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How Osborne could use the Budget to make peace with the north

Rather than token announcements, the Chancellor needs to give much more meaningful power and autonomy to cities.

Meaningful power and autonomy for cities.
The Angel of the North on February 3, 2012 in Gateshead. Photograph: Getty Images.

George Osborne is likely to use tomorrow's Budget to make another peace offering to the north of England, normally in the form of a transport (re)announcement – last time it was some pennies for the North East Metro, at the Autumn Statement it was Northern Hub. The Budget represents a key staging post ahead of the local elections. Some Tories like David Skelton have got a keen eye on how the Conservatives will fare in May as they know that to win a general election next year, they’ve got to retain and build on their seats up north. They particularly fear UKIP eating into their vote share in the region.

But it wasn’t always the case that the Tories struggled so much in the north. In fact, history shows that the Conservative Party had an important role in the growth of England’s great Victorian cities. Both Joseph and Neville Chamberlain were key figures in the rise of Birmingham in the late 19th century. Disraeli famously set out his vision for the nation in Manchester stating "what Manchester does today, the rest of the world does tomorrow". Lesser-known figures such as William Huskisson were behind major infrastructure developments like the Liverpool-Manchester Railway and even up until the 1960s, the Tories controlled the city of Liverpool and still boasted Conservative champions like Michael Heseltine.

What Osborne’s predecessors grasped was the importance of powerful, autonomous cities, not only in driving national economic prosperity but also as the basis for strong civic institutions and a vibrant local democracy. Much of this was stripped away under Thatcher, but if the Tories want to win back the big cities they need to revisit their strong civic past and give much more meaningful power and autonomy to cities than we have so far witnessed. The coalition’s "City Deals" – championed by smoggie Greg Clarke MP - only went so far and seem to have run out of steam. The localism agenda largely bypassed councils and was a front for cuts.

So rather than baubles and sweeteners, what could Osborne do with the Budget that could set a new direction for city growth?

First, he could revisit the excellent Heseltine Review and specifically carve out much more substantive elements of departmental budgets to put into the Single Local Growth Fund – the current £4bn over five years is derisory and has reduced strategic economic planning in most cities to a small-scale bidding contest between Local Enterprise Partnerships. We need large-scale five-year settlements with city regions to allow them to get on with the joint task of economic growth and public service reform.

Building on this, cities should be allowed to keep the proceeds of economic growth and public sector savings. The concept of "earnback" has been instituted through the GM Infrastructure Fund but now it needs to be applied more widely in relation to all economic growth, welfare and housing as IPPR North has argued.

And finally, Osborne needs to go much further than the current business rate retention scheme and set out bold ideas for giving cities much great fiscal autonomy. The London Finance Commission was keen to devolve land and property taxes. Gordon Brown's suggestions for the devolution of income tax in Scotland could set a precedent for some kind of income tax assignment in England too. However it is achieved, fiscal autonomy is a key plank of the success of cities in other developed nations and in England we are getting left behind.

Time is running out for the coalition government to really drive the cities agenda that promised so much at the beginning of the Parliament. Not only is this the right thing to do for the national economy – it is probably their only chance of being returned to power. Let us hope that the Chancellor grasps the spirit of his northern predecessors more fully, rather than present us with just another northern Budget bauble.

Ed Cox (@edcox_ippr) is the director of IPPR North.