Ten years ago, the city of Detroit went bust. The combination of lost tax revenues from a declining population and rising expenses meant the city government effectively ran out of cash. A court bankruptcy was filed, triggering negotiations for adjustments in its financial obligations and state and federal support packages.
At the time, the reaction this side of the Atlantic was a combination of bewilderment and reassurance. Bewilderment at the US model of highly devolved Government, which left a big city in the position of not being able to meet its own population's needs. Reassurance that in our own highly centralised context, nothing like this could ever happen here.
The episode seemed to prove the inherent riskiness of fiscal devolution and local self-government. Far better to be wrapped in the cosy cocoon of centralisation. What our own local authorities lack in autonomy, they gain from the security of a heavily controlled national system.
Fast forward to 2023, and the picture doesn't look quite as rosy. The news that our second biggest city has gone bankrupt should end any naïve assumptions the Whitehall model provides anything like a safety net for local areas. Birmingham's declaration of a section 114 notice follows a string of other councils signalling similar dire financial straits. While each has its own circumstances, the wider policy discussion is slowly moving on from pathologising individual councils towards asking deeper questions about the degree of risk central Government is systematically placing on its local counterparts.
Demand pressures on services are rising – particularly in a city like Birmingham where 42% of the population live in poverty. But councils must set balanced budgets and have little control over what resources they can access. Even Birmingham's reasonable request for a tourist tax to supplement the Commonwealth Games last year was refused by Government, let alone wider measures to generate the resources it needs.
While the US represents an extreme model of devolution, we must recognise our own highly centralised position. Both create unreasonable risks. There is a happy medium which combines sufficient funding to meet demand and the capacity to generate wider revenues. Let's keep this on the agenda.
Jessica Studdert is deputy chief executive at New Local
X – @jesstud
