Des McNulty: Why the future has to be metropolitan

Justice Secretary Kenny MacAskill caused something of a stir recently with his comment that the current system of 32 local authorities and 15 health boards is untenable. Many would agree but focusing on numbers limits a debate we really need to have.

We know the structure of 32 councils was introduced in 1995 to reduce the power of big regions and create a few safe Tory enclaves. To have 32 directors of education, several of them managing fewer than ten secondary schools, is wasteful and inefficient. The worst fragmentation is in the Central Belt. It makes no sense to have two Lanarkshires, two Dunbartonshires and three Ayrshires. But analysis shows us too that cities and their regions are intimately linked and that benefit comes from planning for the two together.

The Convention of Scottish Local Authorities (Cosla) response to MacAskill’s remarks was that structural reform was a “costly diversion” from providing better services. Structural reform, indeed, imposes costs over a period but these have to be weighed against the long-term costs of inefficiency and of structures that positively inhibit planning for economic growth.

Councils are preparing for cuts more severe than anything we have seen in the past 15 years. Inflation, lost revenues due to weak economic activity, the council-tax freeze and increased demand for services mean that every council is Scotland is strapped for cash. Providers of services for vulnerable groups face cost cutting and contractual uncertainty. Changes to benefits will mean drastic cuts in income for some, putting more pressure on councils. Housing benefit changes in the next two years will bring the business model for local authority and social housing into danger of collapse.

The response of successive administrations at Holyrood has been to look for compensating savings through “shared services” and “closer service integration”. In other words councils should voluntarily combine both corporate systems (HR, ICT) and organisation of services to their residents. But little progress has been made, even in bringing together backroom services.

The Scottish Government had said that if no progress were made it would need to consider structural reform. But, until Mr MacAskill’s comments, it had seemed as if ministers would wait a good while yet and certainly until after the 2014 independence referendum.

But why do we see this as all or nothing? In some instances full merger might be the right outcome, in others strategic delivery partnerships for front-line services that go far beyond the mantra of shared services.

Geography or economic circumstances mean, in some parts of Scotland, the right solution may take longer. A rolling out of local solutions would deliver substantial improvements and provide more buy-in than a big-bang re-organisation.

But the real issue is that adjusting scale and numbers is not enough. We need to rebalance the relationship between central and local government, giving greater leadership responsibility, including powers needed to drive economic growth, to civic partnerships. In England, Greater Manchester has established the first combined authority (following agreement between councils) to be granted new powers and responsibilities that allow economic growth to be driven locally.

The extra powers include responsibility for economic development, transport and housing. They also include an innovative “earn back” model that allows Greater Manchester to capture a proportion of the economic benefits of local infrastructure investment to reinvest in growth enhancing projects. Similar things are happening in a number of other English city regions.

In his recent report, Michael Heseltine argues that this model should be built on through fostering co-operation between business and councils in 39 functional economic market areas across England. Heseltine argues that local partnerships should take a holistic view of the challenges they face and develop strategies grounded in the economic reality of their area. He acknowledges “local places will never be sufficiently empowered to drive the growth we need unless we share the government’s most important lever, funding”. Making resources available to local partnerships would prove a significant stimulus over the medium and long term.

Centralisation as an inhibitor of growth is seen in Europe too. Contrast the economic performance of highly centralised France with that of Germany where the regional focus of the economy contributes to its dynamism. Devolved governments in Scotland first tightly controlled the allocation of resources, using financial leverage to impose policies on local government. The current Scottish Government has taken a different tack but its removal of ring fencing has given councils a freedom that is constrained not just by the squeeze on resources but also by their lack of scale and the powers to take strategic action.

Local enterprise companies had shortcomings and some European funding had been used without strategic direction – but that does not mean the only answer was to put decisions into Scottish Enterprise and the Scottish Government. While the Highlands has its own development agency, economic development elsewhere in Scotland is channeled through an enterprise agency that now has little local accountability or sensitivity. It is undoubtedly the case that Scotland’s city regions and economic areas have less freedom and access to investment than their counterparts around the UK.

So far the constitutional debate in Scotland has been fixated on additional powers for the Scottish Parliament. But we have a powerful option already available to us. We can devolve resources and responsibilities to stronger councils who will act more efficiently and effectively for areas that reflect how economic activity is organised. The business community, while possibly wary of change, would surely find it more logical to collaborate on economic development for areas that they as well as government economists and statisticians recognise as the reality of contemporary society. Local authorities working with each other and in partnership with business, coupled with the decentralisation of powers to deliver place-focused economic growth strategies, can deliver greater prosperity.

The incentive of greater powers and re-allocation of funding could be the catalyst for structural change in local government that the encouragement of shared services has failed to provide.

Given the challenges Scotland faces, it would be a mistake to delay tackling this agenda until after the referendum. To secure growth and manage the consequences of austerity and welfare reform, making local government fit for purpose is vitally necessary.

l Des McNulty is a former Labour MSP.