Ever since its 19th-century heyday, the city has languished in the shadow of London. But that may be about to change

The stern turrets and gables of Manchester town hall have presided over the city since 1877 to celebrate King Cotton in all its magnificence. They evoke the great “cloth halls” of medieval Flanders and their architect, Alfred Waterhouse, was told to let rip, to go to “any cost reasonably required”. Victorian Manchester would boast twice the riches of London with twice the ostentation.

Wandering deep into the heart of this vast building, you pass vestibules and paintings, sculptures and mosaics. You pass a great hall with a hammer-beam roof and Ford Madox Brown murals. You pass a banqueting hall, a mayor’s parlour, committee rooms and reception rooms, until you reach a tiny office in which crouches the genial figure of Sir Howard Bernstein, like a spider in a gothic web of corridors, exuding power.

Bernstein has lived here for four decades, rising from lowliest clerk to chief executive. A sprightly 62, he leaps from his chair, scarf round his neck, laughing infectiously. He has a taste for anecdotes and vivid socks. But his dream is serious. It is one day to restore power to his city after decades of humiliation by Whitehall and London politicians. His unlikely ally in this mission is his current hero, the chancellor of the exchequer, George Osborne.

On 2 November last year, Bernstein’s dream approached fulfilment. He walked from his office down a long vaulted corridor to the town hall’s great council chamber, its gallery adorned with tendrils of ripening cotton. Here he had organised for 10 local party barons, eight of them Labour, to shake hands with their new benefactor and patron, Osborne. They signed an unprecedented derogation of power from Whitehall. The parallel with Magna Carta was hard to avoid.

At first sight, Osborne and Bernstein could hardly be less alike. The chancellor at 43 seems to personify the metropolitan set around his Notting Hill friend, David Cameron. Heir to a family fortune and an Irish baronetcy, he was educated at St Paul’s School and Oxford University and spent a charmed early career in the rarefied air of Westminster thinktanks and policy advisers. He can seem ill-at-ease in the raucous world of day-to-day politics – witness his eagerness always to be photographed in a factory in a yellow jacket.

In contrast, Bernstein is Manchester to his boots. Born and bred in the city’s old Jewish quarter of Cheetham Hill, he went to the tough Ducie High School and began work in Manchester town hall with nothing more in his pocket than a London University external degree. He then watched his city go through its painful postwar recovery, including the terrible Hulme and Moss Side urban clearances. He rose to policy planner and deputy clerk. He then ran the city centre taskforce after the 1996 IRA bombing, emerging as Manchester’s chief executive two years later, in time to oversee the city’s Commonwealth Games.

Bernstein soon formed a potent alliance with the leader of Manchester city council, Sir Richard Leese, a bond now two decades old. Both found it absurd that a city that had once built and run its own schools, hospitals, museums, transportation and social services should languish under the lash of Whitehall. Bernstein told me quite simply, “We want our city back.”

Dig below the surface and Osborne and Bernstein are not so far apart. Osborne’s father is no aloof aristocrat but the owner of a fabric company, Osborne & Little. He would have sat comfortably as a Mancunian cloth tycoon in the 19th century. As for Osborne, he is MP for Tatton in Cheshire, where his constituents are Manchester commuters. It was thus he met Bernstein and saw in him an official, as a mutual acquaintance puts it, who “doesn’t moan, gets thing done, has no sense of political rivalry and – rare in Manchester – does not hate London”.

Facebook Twitter Pinterest Howard Bernstein, chief executive of Manchester city council. Photograph: Christopher Thomond for the Guardian

In conversation, Bernstein fulsomely returns the compliment. “Osborne gets cities,” he says. “He gets Manchester. He gets the point.” To him the chancellor is a London politician who “knows the existing model is not working. By 2014 he could read the tea-leaves: Scottish devolution, the NHS and social care, skills, criminal justice, he looks at it all and sees it is bust.” As Osborne sees in Bernstein a shrewd navigator of a dysfunctional public sector, so Bernstein sees in Osborne a chancellor who can deliver.

The territory over which they were to deal has long vied with Birmingham for the title of England’s “second city”. Manchester grew from a Roman fort until, at the end of the 18th century, it started to spread across the south Lancashire plain. To the west lay the Merseyside docks, to the east, visible in the distance, rose the heights of the Peak District. The site, and perhaps its damp climate, suited the manufacture and distribution of cotton. Round it developed a penumbra of specialist spinning and weaving towns, from Stockport in the south to Bury and Bolton in the north.

As Manchester grew in the 19th century, so did its pretentions. New streets rose teeming with mills and warehouses for storing and displaying fabric. The centre’s commercial palaces were designed in conscious imitation of medieval Venice and Florence. Self-confidence was unbridled. Each year, the city fathers would travel to the Royal Academy to buy the latest Pre-Raphaelite masterpieces. Their libraries and institutes welcomed Engels and his friend, Marx. Learned societies bred journals such as the Manchester Guardian, so that Sir Robert Peel could remark, “What Manchester thinks today, the world does tomorrow.”

As cloth manufacture declined after the second world war, so did Manchester. While bombs did some damage, they did nothing compared with a disastrous postwar planner, Rowland Nicholas, who sought to demolish much of the city – even the town hall – to rebuild a socialist utopia. A wide arc of Victorian inner suburb vanished under council housing so wretched it has since had to be rebuilt. By the 1960s Ian Nairn could call Manchester a place of “rained-off Test matches and forbidding hotels”. Even today, the planners have not recovered the art at which their predecessors were supreme, that of the lively, coherent urban street.

Manchester is recovering. Its surviving Victorian buildings, set round 200 miles of rivers and canals, are bringing back memories of the glory days. The old industrial neighbourhoods of Castlefield and Ancoats have been restored. There are such totems of postmodern urbanism as a Chinatown, a gay village and a bohemian Northern Quarter, fed by two leading universities and two successful football teams. Manchester’s cultural life – including this month’s reopened Whitworth Gallery – is booming. All this, Bernstein argues, is surely worth autonomy.

* * *

At the turn of 2014, Osborne was a politician under pressure. His party was in deep trouble in the north-west where, in the words of Liverpool’s mayor, Joe Anderson, “Tories are as rare as rocking-horse shit.” It was worsted by Ukip and its MPs were furious at ever more concessions being offered to Scotland, but denied to England. The last straw was the May local and European elections, with the Tories beaten into third place by Ukip and Labour. Osborne needed to do something dramatic, and in his own political backyard.

There now emerged into Osborne’s ken an economist called Jim O’Neill from a bank whose grotesque wealth makes Tory and Labour ministers alike go weak at the knees, Goldman Sachs. O’Neill had invented the acronyms Bric and Mint for developing world economies; he was also a Mancunian and one specialising in urban economics. In conversation with Osborne he portrayed cities not as outdated rust-buckets but as engines of growth. There was, he said, “a powerful correlation between the size of a city and the productivity of its inhabitants”. The top 600 world cities contained just 20% of global population, but they created 60% of global GDP. This was Osborne’s kind of talk.

Manchester’s cultural life is booming. All this, Bernstein argues, is surely worth autonomy

A year earlier, in May 2013, a report on city finance had been commissioned by London’s mayor, Boris Johnson, from a group headed by Professor Tony Travers of the London School of Economics. It pointed out that just 7% of the taxes paid by Londoners were spent by locally elected bodies. The rest went straight to the Treasury. This “hollowing out” of democracy disempowered local leaders, and was in stark contrast with cities abroad. Londoners, said Travers, should control more of the taxes they paid. Johnson, seen as a political rival to Osborne, trumpeted the report to the skies.

After the Tories lost the May elections, Osborne moved with remarkable speed. On 23 June he went to Manchester’s museum of science and technology to deliver a speech full of O’Neill phraseology. He eulogised the modern city: “People thought the internet might make physical location less important. But, in the modern knowledge economy, businesses and entrepreneurs want to flock together more than ever, to form clusters where they can learn from and spark off each other.” He noted “that once hollowed-out city centres are thriving again, with growing universities, iconic museums and cultural events, and with huge improvements to the quality of life.”

From this Osborne deduced the need for a “northern powerhouse”. He said, “London dominates more and more. That’s not healthy for our economy.” Aggressively referencing London’s mayor, Osborne called for a new civic leadership, based not on political parties but on elected mayors. “Every northern city needs a Boris Johnson to fight their corner on the world stage.”

Elected mayors were now central, almost obsessively so, to Osborne’s initiative. He admits he came to them late, but he calls them “my red line”, the crucial link in the chain of local accountability. It is hard not to detect here the influence of Tory elder statesman, Lord Heseltine, parachuted into the Cabinet Office by Cameron and longstanding champion of mayors. Osborne admires, indeed envies, Heseltine’s charisma. Heseltine has convinced him of the value of mayors.

Osborne told his Manchester audience, “Today I am starting the conversation about a serious devolution of powers and budgets” to northern cities. This offer would be open “only to any city that wants to move to a new model of city government – and have an elected mayor”. When Labour HQ called its Manchester leader, Richard Leese, and asked him to bad-mouth Osborne’s speech, he is said to have told them to get lost, with an expletive. The “northern powerhouse” was already looking suspiciously like Manchester.

Shortly after his June speech, Osborne summoned Bernstein to his Treasury office. The office was a modernist hutch compared with Manchester’s gilded halls, elevated only by the chancellor’s taste for modern British artists, such as Grayson Perry. Bernstein was asked simply to pick up the challenge and run, to produce a plan for radical devolution to a regional body, formed of Manchester and its nine adjacent districts, presided over by an elected mayor.

Bernstein had been through such devolution charades before. He asked Osborne, in effect, for a token of seriousness. He recalls, “Osborne pointed to an official sitting in the room and said, it’s him.” The man was John Kingman, Treasury second permanent secretary and a mandarin to his fingertips. Kingman had led Whitehall’s response to the credit crunch and bank regulation. He now became the chancellor’s point man for Manchester, a compulsory, born-again localist. Like his boss, he too was to fall under Bernstein’s spell.

* * *

Negotiations over the Manchester deal – or “devoManc” as it came to be called – would continue through the summer. Bernstein was in London three, sometimes four, days a week “until I felt I was living there”. He was told to operate in secret, dealing only with Kingman and his planning director, David Silk, with no distribution of papers. Alongside him he engaged another Mancunian economist and friend of O’Neill’s, Mike Emmerich, who ran a local thinktank, New Economy. Emmerich happened also to be a former Treasury and Downing Street official and could “speak Kingman’s language”.

Bernstein, liaising constantly with his leader, Leese, decided to bid high. He chose to embrace an entire portfolio of Whitehall activities: transport regulation, strategic planning, housing development, further education, skills training, economic growth. The city would control Whitehall’s local £500m apprenticeship budget and its £200m housing budget. It would oversee the sensitive interface between NHS commissioning agencies and local social services. The newly elected police commissioner, Labour’s Tony Lloyd, would go, replaced by the mayor.

Gambling on Osborne’s known weakness for glamour projects, Bernstein tossed one after another into the pot. There was One North’s £15bn transport infrastructure plan, including a high-speed rail link, “HS-3”, from Manchester to Leeds – reportedly even more extravagant than the proposed high speed rail link, HS2. There was a Metrolink tram extension to the airport, a £250m centre for materials science, even a new £78m arts centre on the old Granada site at Castlefield. Initially called Manchester International, this was changed, to Osborne’s eager approval, to The Factory, in honour of Manchester’s music king, Tony Wilson.

Gambling on Osborne’s known weakness for glamour projects, Bernstein tossed one after another into the pot

Most of the city’s new powers were regulatory. They did not include big budget items such as secondary education, welfare payments or the NHS. But never before in England had Whitehall been asked to surrender so much control over a local public sector, not even in London. Bernstein’s bid was dramatic, a programme for a municipal corporation reborn. In the end he got everything he asked for.

From August through October the pace of negotiation was frenetic. One participant remarked that it was lucky there was no HS2, as they needed time on the train to work. Bernstein was giving Osborne what he most needed, confidence in a workable and coherent plan. But he also had to deliver a governance framework, and in particular a mayor.

The mayoralty proved a real sticking point. Bernstein knew this was political: he would have to rely on Leese to support it. Leese in turn would have to win over the nine other Greater Manchester leaders: of Stockport, Tameside, Trafford, Salford, Oldham, Bury, Bolton, Wigan and Rochdale. Eight of these regarded the introduction of elected mayors with deep suspicion: mayors were wildcats free of party discipline.

Many were also close neighbours and old rivals of Manchester. Salford’s derelict quays area had become a dumping ground for Whitehall’s pet projects, which were little more than expensive sops to provincial pride. Set in a bleak landscape devoid of streets or human scale, they included the Lowry arts centre, the Imperial War Museum North and the architecturally dire “media city”. The latter is home to the BBC’s £800m move north of its sports and children’s departments and of BBC Breakfast. Such was local rivalry that announcers are still forced to refer to BBC Salford, not Manchester.

One participant in the negotiations remarked it was lucky there was no HS2, as they needed time on the train to work

Leese is a quieter Bernstein. A 63-year-old veteran of Labour politics in the north-west, he knows its language. “Don’t ask,” said one Treasury official. “It is like a sausage factory up there: you don’t want to know what’s going inside.” Leese was on good terms with Wigan’s leader, Peter (now Lord) Smith, and with the region’s only Tory, Trafford’s dynamic 27-year-old boss, Sean Anstee. His message to them all was the same as Bernstein’s message to him. The price for Osborne’s deal was Osborne’s mayor. No mayor, no northern powerhouse.

Leese and Bernstein sweetened the pill. The mayor would not be accountable to an elected assembly, like Johnson in London. He would answer to the 10 leaders themselves, sitting as a cabinet. Indeed the mayor could be outvoted by two thirds of this cabinet. Each town would also enjoy a veto on strategic planning. They would have considerable control over the dread innovation. The leaders remained unhappy about this throughout the summer.

Meanwhile Osborne had his own problems. He had to deliver his side of the bargain, the agreement of the rest of Whitehall. It might be a bureaucratic empire with a centralised power unparalleled in Europe, but in the summer of 2014 it was under serious pressure. Spending departments were fighting deep annual budget cuts. Health and education enjoyed some protection, but the Home Office, environment and, most relevant, the local government department were losing up to 10% of their money year-on-year.

In addition, the Scottish referendum was approaching. As a result, leaders of all parties were making all kinds of offers to hand over powers north of the border, including tax-raising powers that remained a no-go area in the Bernstein plan. These concessions would set a precedent for Wales and Northern Ireland. And if Manchester took the cue, might all England be next? It was Whitehall’s idea of Armageddon.

Facebook Twitter Pinterest David Cameron and George Osborne tour building works at Manchester’s Victoria Railway Station in June, 2014. Photograph: Christopher Furlong/Getty Images

Osborne was tactical. He dealt with one department at a time, often chairing meetings himself. Executive liaison was between Kingman in London and Bernstein and Emmerich in Manchester. Political liaison with departments was conducted by Osborne personally, his special adviser, Neil O’Brien, and the individual ministers. Cameron appears nowhere in the picture.

Osborne could argue that he was devolving power within budgets, not power over budgets. A cynic might point out that he was giving away other ministers’ powers, but not his own. Resistance was immediate. Vince Cable’s Department for Business resisted losing control over lucrative skills training contracts. The Department for Culture was sceptical of the Factory project. Theresa May’s Home Office was strangely relaxed at losing a police commissioner, perhaps ominous for this much-troubled innovation.

Fiercest opposition came from Patrick McLoughlin’s Department for Transport, which flatly opposed Manchester’s desire to regulate local bus companies. Bernstein says the department seemed to have a “theological objection” to their having anything to do with transport.

Everyone I spoke to recalls that through that summer Osborne’s sense of purpose was crucial. Every item came stamped, “with the chancellor’s approval”. O’Brien worked on ministers’ special advisers, exploiting an awareness that Osborne had power to give or withhold government jobs. The Scottish referendum, coupled with the Smith commission on implementing its devolution concessions in Scotland, may have put the constitution on the agenda – even so, Whitehall fought Osborne down to the wire.

Eventually, in October, the chancellor had to call each minister to his office in turn and demand acceptance of the plan. The whole deal required, said a participant, “a display of raw Treasury power”. For their part Bernstein and Leese were not having everything easy. While the local leaders were comfortable with the deal on powers, they still hated the idea of an elected mayor.

In the last week of October, Osborne summoned Leese, Smith of Wigan and Anstee of Trafford to the Treasury and personally insisted on a mayoralty. They tried to persuade him to call the mayor “leader”, but he laughed it off. Bernstein’s way of keeping the mayor under control might be constitutionally baroque, but as Osborne told Bernstein, “I know your record, so I will live with your model.” They shook hands on the deal.

The following Monday, 3 November, the principals re-assembled in Manchester’s council chamber for the formal signing. That evening Heseltine, acting as non-participant cheerleader for the deal, went to Manchester University and declared that “English devolution is now unstoppable”.

Labour was nonplussed. It could hardly oppose a deal reached by its senior civic bosses. It responded with a report from its cities spokesman, Lord Adonis, broadly based on the 2013 Travers study. The party’s policy chief, Jon Cruddas, himself an ardent localist, was reduced to accusing Osborne of making “an audacious land grab” for the north-west.

The next event was Osborne’s autumn financial statement, on 3 December. Though he focused on the deficit, Manchester was mentioned six times and “northern powerhouse” five. No other city was name-checked. “We are all winners” crowed the local Evening News that night. Osborne proposed a mayoral election in the spring of 2017 with a “shadow mayor” in charge until then. Labour dared not threaten a reversal.

* * *



Facebook Twitter Pinterest ‘Media City’ at Salford Quays, Manchester. Photograph: Ian Dagnall/Alamy

Osborne calls the Manchester deal “the thing of which I think I am most proud”. Bernstein was the kind of public servant he craved in Whitehall. It was as if the older man had become a sort of mentor, schooled in the dark arts of public administration. The chancellor would chide his officials, “Why does nobody come up with ideas for getting things done like Howard does.”

To Osborne, Manchester is “a grown-up city, one that has pulled away from other regional centres”. It has “creativity, innovation, a science base”. It has broken through to a new level of competence and its leaders can be trusted. This might be unfair on other cities less favoured with the chancellor’s acquaintance and patronage. But Manchester was clearly within his comfort zone.

When devoManc broke cover in November, other cities were not pleased, so much so that Bernstein worried that Manchester’s exceptionalism might undermine the deal. Yorkshire’s political bosses were particularly upset. A county with a population of 5 million – roughly the same as that of Scotland – had long seen itself as a cut above scruffy, proletarian Lancashire. Yorkshire was not just one city, it was Leeds, Sheffield, Bradford. It was York, Harrogate, the upland moors and the lowland dales. It was the Brontës, Alan Bennett and Yorkshire County Cricket Club.

That Manchester should enjoy Treasury favouritism was galling – and Labour Manchester at that. Yorkshire’s spokesman, Peter Box of Wakefield, was scornful of Leese’s capitulation on mayors. “Such innovations,” he said, “do not suit Yorkshire.” He spoke to Nick Clegg, a Sheffield MP, who promised him “the same devolved powers without having to accept an executive mayor”. Clegg was clearly off Osborne’s message.

Manchester’s rival as second city, Birmingham, was equally put out. Its leader, Sir Albert Bore, was chided by Heseltine, “You are not going to stand for this are you?” Bore immediately began talks with his own Midlands neighbours. In London, Johnson was quick off the mark. He seized on the tax-raising concessions made to Scotland and demanded them for the capital. “What’s good enough for Scotland is surely good enough for London,” he said. Tax-raising powers should now to be on the table.

Other so-called “core cities” now began to organise. Birmingham, Bristol, Leeds, Liverpool, Newcastle, Nottingham and Sheffield, as well as Manchester – had been bidding for devolved powers for years, with scant success. The coalition had rewarded them with “city deals”, one-off projects in the tradition of challenge funds, initiated by Heseltine back in the 1990s. They took the form of councillors as burghers of Calais, pleading for crumbs at the Whitehall table.

Previously the core cities had stood aloof from London, regarding it as a wildcat for having an elected mayor. In November they swallowed their pride and joined with Johnson to lobby William Hague, appointed by Cameron to the near impossible task of placating Tory backbenchers with “English devolution”. They were too late. The core cities were ugly sisters at the Treasury ball, arriving after Cinderella Bernstein had already captured Prince Osborne’s heart. Osborne repeats that he is “longing for Manchester’s deal to spread”. But there was only one foot that fitted his slipper, and it belonged to Bernstein.

Central grants cover just a quarter of local spending in Berlin and 17% in Paris. The figure for English cities is 95%

Bernstein and Leese had tasted power. Determined not to be outflanked by other cities pushing the Scottish precedent, they opened a new flank on tax-raising powers. Even before the ink was dry on devoManc, Leese went public. “Our ultimate ambition,” he said, “is for full devolution of all public spending in greater Manchester.” That referred to the entire £22bn of state spending within his city region, including health and even welfare. He wanted to decide business rates and stamp duty. He even mooted taking over the NHS region, an act that would sensationally end Bevan’s concept of a “nationalised” health service.

In private Osborne accepts that this is “where the debate goes next. Cities could one day have greater control over raising taxes.” And what about counties? Scope to raise and account for taxes is the touchstone of local democracy. A New York mayor has discretion over seven local revenue streams (including income tax). Central grants cover just a third of local spending in New York, a quarter in Berlin and 17% in Paris. The equivalent figure for English cities is a humiliating 95%. Local government is a mere agency of the centre, its democracy largely a sham.

The reformers’ hope is that Osborne might see political advantage in going faster down their route. By the time of the election he will have cut a third of what cities receive from central government. By handing tax-raising powers to local government Osborne could let them relieve some of the pain of cuts and answer for higher local taxes to their electorates, not to him.

Either way the cat is out of the bag. Manchester may yet have to show it can become the “second city” to London, but it is unquestionably in recovery mode. Anyone walking its streets can sense the adrenaline pumping through its veins. The Osborne-Bernstein deal was like two mafia bosses carving up Apulia. There was no white paper or consultative document, let alone a debate in parliament. Manchester’s deal with Osborne was reached by sleight of hand, by one man with a political problem to solve and another who saw this as an opportunity.

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• This article was amended on 13 February 2015 to correct “Cheetham’s” to “Cheetham Hill”, “Castlefields” to “Castlefield”, and “1867” to “1877”, and to remove a claim that buses in Manchester had been deregulated “recently” – that happened in 1986.