Yesterday’s Spending Review gave a greater steer on where the Office for Budgetary Responsibility’s forecast of 490,000 public sector job losses will be felt. Some government departments were hit harder than others. And the cuts will not have an even impact across cities either. We showed last year that some cities, such as Newcastle and Swansea, are more vulnerable to public sector job losses than others. Private sector suppliers and contractors are likely to feel the pain too.
One of the government’s main solutions to the problem of public sector job cuts across England’s city economies is the Regional Growth Fund, which was extended by one year in the Spending Review. Nick Clegg has been a big supporter of the Fund, saying that it ‘will create the conditions for growth and enterprise in the regions by stimulating investment and create sustainable private sector jobs.’ And when I asked Chris Grayling, Minister of State for Work and Pensions recently what will happen to people who are ‘work ready’ in cities where there is no work available, his magic bullet was the Regional Growth Fund.
This reasoning is likely to have underpinned the extension of the Regional Growth Fund yesterday, which the Centre for Cities proposed in our Spending Review submission. But some realism is needed around the potential impact of it. At around £500m per year, the fund is just one-third of this year’s budget of the doomed Regional Development Agencies alone. The RDAs spent eleven years, with much larger budgets, trying to rebalance the economy and boost private sector job creation without a great deal of success. So the Regional Growth Fund is unlikely to reshape the country’s economic geography in the way that politicians suggest.
The coalition is keen to focus the fund on areas that are currently dependent on the public sector. But many of these cities have a poor track record of private sector job creation, as we showed in our Private Sector Cities report earlier this year. If job creation is the government’s goal, in the short term at least, it needs to use this limited funding by supporting activity in more buoyant economies such as Brighton, Milton Keynes and Leeds – the clusters of private sector job creation in recent years. In future years, as the recovery takes hold, the fund should then have a greater focus on struggling areas, hit hard by the cuts.
What is likely to have a more fundamental impact on city economies from yesterday’s announcements is the removal of ringfencing around council grants. This will give local policymakers the freedom to tailor their budgets to address local priorities, rather than merely being the delivery vehicles for priorities determined by Whitehall.
Fewer restrictions on how money should be spent gives local government the power to address the fundamental issues that hold back private sector activity in their economies, such as low skills or poor transport. Of course, this extra flexibility is tempered by smaller budgets overall. The eventual movement towards devolution comes at a time when decisions will be significantly constrained by spending cutbacks.
But central Government has devolved some responsibility – it’s now up to local policymakers to use it to make the right decisions to support the future economic growth of their cities.
Paul Swinney is an analyst at the Centre for Cities