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LGC Briefing: Fears for the Powerhouse as O'Neill quits

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Commentary on the resignation of Lord O’Neill

Departure of the day: O’Neill resigns from Treasury

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Former chancellor analysis of the day: ’Osborne is creating a northern powerbase’

Lord O’Neill’s resignation letter to Theresa May was not explicit about his reasons for becoming the first minister to leave her government.

The close ally of George Osborne said he joined the government in May last year for two reasons: to help deliver the Northern Powerhouse and to boost economic ties with rapidly emerging economies including China.

He added: “The case for both to be at the heart of British economic policy is even stronger following the referendum, and I am pleased that, despite speculation to the contrary, both appear to be commanding your personal attention.”

While the issues may “appear” to be commanding the prime minister’s personal attention, questions have been raised about her commitment to both.

Lord O’Neill – by profession an economist, and the man who coined the term “Bric” to describe the emerging economies of Brazil, Russia, India and China – was reported to have been dismayed by Ms May’s decision to review the construction of the £18bn Hinkley Point nuclear power station, with a third of its funding coming from China. While the prime minister eventually decided to proceed with the scheme, the review raised questions about her enthusiasm for the British/Chinese economic relationship.

On the Northern Powerhouse, and devolution more broadly, the perception is that things have drifted. Council chief executives have repeatedly told LGC that they have heard virtually nothing from ministers about the issue since the EU membership referendum. In contrast, prior to the poll, they had been struggling to keep up with the government’s rush to develop and strengthen devolution deals.

In this relative vacuum, one northern deal has collapsed and another is under severe strain. Four of the North East’s seven councils rejected their deal; Sheffield City Region’s deal remains in the balance amid funding fears and continued resistance from councillors to an elected mayor. And the results of four consultations on deals for non-metropolitan devolution deals are hardly a foregone conclusion as councillors in most interpret the government’s silence on the mayoral issue as opening up the possibility of new powers without having a mayor foisted upon them.

Only yesterday LGC reported that Newcastle City Council’s leader Nick Forbes (Lab), the Labour group leader at the Local Government Association, said that he was certain the Treasury was taking a back seat on devolution deals. One London source subsequently told LGC the Treasury was heavily involved in the capital’s devolution plans – although they speculated that Philip Hammond’s department was primarily motivated by securing the health of the nation’s financial centre.

Lord O’Neill has been rumoured to have been dismayed with the government’s direction, almost since the moment Ms May became PM. It may be that the timing of his announcement was determined as much by the third and fourth strings of his bow. Thirdly, the fact that he led a government review of antimicrobial resistance and this week saw a global culmulation of such work when the United Nations orchestrated a global deal signed by all 193 of its members to combat the proliferation of drug-resistant infections. And, fourthly, he is the honorary president of the Shine Trust, which campaigns to give children from poorer households educational opportunities. The Financial Times has reported Lord O’Neill opposes the prime minister’s plans to create new grammar schools.

Whatever the reason for his resignation, the result of it is that there is no champion of the Northern Powerhouse surviving in a government role in which they have a track record of helping it to fruition. Lord O’Neill said he would continue to support his priority areas “as a non-governmental person”. Some have suggested he could join Mr Osborne’s Northern Powerhouse Partnership thinktank.

Manchester Evening News political editor Jennifer Williams speculated that Manchester-born Lord O’Neill could be a strong candidate to become the city region’s elected mayor. Although it might be perhaps more likely that he will move back to the world of business, it is notable that he is moving from the Conservative benches to the crossbenches of the House of Lords. While it is hard to see Greater Manchester ever electing a Tory mayor, having an Independent successful businessman challenge Labour’s Andy Burnham in the city would be a tantalising prospect.

Whatever Lord O’Neill’s future plans, local government will reflect that it has lost another friend in a high place. Some kind of flagship commitment to devolution needs to be unveiled at next week’s Conservative party conference to avoid the perception that the Northern Powerhouse and the empowerment of councils more broadly are dead in the water.

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