The devolution genie may be out of the bottle, but the consequences for Yorkshire’s economy and its property markets are far from clear
The votes in September’s Scottish independence referendum had barely been counted before the race was on for the English regions to make a beeline for Whitehall, asking for a slice of the administrative autonomy that had been so lavishly promised north of the border by Westminster’s finest.
While talk of devolution mania might be overplaying it, there has been much fevered speculation about how the UK’s city regions, particularly those in the North, might extract more control of their own destinies from MPs in the short window before the next general election.
So the exhortation by James Newman, chair of Sheffield City Region LEP, at last month’s MIPIM UK to those involved to “be careful what you wish for” was timely, reminding those who needed it that new freedoms will come with extra responsibilities.
And also compromises, as the first agreement on devolved powers – signed by Greater Manchester at the start of this month – showed. Even though just over half of Greater Manchester voters rejected a directly elected mayor in 2012, the region’s deal with the Treasury for new spending powers is conditional on the appointment of such a mayor, although this may not happen until 2017.
That kind of bargaining will not go down well in Yorkshire, where the only other two devolution deals before May’s general election are expected to be struck, in West Yorkshire and South Yorkshire respectively. Here, the burghers of both Leeds and Sheffield voted decisively (by almost two-thirds) against a directly elected mayor. And while their council leaders admit unhappily that nothing has been ruled out, they should be under no illusion that the government will make easy concessions.
“How far Leeds and Sheffield can make robust governance arrangements will affect the scope of what they achieve in how far things are devolved,” says Andrew Carter, acting chief executive of Centre for Cities.
His organisation’s Northern Futures Summit in Leeds three weeks ago was used as a springboard for deputy prime minister Nick Clegg – who is also a Yorkshire MP – to announce his hope that agreements could be tied up for both West and South Yorkshire by early December. Whether terms can be finalised for next week’s autumn statement will be a close-run thing.
In any case, says Tony Travers, director at the London School of Economics and Politics and a speaker at the Northern Futures Summit, agreeing heads of terms is very different from wresting control away from civil servants.
“In a country as centralised as Britain, they are only going to be able to let go of power very, very slowly, and possibly less quickly than for their own good,” he says.
If the political landscape in Westminster remains similar to today, with the Conservatives and Labour exchanging power every two or three elections, then real change could take at least a decade, possibly two. However, political pundits point out that a significant increase in the vote for UKIP, the Scottish National Party or even the Green Party – all of which favour radical devolution – might significantly speed up the process.
In the meantime, Sheffield LEP’s Newman says the South Yorkshire team has been careful to run its proposals past Labour officials. “There is no point in wasting our time on something that is not going to be followed through,” he explains.
However long it takes, many Yorkshire professionals are certain that the process, once begun, is largely irreversible, though there is debate about whether loosening some spending powers equates more to decentralisation rather than true devolution.
“We should worry less about the terminology and more about the process. Words are less important than actual policies,” says Jonathan Turton, corporate finance and infrastructure director at KPMG’s Leeds office.
The chief executive of Leeds City Region LEP, Roger Marsh, firmly agrees. He says: “The devolution genie is out of the bottle. If extended decentralisation gets us there, that’s fine. The key thing is that we ensure that we don’t lose sight of the dividend for the constructs.”
What those dividends will be in Yorkshire remains to be seen, though many commentators agree that initially they will be slightly different from those achieved in Greater Manchester. Consensus suggests that skills and business support are likely to feature more prominently than transport on the eastern side of the Pennines (see below).
“Devolution needs to be a means of improving living standards and opportunities that are felt right across the region, rather than just transport networks like HS3,” says Howard Bassford, partner at law firm DLA Piper.
Although regional devolution in Yorkshire is different from national devolution in Scotland, the target of increased economic sustainability is the same. The northern powerhouse of Manchester, Leeds and Sheffield has a larger population than Scotland and a slightly higher economic output. So there is considerable determination in Yorkshire to mirror at least some of the gains heading Scotland’s way.
Keith Wakefield, leader of Leeds city council, says: “Breaking the Whitehall model is going to be a challenge and we have to be very careful we’re not robbing public services to provide economic growth.”
His initial target is to claw back the council tax spend that was lost a year ago and gain control of business rates (worth £1bn). These are demands Whitehall is unlikely to accede to without a struggle.
He nods: “I’m not a young idealist, I know it’s going to tough, but I’m still optimistic, though I realise that people will judge us on actions, not words.”
Key proposed devolved powers for West Yorkshire
- Long-term funding based on percentage of GVA growth
- 100% retained business rates
- Council tax unfrozen
- Pooled funding and assets of national and local public sector agencies
- Ability to put in place an integrated transport system for the city region
- Ability for city region to determine its own housing strategies
- Collaborative approach to commissioning of non-specialist
health services
The impact of devolution in Yorkshire on commercial property
One of the most common mantras quoted by property experts in relation to the Scottish independence referendum is that “business doesn’t like uncertainty”. Sure enough, both occupational and investment property markets north of the border have struggled to move forward even after the referendum result as the country sits in limbo while the details of “devo max” are thrashed out – a process that could take a while.
In theory, this should not bode well for English regional property markets, as there is plenty of uncertainty about what regional devolution will mean for English regions, let alone how it will actually be implemented. But if property folk are worried about this, they are not showing it. Quite the reverse, in fact, as enthusiasm for the devolution bandwagon appears to be growing.
At last month’s EXPO REAL conference in Munich, GVA chief executive Rob Bould told potential investors in UK property: “Growth will be supercharged by the devolution of fiscal and other powers to local authorities prompted by the recent Scottish referendum.”
Bould may have jumped the gun on fiscal powers, but his comments certainly predicted this month’s “devo Manc” deal. However, interest in regional property markets is already on the up, driven largely by overheating in the capital. This point was highlighted by Bould, who noted the yield gap between London and the regions (4.2% vs 6.7%) to illustrate the latent potential outside the capital, irrespective of changes to administrative set-ups.
In Yorkshire, property people broadly welcome the prospect of devolution, even if the details are likely to remain hazy for some time. “The fact that people on the ground will have a decision on how the money is spent is a good thing,” says Ben Hall, investment director at GVA’s Leeds office.
Although he acknowledges that the gradual upturn in the UK economy is re-invigorating local property markets, he adds: “Prime spots are likely to take care of themselves, but we will still need funding in many other places.”
