribution that local government makes to economic performance. This has not always been well defined nor well understood. Yet economic prosperity is one of the most important factors in making a place successful.

I believe that globalisation is changing the nature of economic geography. Increasingly it is cities and their surrounding regions - rather than nation states - that compete for mobile capital and scarce human talent. And we are seeing key sectors of the economy clustering in particular localities.

Succeeding as a high productivity knowledge economy in this new environment depends not just on getting the right national framework for economic policy, the labour market, competition policy and major infrastructure projects. It also depends crucially on local leadership and the quality of life in our towns, cities, regions and our rural areas.

And that is why local government is uniquely placed to lead and shape the local economic future of its area. Local government plays a major role:

• In defining the vision for its place;
• In making tough decisions between competing local priorities;
• In ensuring that services and skills support a modern local economy;
• In managing local economic assets, such as public land and property, effectively; and
• In exercising influence well beyond its narrowly defined boundaries and responsibilities.

So we can't look at the role of local government in economic development in isolation. Local government is an important part of the broader framework covering national, regional and city-regional, as well as local levels. Today I would like to share with you some thoughts on the roles of each of these in turn.

First, at the national level, central government has a crucial role in providing a platform for economic growth in every region. Under this government, the UK has had the most stable macroeconomic environment of all the G7 countries. Steady growth in business output, and low and stable interest rates have helped firms, of all sizes, in all regions, to make confident investment decisions.

As a result, employment in private and public sectors in the UK has risen by over 2 million since 1997, and unemployment is at its lowest for 30 years.  And employment rates have risen in nearly every English region since April 1997, with the greatest gains in the North.

Moreover, since 1998, skills levels have also risen and the proportion of those with no qualifications has fallen in all regions. The gap between the North, Midlands and South West and the Greater South East in terms of the percentage of the workforce with 5 good GCSEs has narrowed by 1.7 per cent. The gap in the percentage of the workforce with no qualifications has decreased by 1.9 per cent over the same time.

So we have made some real progress in tackling regional disparities in some key drivers of the economy. The most recent data show that gaps in GVA growth between the North, Midlands and South West and the Greater South East are narrowing. The ongoing challenge will be to keep this better performance up and ensure that all regions continue to grow - and grow faster - in future.

But to make further progress in bridging the 'North-South divide' that has challenged successive governments for so long, we clearly need to do more. Increasing economic prosperity for all, and particularly for those who have not shared in our economic success so far, is a key challenge. My department has been working with the Treasury and DTI on this, and we will be taking a hard look at how best to address it in future, through the forthcoming Comprehensive Spending Review.

But we can't tackle these disparities from the centre alone. We need regions and city regions to play their part in promoting and enabling economic growth.  And in each area there is a leadership role for the Regional Development Agencies, working with regional and sub-regional partners, to drive forward economic growth through their regional strategies.

Take the Enterprise Hub Network in the South East for example. Here the South East RDA played a leading role in bringing together 22 local Hubs under a shared brand to make a bigger economic impact than they could on their own. Since starting in 2001, it has supported over 5,500 start-up and early stage companies and created 720 new businesses.

We also need regions to be able to work together where it is in their joint interests to do so. The Northern Way identified ten priorities for transformational change across the North. These included a £5 million skills programme aimed at priority sectors, and the Northern Transport Compact which provides a unified voice on transport needs across the regions. This also recognised the North's city-regions as being a key to its economic rebirth.

I think we have to resist the false choice of city or region. I am clear in my own mind that what are needed are strong cities in strategic regions.  There just isn't a choice between one or the other. Cities and regions are already working together, and supporting each other in their wider aims. It's not a zero sum game.

The RDAs have a key role in fostering collaborative economic networks across the region and in helping individual places find their own economic identity, particularly in today's knowledge economy. These networks must include city-regions, cities, towns and rural areas - all are important in the region's economy.

For example, analysis currently being done for my Department by the Work Foundation suggests that medium-sized cities may be able to improve their economic prospects by collaborating with other neighbouring cities. This would enable them to develop economic strategies that forge stronger links within the wider region, including with smaller towns, as well as at the national level. 

Cities like Ipswich and Norwich in the East, the Camborne Pool and Redruth URC in Cornwall, and Nottingham, Leicester and Derby in the East Midlands, have already started down this route.

The Work Foundation analysis also exposes that existing structures and institutions do not reflect always the real economic geography of the UK. It identifies the city-region as a robust framework for analysis and policy making, and suggests that city-regions be given the opportunity to secure the powers they need to enhance the process of economic development in their city.

After all, many of the challenges that we now face cut across local authority boundaries, suggesting that some key decisions do need to be taken at city-region level. It is agreed - and obvious really - that economic geography and political geography often don't match. And there is evidence that a better fit between administrative boundaries and the real, underlying economic geography, strengthens economic performance across the city-region.

Over the past few months I have been spending time talking with the leaders of some our great cities - such as Manchester, Birmingham and Sheffield - about the tools that they themselves would like in order to shape their own local visions for the future.

The business cases that the cities have presented to us contain a number of common themes - including stronger powers over economic development, transport, employment and skills. As the lead department for 'place' in Whitehall, Communities and Local Government has an important role in bringing coherence to the Government's agenda here. So I am working closely with colleagues such as Douglas Alexander at Transport, John Hutton at DWP and Alan Johnson at DfES to develop what I hope will be a strong and positive response. 

Making further progress in freeing up our cities to promote and enable economic growth will require strong leadership and continued dynamism on the part of our cities. And I am also clear that if I am to make the case in Whitehall to devolve further, then the greater the powers being asked for, the higher the premium on clear, transparent and accountable leadership. There is a deal to be struck here.

I believe that now, more than ever, it is essential for politicians to respond to these challenges and be out there debating potential new ways of addressing economic inter-dependence. Whitehall is now listening to our towns and cities, rather than vice versa. I have been hugely impressed by the enthusiasm, potential and new ideas that exist around the country and I am determined that we in government make a substantive response to the proposals that have been put to us.

And I should stress of course that I recognise places are different, each having their own geographical, economic and political challenges. I have no intention of imposing a rigid blueprint everywhere. Our aim is to develop a more permissive and flexible framework which will enable different places to move at different paces in addressing their own distinctive concerns.

We need our cities, towns and rural areas to be both competitors and collaborators: to strive to excel individually in economic performance and in quality of life, but also to recognise shared opportunities for stronger growth and better prospects.

I can tell you today that one step we will be taking is to encourage and support those cities and local authorities who wish to establish City Development Companies (or CDCs) to help attract additional private investment and drive economic development in their area.

The inspiration behind CDCs - as with all good ideas - is a simple one. By using a special purpose vehicle, responsibility for economic development in a place can be more clearly defined, longer-term objectives more easily pursued, and the energies and resources of a wide range of public and private sector partners better levered in and brought together. Together these factors tend to increase business confidence and speed up decision making, leading to better and higher levels of investment overall.

Such a company approach to economic development - taking a broader approach than solely physical regeneration - is a long established tradition in countries such as the Netherlands, Germany, Italy, and North America - and I am convinced that we need to build on their success here in the UK.

For example, a CDC is at the heart of Turin city-region's impressive drive to reposition itself as an international centre of advanced manufacturing, research and modern technology. And Toronto's Economic Development Corporation has the authority to explore, pilot, and implement incentives and redevelopment tools.

Here in the UK, there is the outstanding work going on through the 21 urban regeneration companies, which are delivering massive investment and major changes on the ground. These include provision of mixed use housing, office and retail space, leisure facilities and improvements to the public realm.

And we are already taking the next steps. In response to the initiative taken by Sheffield City Council, Yorkshire Forward and other partners, we have supported the establishment of Creative Sheffield as England's first City Development Company. And we are working with local authorities elsewhere that have expressed an interest in forming similar vehicles. 

I see CDCs as offering the potential to deliver transformational economic change in our cities. And to help local authorities and RDAs build on success to date we will publish draft guidance on establishing city development companies following the White Paper.

And the final perspective I want to look at - that of the local authority - is crucial here, in enabling local economic development and creating communities that work.

I wholeheartedly agree with Sir Michael Lyons' vision of councils as 'place shapers'.

Local government has a vital part to play in shaping an inspirational and robust economic vision for their areas, and rallying other agencies - from the public, private, voluntary and community sectors - behind that vision. Together local government and its partners can ensure that the future vision responds to local people's expectations and has a community logic as well as an economic one.

The delivery of high quality local services and strong and effective local leadership is essential to well performing local economies.

And in delivering these services, authorities need to work sensibly and proactively across boundaries, with neighbouring authorities or across the region - wherever it makes most sense.

Many authorities already co-ordinate very well. For others it will be more of a challenge. But better joint-working must become the norm. Whether you are a core city or a coastal town, a rural area or a smaller city, working together to promote economic growth and prosperity has to be a priority.

We are supporting that. Just look at the progress we are making through Local Area Agreements, where we've already pooled over £700m worth of funding from an average of 9 funding streams rising to 20 or more next April. And much, much more money has been aligned with LAAs locally.

Authorities in areas where LAAs are established are telling us that the framework is proving effective in building new and stronger partnerships. This includes the key partnership for economic growth - between local government and business. 

Some authorities are now interested in extending the local area agreement concept over a wider area, across authority boundaries, through multi-area agreements. And where localities feel that MAAs are a more efficient way to deliver certain services then we are happy to explore with them how this might work in practice.

I am also interested in exploring how we can give stronger incentives for councils to support growth than we have at present. Our recent consultation on incentives to support housing growth is one example - and I am sure that Sir Michael will come forward with ideas here.

One incentive already in place is the Local Authority Business Growth Incentive Scheme (or LABGI). This recognises and rewards councils who grow the business base in their area. I am delighted to announce today that, following a review of the first year of LABGI, in future we are abolishing the ceilings and increasing the potential for greater financial reward. Local authorities stand to gain a total of almost £1 billion from the scheme over three years. Every local authority now has a direct financial incentive to promote enterprise, employment and the growth of small and medium sized businesses in their local community.  This should be a welcome step. I am sure John Healey will give you more details this afternoon.

I am also clear that we need much less red tape. This means a dramatic reduction of many centrally set targets and indicators and I am pleased to report that our new Lifting Burdens Taskforce is already getting stuck into this challenge with great energy.

Overall, I believe we can look to the future with confidence. This is an exciting time for all of us, and I believe that the critical role for Local Government in leading the response to local economic circumstances has never been more evident or pressing. I am really up for this challenge. But I need you all to be too, if we are going to succeed. I look forward to working with you all on this vital agenda over the coming weeks and months.

Thank you.