Clegg challenges reliance on London-based services as main growth source, as Heseltine calls for decentralisation of finance
Nick Clegg will warn Britain is suffering from the huge post-war mistake of believing that national economic growth must be centred on the Square Mile in London.
The Liberal Democrats leader is giving his first annual Mansion House speech as deputy prime minister. It comes before a government announcement this week on the successful bidders to go through to the second wave of City Challenge, its bespoke offer to cities to bid to control more cash currently held in Whitehall.
The first wave focused on major cities, and this bidding process is aimed at addressing specific problems in towns similar in size to Portsmouth and Cambridge.
The government is also due to respond next month to Lord Heseltine's review on industrial strategy, which calls for an £80m transfer of cash from Whitehall to Local Enterprise Partnerships (LEPs), based on a competitive bidding process.
The report, No Stone Unturned, suggests the creation of a single funding pot for economic development, infrastructure investment and skills which would be devolved to local areas.
Since publication of his report last autumn Heseltine has been touring Whitehall, thinktanks and regions, pushing the case for a decentralisation of finance and power. He has sounded increasingly optimistic, telling the Policy Exchange thinktank last week "change is in the air".
Parts of Whitehall are reluctant to hand vast sums of money to business organisations such as LEPs that have limited democratic accountability.
In his speech on Monday night Clegg will warn: "Over recent decades, the debate on the UK's economy has been cast too narrowly. The focus has been almost exclusively on London-based services as the principal source of UK growth.
"An orthodoxy has emerged which assumes that the profoundly centralised nature of our economy where one city – containing just 13% of the country's population – is responsible for over a fifth of its total output is somehow the natural order of things: fixed, inevitable, irreversible – when in fact it is none of those things.
"We have learned the limitations of well-meaning handouts from Whitehall. Funding from central government can only be part of the answer. And, particularly in these straitened times, when there is so much pressure on the public finances. The other side of this has to be freedom; autonomy; control. Empowering our cities and towns to innovate, to drive their own growth.
"Empowering them – crucially – to attract outside investment; raise their own money; spend it in the ways they need. So the coalition is giving it to them. You may not have noticed it's a kind of quiet, British revolution. But by 2015, as a result of our reforms, every part of Britain will feel more empowered than in 2010."
Clegg has increasingly argued that economic devolution is as important as political devolution, and will point to the transfer of powers to Scotland and Wales.
But he will add: "We've created two new tax powers for every single local authority: From April councils will be able to hold on to 50% of local business rates – a massive incentive to draw in investment. And we're making it possible for local authorities to borrow against future business-rate revenues in order to invest in the infrastructure their private sector needs.
"The previous government, in particular, recycled and redistributed City of London tax receipts to other parts of the country through the long arm of Whitehall. And in doing so they took the easy route: expanding the public sector in the north, paid for by the private sector in the south. Emasculating the north and overburdening the south. Trying to prop up a nation of 100,000 square miles on the profits of just a single Square Mile."
The political leaders of the eight core cities of Birmingham, Bristol, Leeds, Liverpool, Manchester, Newcastle, Nottingham and Sheffield, have formed a so-called Cabinet of Core Cities to meet the prime minister and deputy prime minister.