Who governs local economies?

Cities like Sheffield need more skilled jobs, but delivering them has to be both a national and a local priority

tom_hunt_100SPERI’s latest Brief provides a snapshot assessment of three English city-region economies – Sheffield, Brighton and Oxford – in the period since the financial crisis.  The Brief highlights significant differences between Sheffield City Region’s economy and the two southern regions, including: a lower employment rate; economic output per head that is over 40% lower than Oxfordshire and 25% lower than the Brighton region; a disposable income level per head £5000 lower than the southern regions; and lower pay growth over the last decade.

One of the most distinctive differences is Sheffield City Region’s low employment rate in finance, banking and insurance, and property and professional services industries (12.1%), compared to 19.4% in Brighton, 17.4% in Oxfordshire and 17.2% across England.  By contrast, Sheffield City Region has a far higher employment rate (19.4%) in the retail, hotel and restaurant sector compared to the southern regions (16.2% in Brighton, 12.7% in Oxford and 18.4% across England).  Across England employment in this sector has fallen since the crisis, but in Sheffield City Region it has remained stable – 19.4% in 2014-15 compared to 19.3% in 2008-9 – in part due to strong jobs growth in this sector since 2012.  This higher level of sales and customer service employment matters because these jobs tend to be low-paid and low-skill and therefore contribute a very low output level for the region, relative to other English regions.

One of the key conclusions of the research is that creating more better-paid and more highly-skilled jobs, as well as and beyond simply more jobs per se, in Northern city-regions like Sheffield will be a crucial test of whether or not the UK economy is genuinely ‘rebalancing’. Yet this begs a key question: in an era of devolution, who is responsible for delivering such objectives?

Addressing the devolution deal signed between central government and the Sheffield City Region in October, Communities Minister Greg Clark said:

Today’s deal is fantastic news for Sheffield, ensuring local leaders have direct control over the city’s future to drive local economic growth, attract investment from leading businesses and create thousands of new skilled jobs for years to come.

The job statistics above underline the need for more skilled jobs in Sheffield City Region, but the suggestion in the Minister’s remarks that somehow they will just ‘arrive’ as a direct result of this deal is questionable.

An important dimension of the Sheffield deal is that city-region leaders will have responsibility for reviewing 16+ skills provision, and that 19+ adult skills funding will be devolved from 2018-19.  Of course, there’s a strong case for skills decisions to be made by local leaders, working with local employers and educational providers, who will be more closely attuned to the needs of their local labour market than Whitehall officials.

But the bigger national picture on skills can’t be overlooked.  Resolution Foundation analysis shows the Department for Business, Innovation and Skills (BIS) losing over 50% of its funding between 2009-10 and 2019-20.  This suggests that, essentially, central government is devolving budgets that have been severely depleted, thereby tying the hands of local policymakers from the very start.  Despite the Government’s own analysis confirming that investment in further education (FE) leads to higher wages and greater employment outcomes, the expectation of further deep cuts to the BIS budget has seen the FE sector publicly voice concerns and raise the prospect of colleges and sixth-forms closing.  Indeed, in Yorkshire hundreds of FE teaching jobs are at risk.  In other words, devolving responsibility for skills provision and funding is one thing, but taking responsibility for a ‘decimated’ sector is an altogether different, and much more challenging, proposition.

It seems odd to have to point out that a local economy, however successful, can be affected by a multitude of regional, national and international factors.  Yet this rather obvious point seems to be at risk of getting lost in the clamour to devolve economic powers.  The short- and long-term future of our regional economies and the lives and prospects of citizens living in those areas are heavily bound up with flows of global capital and decisions taken far beyond their boundaries and the control of local leaders.

Witness, for example, the impact of decisions by private and state actors in China to ‘dump’ steel on the global market on the steel industry in Scunthorpe, 40 miles from Sheffield, and the attempts now being made at a national and European level to support the town and save jobs in the steel industry.

In the context of deep regional inequalities, austerity economics and the new global reality where the actions of multinational corporations and foreign governments can have huge local ramifications, local and regional leaders should push back against any sense that the devolution on offer transfers full responsibility for creating (or failing to create) stronger and more sustainable local economies to them.  Devolution offers the potential to recast the relationship between local and national government for driving local growth, and helpfully tilt the balance more towards local responsibility.  But at no point should sight be lost of the fact that the centre still has a vital role to play.