This blog introduces some of the challenges linked to central and local government relations globally and highlights related international case studies and lessons from a recent CIPFA report. This blog was written for this week’s edition of Global Local, looking at regional inequality and centralisation. Check out the newsletter or sign up here.
Can lifting up local be centrally led?
The central/local government balance of fiscal and decision-making powers can be difficult to get right.
On the one hand, overly centralised governance can lead to oversimplified policy, missing opportunities to use local knowledge for tailored, effectively targeted interventions with long term impact. Too much bureaucracy and dependence on bidding for project funding may also reduce responsiveness to communities and stretch already limited capacity too thin. Go too far the other way, however, and there is a risk of reinforcing inequalities through differences in funding and skills/capacity between areas (postcode lotteries).
The Covid-19 pandemic dredged up long-standing questions over the effectiveness of highly centralised responses. Germany and South Korea, two of the countries that addressed Covid-19 most swiftly and efficiently, have health services run by local government using primarily central funding (Read about Germany’s health service here). In the UK, the health response was entirely centrally led and implemented – and marred by slow decision making and inefficiency.
This week, the UK published its long-awaited ‘Levelling Up’ White Paper, aiming to address regional inequality through devolution deals. While the overall goals were laudable, in practice the delivery mechanisms and funding measures did not constitute significant progress in devolution, instead asking local authorities to jump through government hoops for funding and independence. See our coverage and analysis here.
Can a series of ‘city deal’ arrangements address regional inequality? Case-by-case funding deals can provide a pathway to investment and provide a starting point for devolution and building trust. However, they typically only benefit larger metropolitan areas and focus mostly on infrastructure and economic development at the expense of broader policy goals. Making local authorities compete with each other for pots of funding from central government might work to ‘level up’ certain areas – but it can stifle collaboration and leave others behind.
So, what’s the solution? While it’s hard for local authorities to change the structure of governance in their country, lobbying for more powers, funding or flexibility is possible. Alternatively, options for levelling up beyond deals with central government might include partnerships and collaboration with other organisations or councils, or alternative ideas such as community wealth building or social procurement. Below, we’ve outlined findings from CIPFA’s paper on city-led levelling up.
Investing in regional equality – lessons from four cities
CIPFA’s (Chartered Institute of Public Finance and Accountancy) recent report, Investing in regional equality – lessons from four cities, studies four cities internationally to draw conclusions over what works in levelling up. The key overall lessons are numbered below, and three of the case studies (USA, Japan and Germany) are summarised further down.
- Shared political will and partnerships: strong local institutions, working across public/private and regional/national arenas for a common vision.
- Clear strategy and visions: clearly setting out end goals for how the place should be to live and work in, and what it might be recognised for.
- Commitment to long term investing for scale and longevity.
- Local knowledge: utilising in-depth understanding of a place’s strengths and opportunities
- Monitoring and evaluation: policies should be regularly checked and designed with enough flexibility to be updated if necessary.
- Adapting national frameworks to address local needs: identifying opportunities for national policies to be adapted to local/regional landscapes, or making a case for flexibility from these if needed.
- Diversification: avoiding focusing only on economic development, instead widening scope to cultural, social or spatial improvements.
- Key players: some organisations or individuals might enable or lead growth, whether that be a mayor with vision or a charitable foundation.
- Adequate and responsive funding: recognising where and when finance is available is important. Successful cities in this study redistributed funding and tax systems within their region to address regional and urban inequalities, making sure not to devolve power without appropriate funding.
- While local government may allocate funding more effectively to public services, over-decentralisation of fiscal powers risk replacing the distributive role of the state and causing authorities to compete.
- Competitive bidding processes reinforce inequalities as wealthier regions can better compete due to bidding capacity. Lack of transparency over allocation between bidders and funders can also be an issue.
- With the right conditions, devolved decision making can enable poorer regions to compete by providing incentives for businesses or improving conditions for better demographic balance.
Case studies
Cleveland, Ohio (USA)
The US federal model devolves fiscal decision-making powers to states to a large extent, and states may further devolve these to cities. As such, Cleveland does have the tools to pursue independent strategies and is primarily funded by local taxes. Challenges in the city include poverty in the core, urban sprawl with population decline, and high racial and income inequality. Despite a wealthy history and the grand architecture of its civic institutions, Cleveland was hit hard by deindustrialisation – although manufacturing remains one of its largest sectors. One of the legacies of this era, the Cleveland Foundation, remains one of the world’s largest community philanthropic foundations, and plays a large role in the city’s regeneration today.
Initiatives include:
- Greater University Circle Initiative – a 20-30 year strategy where anchor institutions including universities and hospitals collaborate to ensure social procurement and hiring and development activities that benefit local populations.
- Support for co-operatives – while initially funded by the Cleveland Foundation, these worker owned, socially conscious businesses have proven financially sustainable in sectors from food production to solar panel installation.
- Supporting an existing cluster of healthcare and bio-science research to create a ‘health tech corridor’
- Supporting manufacturing firms to connect with partners, training and resources to improve jobs
Has it successfully levelled up? Cleveland’s success illustrates the importance of strategic aims led by community needs, building on local assets, and the benefits of having a grant-making body with political independence to finance long-term projects.
Challenges: Retention of local taxes and fragmented political geography across greater Cleveland can impede cohesive decision making across the area. Job growth in geographical clusters can worsen inequality as those with poor connectivity or long commutes may be excluded.
Fukuoka, Japan
38% of local spending in Japan is funded by local taxes, with a further 15% from grants linked to programmes, and 17% from a local allocation tax (needs-based). Local government spending is 42% of public spending in Japan. While local government in Japan struggles with increased demand for social services and reduced tax revenue from its ageing and declining population, the city of Fukuoka has implemented a series of local policies to overcome these issues.
Initiatives include:
- National Strategic Special Zone (NSSZ) arrangement with the government for a lower rate of corporation tax (23% vs 30% nationally).
- Startup city Fukuoka – support for entrepreneurs, helping 500 businesses that offer support services to potential enterprises including entrepreneur visas (and foreign visas for skill shortages), business advice and start-up funding.
- Attracting younger people and immigrants by focusing on affordable housing and spatial development to improve liveability.
- Investing in cultural infrastructure to promote tourism and improve quality of life – has also increased the number of international students.
Has it successfully levelled up? While Tokyo continues to dominate Japan’s economy, Fukuoka has grown its population, economy and domestic appeal to overcome the challenges faced by similar cities.
Challenges? Using economic incentives to entrepreneurs can alter the city’s character and clash with liveability ambitions. Competition with Tokyo over tech and smart city funding is likely to remain.
Leipzig, Germany
Leipzig is in Saxony, a federal state of Germany. Financial equalisation policies in Germany entitle each state to a “reasonable equalisation” of national revenue. While states and local authorities have the power to change taxes, these are rarely used. However, Leipzig City Council also has significant powers in areas such as tourism, environment or transport, which it has used to, among other projects, operate an extensive tram network. In the early 1990s, Leipzig was faced with several interconnected issues: rising unemployment, a rapidly declining population and poor public services. Today, Leipzig’s economy has doubled in size since 2000 and it is recognised as one of Europe’s most liveable cities.
Initiatives:
- Cluster policy – promoting clusters in 5 sectors to build on existing strengths: vehicles, healthcare, energy and environment, logistics, and media and creative enterprise.
- Innovation and Structural Change Fund – three regionally focused long-term funding pots for innovation and strengthening science and research in the public sector.
- SME Development Programme – supports business development, especially for socially and economically sustainable or innovative businesses, to provide grants
- Investments in cultural and spatial development to improve liveability
Has it successfully levelled up? Leipzig overcame a declining economy and population and has seen success through supporting existing strengths, setting aside funding for different regions, and committing to long term investment in programmes. However, while Leipzig is thriving is it something of an outlier; large inequalities persist between former East Germany areas and western Germany.
Challenges: Attracting additional businesses to the region has not provided equal benefits. While companies like Amazon and BMW have set up due to the well-qualified population and cheaper land and wages, the jobs remain low-paid.
Read the full report by CIPFA here for more insight and case studies: Investing in regional equality – lessons from four cities
