Economic recovery is well underway; now the challenge for national and local politicians alike is to help sustain it, providing the right environment in which businesses can thrive and ensuring people across the country benefit from economic growth.

Efficient transport, skilled workers, quality housing, good public space and high quality amenities available to businesses and workers alike are vital to this agenda. But economies don’t stop at council boundaries, so creating the right business environment requires local authorities to work together.

Our latest report, Breaking Boundaries, sponsored by Capita, argues that supporting, enabling and incentivising that to happen will be critical to the next five years of growth.

Working across administrative boundaries is vital to jobs and growth because of the way the economy is changing.

Across the world, cities are driving economies because they’re places offering business access to the most customers, people access to the most jobs, and everyone access to the most ideas. Urban workers are on average 15% more productive than their non-urban counterparts.

But many of the people working in cities don’t live there; they live in the surrounding area. Some 50% of commuters in cities live and work in different local authorities, and businesses rely on roads and public transport that cross local authority boundaries to move goods and access workers. 

Everyone – workers, residents and visitors – relies on education, housing, and health services and amenities that are located throughout the area.  So improving transport or skills or housing in just one council is unlikely to be effective - and in an era of austerity, with local government budgets set to fall by 14% between 2010/11 and 2015/16 – it’s not a great use of limited money.

Some progress has been made in recognising that councils need to respond to local circumstances and work together to support growth, particularly through City Deals and Local Growth Deals. Yet UK cities and surrounding areas are still not able to prioritise the investments that would make the biggest difference to them across the scale at which the real economy actually works.

This is partly because the financial incentives are still not there; despite austerity and reforms such as those to business rates-improved economic growth benefits the Treasury more than local areas.

But it’s also because working together is often politically tough.

There is nothing easy about bringing together multiple organisations, political leaders and geographies, all with their own histories and economic legacies to balance.

To encourage the collaboration we need to see, the Government should pursue a “tailored devolution” approach, whereby the kinds of new powers, resources and freedoms that local authorities themselves identify as needed to drive their economies are offered in exchange for local areas demonstrating their ability to work together and how them gaining more powers would improve their local economy (and thus national economic growth).

What would this mean in reality for different urban areas across the UK?

First, let’s consider the range of existing and emerging Combined Authorities.

Forplaces like Greater Manchester and Greater Leeds, who can already demonstrate an ability to work together and a capacity to deliver, we would recommend transferring the powers the Greater London Authority currently has.

This would include providing those places with the power to borrow additional finance and establish a Transport for London style transport body to have control over funding of local transport plans, as well as financial flexibility including control over the fare-box income.

As the other soon-to-be-introduced combined authorities and any future combined authorities demonstrate their ability to manage such freedoms, more of these powers should be made available to them. 

These powers could also be offered to two tier areas where there was an agreed position amongst the relevant authorities for creating a Strategic County, thus incentivising deeper and more substantial collaborations across local economies (while still keeping some functions at a more local level where more appropriate).

In terms of London itself, the Capital remains the dominant city in the UK economy. It already has significant economic development powers and freedoms compared to other cities, but greater fiscal autonomy could help it keep up with the pressures on its infrastructure and services. 

London continues to have far less fiscal autonomy compared to other major international cities including Madrid, New York, Berlin, Paris and Tokyo.

We would therefore like to see the recommendations of The London Finance Commission implemented, which means relaxing restrictions on borrowing for capital investment and housing within prudential rules and allowing London Government (the precise governance structure needs to be determined) to recalibrate council tax bands and control local property taxes.

But what about those cities that are outside existing city-region arrangements, for example the likes of Reading, Milton Keynes or Leicester? For these places, the priority should be to explore the merits of establishing more formal collaborations, such as Economic Prosperity Boards and Joint Management Teams that cover their own functional economic areas.

To encourage greater levels of collaboration across all local authorities the government should set out a range of incentives aimed specifically at these places, including the negotiation of integrated five year budgets, single property boards for the area over which authorities are collaborating and greater influence over the Highways Agency’s and Network Rail’s non-national investment programmes.

Working across boundaries is never easy and the bulk of the effort has to always come from the local partners who will need to make relationships work on a day-to-day basis. But by going one step further down the road of ‘tailored’ devolution, there’s a real opportunity for both national and local economies to reap substantial and long-lasting rewards.

Alexandra Jones is chief executive of Centre for Cities

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