October 27, 2013 2:02 pm

Brics economist to chair commission on revival of UK cities

Jim O’Neill©Reuters

Jim O’Neill

The man who identified the Bric economies as the engines of 21st century growth has been asked to help revive 19th century UK economic powerhouses such as Manchester and Birmingham.

Jim O’Neill, who went from a childhood on a Manchester council estate to head of asset management at Goldman Sachs, is to chair a commission on how the UK’s regional cities can be given the freedom that will help them bolster the economy. Its findings will be offered to all political parties ahead of the 2015 election.

Having in 2001 tipped Brazil, Russia, India and China as leaders of the world’s economy, Mr O’Neill now believes that the biggest international cities will start to replace states as economic powers.

Mr O’Neill writes in Monday’s Financial Times: “The ‘global race’ is the context for our commission and urbanisation is its mega-trend – by 2015, 70 per cent of the world’s population will be urban. McKinsey research shows that while mid-tier cities are currently home to only 7 per cent of the world’s population, by 2025 they will generate 19 per cent of world growth.

“Many successful countries, including China, Germany and the US, have a number of vibrant cities. The UK, by contrast, is dominated by London, whose unique role as a home to the best and the brightest from the most dynamic economies is turning it into ever more of a global city.

“Making [cities] more competitive should be a central challenge for economic policy.”

Despite its economic revival in the past 20 years, Greater Manchester receives about £5bn more a year in taxation than it collects. About £22.2bn of public money is spent annually in the city of 2.6m people. It raises an estimated £17bn.

The Commission for the New Economy, a think-tank linked to Manchester council, estimates that the biggest contributors are income tax at £5bn, national insurance of £3.2bn, business taxes of £2.1bn and £3.2bn VAT.

While government spending in the city has remained flat over the past three years, budget cuts have shifted money from council budgets and transport and skills investment into helping those affected by recession. Social security spending has increased by £450m, almost 10 per cent, and healthcare costs by £300m.

The typical UK city only controls 5 per cent of its tax and spending, rather than the 55 per cent in New York and even higher proportions in many continental European cities.

“Great cities such as Manchester, my home town, should surely be encouraged to stand on their own two feet and given more responsibility to determine their own choices. This is often how decisions are made for big urban areas in other countries,” writes Mr O’Neill.

He eschews ideas such as incentives for business, in favour of supply side policies including better infrastructure and education and more labour market flexibility and local democracy.

Improving schools and extending the influence of universities is crucial, he says. The City Growth Commission, which Mr O’Neill is chairing for the Royal Society for the encouragement of Arts, Manufactures and Commerce (RSA), will also examine whether cities could be allowed to raise finance, by issuing bonds for example, and also look at public sector reform.

The RSA commission also includes Tony Travers, a local government expert from the London School of Economics, and Bruce Katz, a former adviser to US President Barack Obama and a vice-president of the Brookings Institution, a US think-tank.

Mr Travers chaired a commission for Boris Johnson, the London mayor, which called for the capital to retain property taxes and be given more fiscal powers.

Mr Johnson has joined with England’s eight biggest “core cities” to call for more devolution. The government has been granting limited powers through so-called “City Deals”. Mr O’Neill said there were “encouraging signs” but devolution needed to go further.

Sir Richard Leese, leader of Manchester City Council, said: “If all our core cities performed just at the national economic average, that would put £1.3bn into the economy every year.”

The commission will report in nine months, the RSA said.

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