Greater Birmingham and Greater Manchester should have elected mayors that control spending on transport, regeneration, skills and the power to raise business tax according to new research published today (Wednesday) by the Institute for Public Policy Research's Centre for Cities.

The report recommends England's two biggest ‘city-regions' should be in charge of their own economic development. It argues for around £1.2 billion a year to be devolved from Regional Development Agencies, Transport Boards and then the Learning and Skills Council. The report suggests that this could be topped up by a five per cent levy on business rates but that local government must first build a consensus with business over public spending priorities.

International evidence from Bilbao in Spain to Portland in the USA, shows that mayors, with tax raising and spending powers, can significantly improve economic performance and political accountability.

Dermot Finch, Director of ippr's Centre for Cities said:

“Our biggest city-regions need more power. Greater Birmingham and Greater Manchester are big enough to control their own economic development. This is the best way for them to increase jobs, improve transport and drive economic growth. Unelected regional quangos are too big and undemocratic but local authorities are too small. Directly-elected mayors will be controversial but they provide clear leadership and a visible line of accountability, as Ken Livingstone has shown in London.”

City Leadership: Giving City-Regions the Power to Grow, by Adam Marshall and Dermot Finch, is available here

The report recommends for Greater Birmingham and Greater Manchester:

• City-Region Contracts to co-ordinate and devolve around £1.2 billion in existing funding from Regional Development Agencies, Transport and Housing Boards, Passenger Transport Executives and then post-19 funding from the Learning and Skills Council.
• City-Regional Supplementary Business Rates. The ability to levy up to five per cent on the business rate, ring-fenced to strategic transport projects. This could raise £35 million a year in each city-region, and would cost the average small business less than £150 per year.
• Directly elected city-region mayors to lead and deliver City-Region Contracts, scrutinised by boards of local authority leaders, businesses and community representatives.

Other large city-regions – such as Liverpool – could follow Manchester and Birmingham's lead. Smaller cities and towns should gain greater financial flexibility through Economic Development Contracts, which would devolve decision-making, limit central oversight, and promote regeneration.

Defining city-regions: Local Authorities have put forward proposals to the Office of the Deputy Prime Minister (ODPM) for the creation of city-regions based on the former metropolitan counties around Birmingham (7 districts) and Manchester (10 districts). The Centre for Cities has enlarged these to include 13 districts in Greater Birmingham and 11 districts in Greater Manchester. The report does not propose any boundary reorganisation.

Birmingham City-Region includes Birmingham, Solihull, Sandwell, Walsall, Wolverhampton, Dudley, Coventry, Bromsgrove, Redditch, North Warwickshire, Tamworth, Lichfield and Cannock Chase. Its total population is around 3.07 million.

Manchester City-Region includes Manchester, Salford, Trafford, Stockport, Tameside, Oldham, Rochdale, Bury, Bolton, Wigan, Salford, Trafford, and Macclesfield. Its total population is around 2.89 million.

Maps are available from the ippr press office.

The report will be launched on Friday 24 February at Austin Court, Birmingham. Speakers include Sir Michael Lyons; David Frost, Director-General of the British Chambers of Commerce; and Cllr Mike Whitby, Leader of Birmingham City Council.

Sir Michael Lyons, Head of the Lyons Inquiry into Local Government, said:

“This report is an important and welcome contribution to the debate on the future of local government. I don't agree with all of its conclusions, but we must consider accountability issues alongside questions of what local government should do and how it should be paid for. I would encourage others to read it and to engage in the questions it raises.”

David Frost, Director-General of the British Chambers of Commerce, said:

“This report is right to identify cities as economic powerhouses. It kick-starts the debate, but there are still many questions to which the business community wants answers. We certainly need to give cities greater autonomy if they are to maintain their leading role in economic development. However, before we do that, there has to be greater trust between business and local government. Nothing less than a reinvention of civic leadership is required, where the business community is effectively engaged in decision-making, not just scrutiny. Financial devolution cannot happen until and unless we achieve this.”

Notes to Editors:

Supplementary Business Rates (SBR) case studies

A City-Region SBR of 2 pence (4.7%) from 2000 to 2005 would have raised:

• £35m per year, or £180m over five years, in the Birmingham city-region
• £35m per year, or £175m over five years, in the Manchester city-region

Small businesses would on average pay less than £150 per year.

The Centre for Cities is an independent urban research unit, based at the Institute for Public Policy Research (ippr). Launched in March 2005, it is taking a fresh look at how UK cities function. Tom Bloxham MBE is the Chair of the Centre for Cities Steering Group.

The Centre's research work this year focuses on eight cities and towns: Birmingham, Manchester, Liverpool, Sunderland, Derby, Doncaster, Barnsley and Dundee.