Category Archives: Blog

Give us the powers and we will lead the post-Brexit economy

Localis report

As consultation on the Government’s Industrial Strategy Green Paper draws to a close, I want to underline the importance for Birmingham and the wider West Midlands of a joint approach towards one of the biggest issues facing this country.

I’m determined that we will lead the country in showing how cities can be at the forefront of a new, post-Brexit, industrial strategy.

The countdown to Brexit is about to begin. The Prime Minister has signalled she will trigger Article 50 next week and whether we like it or not, the UK will leave the European Union in two years.

This means the requirement for a sound industrial strategy, with buy-in from both central and local government, has never been greater. Post-Brexit it is vital that investment currently coming from the EU to Britain is maintained, that we address the skills shortages holding back the economy and the prospects of local people, and maintain investment in our transport infrastructure and new homes.

This won’t be easy but the task will be even more difficult, impossible perhaps, unless the Government is prepared to move at pace to allow important strategic decisions to be taken locally, at a level where councils and business leaders know what is best for their local communities and can react swiftly to trading opportunities as they arise.

Devolution of budgets and powers from Whitehall has to be far more than just a sound-bite – the advent of a West Midlands mayor alongside a united Combined Authority with metropolitan and district councils working together as never before presents this region with a unique opportunity, and we must be up for the challenge.

The three-LEP geography of the Combined Authority is the right level at which to deliver a regional industrial strategy. But we are also working closely with the Midlands Engine project on those aspects that require a bigger canvas, such as cross-regional transport investment and selling the Midlands globally.

A new report from the think tank Localis, makes the case for radical devolution which would enable Birmingham and the West Midlands to deliver an industrial strategy to create jobs and inclusive growth for the region post-Brexit.

The report recommends that the West Midlands be given:

  • A new Accelerated Growth Fund, to replace EU funding and pool all existing local funding
  • Powers to more effectively plan for current and future labour market needs, including co-ordinating local skills provision
  • Leadership on local land provision for housing and jobs and on the use of all public land, stronger compulsory purchase powers
  • A duty to develop local transport strategies and control over investment planning
    Control of local bus services
  • Power to control a Community Infrastructure Levy across the area and new Zonal Infrastructure Levies
  • Greater discretion over business rates and pilots of fiscal devolution steps such as a local corporation tax top slice, localised VAT and wider borrowing powers
  • Rights to propose public sector relocations from London, such as government departments or Quangos.

The report is particularly welcome as it is in line with the arguments we have been making to the Government on the need for more devolution so that we can deliver the investment needed to prosper after Brexit.

These changes would go a long way to enable Birmingham and the West Midlands to make a greater contribution to the nation’s prosperity and achieve the full potential we know exists in the region.

When the Industrial Strategy Green Paper was published, the Prime Minister promised the Government would step up to a “new, active role that backs business and ensures more people in all corners of the country share in the benefits of its success”.

The Government said it would look favourably on the type of sectors that will shape the economy of tomorrow, with life sciences, low carbon vehicles, industrial digitalisation and creative industries expected to be at the front of the queue for investment.

This is potentially good news for Birmingham and the West Midlands where our hospitals and universities are already blazing a trail in medical research, and where JLR has expressed a wish to look at building a new battery and assembly plant for electric cars.

But as I’ve already made clear, there’s much more the Government should be doing if it wants to rebalance the economy and promote inclusive economic growth, with well-paid jobs for all citizens. Enhanced capital allowances should be considered to stimulate investment in manufacturing, the Advanced Manufacturing Supply Chain Initiative should be resurrected, and funding gaps for small firms in the supply chain need to be plugged.

I welcome the Green Paper’s recognition of the importance of individual councils and combined authorities as key local institutions but again look for a stronger commitment to devolution to enable us to deliver.

The Government must ensure that governance at a regional level, whether through combined authorities, local enterprise partnerships, or mayors, should be able to work with development bodies that can intervene more widely and strategically at a regional level, and do smart specialisation through regional level industrial policies.

Why Government must investigate council pension fund fees

The scandal of UK councils’ pension funds and their sky-high investment management charges is even greater than previously imagined, and now surely warrants a Government investigation.

While the Centre for Policy Studies reported that the 89 local government funds in England and Wales paid out £10 billion in management fees over the past decade, I can reveal the true figure for the entire UK must have been far higher.

Based on research into local government pension fund accounts for the entire UK, taking in Scotland and Northern Ireland as well as England and Wales and including the Transport for London fund, fees for 2015-16 alone were £1.015 billion!…..and that’s just for a single year.

So over a ten-year period, the £10 billion estimate is certainly on the low side.

This wouldn’t be so bad if investment managers were adding value. Unfortunately, the funds have generated very poor returns for their members, despite thousands of millions of pounds being handed to city-based ‘experts’.

The West Midlands Local Government Pension Fund (WMPF), into which Birmingham City Council is being asked to pay about £125 million a year, is diverting a higher proportion of its assets to managers than the UK average.

The average spent on administration expenses by all UK funds during 2015-16 was 0.36 per cent. But WMPF managed to spend 0.60 per cent of its assets on advisers and managers.

WMPF trustees signed off £86.3 million in 2014-15 on management fees and were set to pay £74.9 million in 2015-16. Payments at this level are, I believe, unacceptable, particularly given the poor return for the fund.

I am arguing strongly for management of the fund to be brought in-house to save money, and I also want to see a full breakdown of fees paid to investment managers, including bonus payments.

One local government pension fund does stand out as a beacon of frugality and good performance – West Yorkshire, which spent just 0.03 per cent of assets on management charges in 2015-16.

WMPF paid at least £1 billion on management fees over the past decade. By contrast, the West Yorkshire Pension Fund’s management expenses over the same period were £70 million. A billion pounds versus seventy million pounds, it just doesn’t make sense.

As the Centre for Policy Studies report candidly notes, dysfunctional governance and a lack of accountability means that local government pension fund members, past and present, are getting a bad deal, while councils are being short-changed because have to bail out the funds with money they would far rather use to run public services.

The blunt truth is that most of the funds would have delivered a better return simply by switching from active management to passive tracker funds, cutting management fees to the bare minimum.

As the Financial Times has reported, passive funds across the world grew 4.5 times faster than active funds in 2016 as investors retreated from stock-pickers due to concerns about high fees and disappointing performance.

But this is about far more than tackling eye-wateringly high management fees, as important as that issue undoubtedly is. With £214 billion wrapped up in local government pension schemes, the time is right for the Government to consider ways in which cash locked up in the funds can be converted to provide investment at a time when local authorities are suffering severe and continuing cuts in Government grant.

We need to think smarter and be more agile about how best to put that money to better use, paying for new infrastructure, housing and regeneration schemes, providing real benefits for communities and delivering better returns for the pension funds.

The Government should welcome such an approach since it would bring into play more than £200 billion, triggering a huge cash injection for homes, jobs and inclusive economic growth.

Many of the recommendations in the CPS study reflect those put forward in my book published three years ago, ‘The Secret Wealth Garden – Re-wiring Local Government Pension Funds back into Regional Economies’.

I argued for the 89 separate ‘mini wealth pots’ to be combined, either into a single national pot or a small number of regional funds. Either way, what’s needed is to make pension fund money work for local communities, which must be the right approach given that these significant pots of wealth are actually made up of the savings of pretty ordinary and low-paid people.

Out of the 15 proposals in the CPS study, the final one is perhaps the most significant:

“The Government should develop a parallel plan to de-fund the Local Government Pension Scheme and use the assets to seed a sovereign wealth fund, with a significant allocation to infrastructure. As a quid pro quo, a Crown guarantee could be provided on the pension promises, which would subsequently be met on a pay-as-you-go basis.”

This would change the historic approach of pension fund management, and do away with an iniquitous valuation system which in an era of low gilt prices and low inflation serves only to produce huge illusory deficits in funds that are actually healthy and wealthy.

And the second CPS recommendation can only be welcomed as an opportunity to claw back some of the many millions of pounds wasted on management fees: “Such is the scale of some individual funds’ unreported costs that DCLG, as scheme sponsor, should discipline the funds’ internal audit functions and consider suing their external auditors, not least to recover fees paid.”

Section 36(3) of the Pensions Act 1995, requiring trustees to take advice prior to making an investment, should be repealed since in its present form it steers trustees down the path of hiring expensive investment analysts in order to prove that they have taken advice, even if that advice turns out to be no more advantageous than placing pension cash in tracker funds.

In short, the time is ripe for a long overdue debate about the future of local government pension schemes. It is a debate the Government must have, and act upon.

10,000 new city centre homes show we’re not surrendering to austerity

There’s an old saying: don’t let the facts spoil a good story.

To judge by what some people have been saying, Birmingham city council really doesn’t need to make cuts to public services because we could avoid difficult decisions by simply being a bit smarter.

I’m sorry to intervene with a few facts, but the truth is that this council has been under a financial cosh for almost a decade, and the pressure shows no sign of easing.

Huge cuts in central Government grant have forced us to take almost £600 million out of our budget since 2010, and we expect to have to cut a further £170 million by 2021.

Ten thousand city council jobs have disappeared in six years – slashing the workforce in half. And I must pay tribute to the remaining staff, who are working harder than ever to serve the people of this city.

By the end of this decade, nearly two-thirds of the council’s revenue budget as it existed in 2010 will have been removed.

Imagine if over the course of seven years your household budget fell by two-thirds. How would you cope?

This year alone, we have had to deliver £92 million of savings, and a further £71 million will be stripped out in 2017-18.

And all of this at a time of soaring demand for adult social care and a crisis in the NHS.

Despite the immense financial pressures we face, this Labour council won’t surrender to austerity.

All across Birmingham there are signs of a new beginning and I remain optimistic about the future of a city beating with the noise of regeneration.

I know we have to do more to deliver the houses our citizens desperately need and deserve. This is an absolute priority for me and the cabinet. We are already building at a scale unheard of for decades and delivering the housing this city needs.

Regeneration schemes at Curzon, around the new HS2 terminus station, and at Smithfield and Snow Hill alone will provide 10,000 new homes for Brummies.

This promises to deliver housing growth at pace and will breathe new life into the city centre, creating housing for all communities.

Over the next three years we’ll spend £360 million on new kitchens and bathrooms, improved central heating systems, new doors, windows and roofs to 20,000 council properties.

Good quality housing has to be in the very front line of our fight to tackle poverty. Families living in warm, decent homes tend to be healthier, happier, better educated, and have better jobs, higher wages, and brighter prospects.

When you invest hundreds of millions of pounds in housing you are also investing hundreds of millions of pounds in health and education because these areas are inextricably linked.

Poor quality housing isn’t only a moral issue, it’s an economic issue too and that’s why building decent homes is right at the top of my agenda along with protecting children.

Birmingham is facing the toughest ever choices about public services because all of the easy savings have been achieved.

Almost a decade after the global financial crash, one thing is clear: austerity isn’t working.

Cities like Birmingham, with the greatest needs and the greatest spending pressures, continue to suffer the greatest cuts. And that’s just not fair.

The Government’s only answer to the social care crisis is to allow councils to levy a social care precept – three per cent on top of every council tax bill in this city, raising just under £9 million in Birmingham.

We will spend £338 million this year on adult social care and Supporting People. So an extra £9 million isn’t going to go very far. It’s a sticking plaster solution to a gaping wound.

With the limited resources at our disposal, this Labour-controlled council has taken a frontline first approach – protecting as far as we are able the services citizens most rely on.

Council tax will rise by 4.99 per cent, including the three per cent social care precept – that’s an increase of £60 for a Band D property, or £1.16 a week.

We’ve avoided some of the dreadful cuts seen in other parts of the country by identifying alternative sources of income. And we’re still able to invest an additional £110 million to meet the growing demand for services.

If we hadn’t worked hard to identify new revenue streams, if we hadn’t used reserves, we wouldn’t be cutting £71 million in 2017-18, we would be cutting £163 million.

We’ve cut and will continue to cut the cost of the council’s ICT services. We’ve renegotiated contributions demanded by the West Midlands Local Government Pension Fund and will seek to make more savings in this area.

We’ve reduced significantly the cuts we were planning to make in the Supporting People budget to better protect vulnerable citizens.

The huge importance Brummies place on parks and museums has been recognised and we have been able to halve or remove entirely the cuts initially planned in these areas.

An additional £2 million has been put into our spending plans to help meet the travel needs of children from low income families or with special educational needs, and we are investing more in adult social care and child protection services.

There are plenty of signs that Birmingham as a city is on the way up.

  • Almost 1,000 foreign direct investment projects over the past four years.
  • A business growth rate higher than all UK cities.
  • An economic growth rate of 13.5% in the past five years.
  • The most enterprising city outside of London…..again…..with 17,473 new companies registered last year.
  • The number of foreign visitors coming to Birmingham doubled in three years.
  • The most popular conference and event destination outside of London.
  • The most popular destination for Londoners relocating from the capital.

This council does not expect to be bailed out by the Government. Birmingham has to generate its own prosperity and growth for all citizens. And it will.

But any growth is worthless if it does not spread to all communities, to all citizens.

Too many people are being left behind. They may hear about recovery, but they are not part of any recovery. Too many people in this city cannot even say, in the words of the Prime Minister, that they are just about managing.

They are not managing at all.

So the biggest challenge facing us now is to make sure economic growth in Birmingham is inclusive and reaches every ward in this city.

A bold vision for the future forms the bedrock of our ambition.

  • A healthy city and a great place for children to grow up in.
  • A great city to live in with decent homes for all.
  • A city where every child, every citizen, and every place matters.
  • A welcoming city, comfortable with its many communities.
  • A city that celebrates its diversity.
  • A city where citizens succeed because they have skills required for the jobs on offer.

That is our vision. These are the principles that drive us forward. This is the Birmingham we will build.