Rejuvenating democracy

ECONOMIC GROWTH

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English local government was founded on the basis of delivering the solutions to the great social issues of the day. Victorian local government built our sewers and created the first utility companies to cleanse our cities. After the wars of the 20th century, councils built homes for heroes. In the 1980s, we re-skilled the workers of England’s closed factories.

The great political and social problem today is jobs and growth. Young people need jobs. Businesses need customers. High streets need hope.

Autonomous local government could unleash new local economic growth for our businesses and help create new jobs for residents.

suMMARYsummary 1

Key propositions 2

Policy principles 3

Detailed discussion 4

Propositions in more detail 7

Conclusion 10

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Give people back a meaningful local vote on a wide range of tax and spending decisions, to establish a level of decision-making that allows each place to act as its own local treasury, managing local tax and spend and driving growth.

Drive local public service effectiveness and end waste and red tape at all levels by bringing local services and decisions together in one place, for each place, for issues ranging from economic development to health and law and order. Including:

• a local treasury to provide the incentive for a local budget for growth and choice, rather than individual budgets to fund services. This would have the ability to flex business rates, and other taxes including, for example, tourist or sales taxes to support local economies

• an agreement between local government and local taxpayers on the level of local taxation and their choices on spending decisions

• changed relationship between universities and cities and counties to link education more strongly to local economies

• development of clearer employer involvement in schools’ work on education outcomes, and as an introduction to the world of work

• local leadership of skills and jobs initiatives through coherent employer-led programmes that are linked to the needs of the local economic sub-region and orchestrated through local government

• a place-base public service budget for infrastructure• localised and simplified regulation linked to a clearly

defined vision for the community and place.

KEY PROPOsITIONs

AuTonomous locAl goveRnmenT could unleAsh new locAl

economic gRowTh foR ouR businesses And help cReATe new jobs foR ResidenTs

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There is no such thing as the English economy. It is made up of city regions, county economies and sub-regional labour markets. It is not simply north/south. Whilst York thrives in the North, seaside economies lag behind in the south. The south-East is one of the richest economies in Europe, but the North-East is consistently voted the best region for business investment.

As more levers of economic growth are devolved to the counties and city regions, we stand ready to create local treasuries and work with our business partners to provide the incentive for growth and choice and unleash the full potential of the local economy to increase national wealth.

City Deals, Regional Growth Funds, Local Growth Deals, the Heseltine Review1 and a wealth of academic literature have clearly shown that devolved decision making can increase economic performance. But we need to move from bureaucratic, institutional deals to growth pacts with local taxpayers.

Local government is one of the few parts of the public service that uses its resources to drive growth. It needs full financial autonomy to maximise those assets to invest in homes and development to support growth.

Locally designed regulation will both reduce red tape for responsible businesses but also keep residents better protected now and into the future.

1 ‘No stone unturned: in pursuit of growth – Lord Heseltine review’ October 2012

POLICYPRINCIPLEs

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Background to the policy issuesAt a time of economic crisis, our businesses and residents require support from their councils. Councils have risen to this challenge. A review by Professor Tony Travers in December 2012 demonstrated where councils collectively had risen to the challenge of a new economic era.

We have delivered for business and created new ways of driving growth. We have used a variety of approaches to assume and manage prudent risk to ensure that developers and the private sector were able to thrive and increase local investment. Councils have supported the market to deliver new jobs and growth.

Helping businesses to access finance We have delivered different models, including direct loan funding and lending to banks from reserves.

Calderdale has freed up funds to support new small and medium-sized enterprises, leading to 150 new businesses which in turn will create 500 new jobs and private sector investment exceeding the initial seed money.

Using the strength of our own balance sheets The prudential borrowing by south staffordshire, Wolverhampton and staffordshire councils which secured the Tata investment in the Jaguar Land Rover low emissions engine plant in south staffordshire. The councils leveraged a £400 million private sector investment.

Under-writing private sector risk Eastleigh Council enabled a new housing development to go ahead by promising to purchase houses not sold. This allowed investors to come into the project. The council took on more risk to the benefit of the community through the provision of new housing stock and construction jobs during the build.

The report by Professor Travers commended the role that councils can play in taking managed financial risks to secure investment.

He noted that councils have maintained remarkable budget stability for the whole period since 1990/91 and have been effective and cautious in controlling indebtedness. He promoted greater financial and other autonomy which would allow councils to do more to encourage economic development and infrastructure improvement.

But we could do more. We need a game changer in local economic development.

DIsCussIONDETAILED

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What people have saidThere was a clear consensus that a series of local summits held by the LGA ahead of this work.

Councils described how they are taking risks to stimulate the market. They described how they are supporting local people through negotiating deals with developers to link new growth to opportunities for local people.

Councils are committed to facilitating growth but we need an honest debate about the barriers to fulfilling our ambition.

• Businesses and councils described the plethora of skills funding which frustrated developing new employment opportunities for local people.

• They described the mismatch between local and national infrastructure planning that could be easily solved by local commissioning.

• They described how prudent risk-taking at a local level to stimulate new developments was fettered by national red tape.

• Councils described the unfathomable maze of regulation which is centrally directed, and of little value.

We must build the capacity of our new sub-regional partnerships. Whether these are driven through Local Enterprise Partnerships (LEPs) or combined authorities, we need to build on these foundations. There is no desire to recreate old structures with performance regimes that do not reflect local concerns.

We are willing to take new steps. Councils have injected new vigour into local economic partnerships through first City Deals and the development of shire deals. However, these are institutional deals between local and central institutions and need to be replaced with pacts between local governments, their partners and their electors, based on a local public service treasury.

There was also a clear warning from councils. Local government is one of the few parts of the public sector that promotes economic growth. If local government’s funding base declines further, the pro-growth services of councils which are vital to creating local employment opportunities and business growth will be threatened.

TheRe wAs Also A cleAR wARning fRom councils. locAl

goveRnmenT is one of The few pARTs of The public secToR ThAT pRomoTes economic gRowTh.

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What needs to change?We have to end the see-sawing of institutional change which has hampered local growth. We need:

• A cross-party consensus on the sub-region as the best unit of delivery for growth.

• An end to the abolition and re-creation of local economic agencies after each change of government. We need to make LEPs fit-for-purpose.

• stability, and more local design, in the planning and regulatory systems to allow councils to plan proactively for growth and provide certainty for developers and business.

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Whilst stability of governance and national policy will ensure that we do not step backwards, stability does not offer the game changer that is required for local growth to drive national prosperity. We are making more radical offers to drive local economic growth.

A local treasury and a local pact on growthLocal public services are funded through a hotchpotch of national funding streams, with rules on local health, transport and growth defined primarily in Whitehall. These funding silos only offer the incentive to finance specific services or projects. In many local public institutions, there is no incentive to use budgets to drive growth.

Our proposition is that we need to bring services and decisions together in one place. We need to create a local treasury which is accountable to, and led by, the choices made by local people and businesses. This would provide the incentive to think beyond the delivery of traditional services and allow local taxpayers to demand a local budget for growth and jobs.

For example, whilst transport is part of a ring-fenced budget, we have route-based strategies and highways funding schemes rather than local growth objectives. Transport becomes the end game rather than the means to facilitate jobs and growth.

Current City Deals, Local Growth Deals and the ‘Heseltine Review’ offer much needed devolution. However, they remain deals between institutions of government. We need to move forward with pacts between the local treasury and its people and businesses. We need to develop incentives for local

growth which drive the ambition of local businesses, rather than negotiate governance arrangements with government departments.

The most creative and ambitious City Deals have been underpinned by the concept of a local treasury and enhanced by local incentives to drive growth, of which the earn-back deal in Manchester is the prime example. The ambition of local people is rewarded by a return for hard work and local risk. These incentives are required to drive and reward local ambition. The ‘earn-back’ proposals of the early city deals, retention of VAT receipts or the development of tourist charges, should all be on the table to reward growth. such reward is currently in the gift of Whitehall rather than being a choice made by local taxpayers through their local treasury.

The local treasury offers to incentivise growth in England. Many cities or shires could deliver a local treasury and a local pact quickly. We have the opportunity to re-balance the economy and drive national prosperity.

A local treasury to ignite the ambition of local partnersWith institutional responsibility and accountability to Whitehall rather than local people, it is little wonder that only 4 per cent of higher education institutions see their locality as being a priority of their mission and almost a third not seeing any geographical area as part of their mission.

IN MORE DETAILPROPOsITIONs

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Despite the ground-breaking work of many university vice chancellors who are playing an important role in driving a LEP or helping to attract inward investment into their locality, there are few financial incentives for the higher education sector to support their local economy.

In order to address this problem, universities and other partners need a clear stake in their local treasury to link innovation and education strongly to the local economy.

Whilst we exemplify the higher education sector, our argument is that whilst so many of our public institutions have accountabilities to Whitehall, responsibilities to local people and for local economic development will be weak.

Economic strength is based on a shared endeavour between business, partners and the state. Through a local, shared treasury, we could create the incentives to develop such a shared endeavour and, for example, help ensure that the innovation and research found in our universities was used locally for the benefit of our businesses and communities.

New job opportunities for local residentsWith youth unemployment at over 20 per cent, the creation of new employment opportunities for young people should be the moral crusade of our age. There is a currently a mismatch of 33 national schemes, spanning 13 different age ranges which are failing to support the young unemployed. LGA research has also shown that more than 94,000 people completed hair and beauty courses last year, despite there being just 18,000 new jobs in

the sector. Change is required. Lord Heseltine has already set out a strong case for the alignment and devolution of skills budgets to address employer demand. We should go further, enabling local partners to bring together skills and employment services in local economies to deliver better outcomes for residents and employers, and to unlock significant public service savings. Devolving the majority of 16 to 19-year-old and post 19-year-old skills and apprenticeship budgets to localities would enable partners to adapt skills provision to meet local employer demand, as well as to help drive longer-term local economic productivity.

Research, based on the evidence of what councils up and down the country are already achieving, shows the overall savings to the nation from such a localist approach could be £1.25 billion a year and could see the number of young people out of work cut by 20 per cent in three years.

With these local joined up resources, there would be greater incentives to innovate at the local level.

We could:

•Deliverlocalskillsandtrainingprogrammescustomising programmes to local business need. For example, the Leeds City Deal will create 20,000 new opportunities for young people and Bristol City Deal’s single skills investment plan which will deliver a 5 per cent per year increase in apprenticeship starts for 16 to 24-years-olds over three years.

The gReAT poliTicAl And sociAl pRoblem TodAy is jobs And gRowTh.

young people need jobs. businesses need cusTomeRs. high sTReeTs need hope.

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• Take responsibility for creating apprentices in every council to train our young unemployed.

• Make public contracts conditional upon creating apprenticeships and working with businesses to secure more apprenticeships through their own procurement and supply chains.

• Hand over responsibility to local businesses for the plethora of national schemes, localising employment schemes to support growing businesses.

Infrastructure for growth developed quickly and at cheaper costInfrastructure investment in any town or city originates from a plethora of national or local sources – local government capital, Network Rail, the Highways Agency (HA) and broadband investment. Whist these provide much needed investment in localities, programmes could be coordinated in a much more effective way.

Councils can offer better forms of local delivery which would maximise the value of local and national infrastructure investment.

England’s booming visitor economy generates nearly a tenth of the national income and employment, precisely by driving value through exploiting local difference. It creates a virtuous circle between the quality of a place, economic growth and quality of life for local people.

We need to pursue a place-base public service budget approach to infrastructure investment whereby place rather than institution becomes the vehicle for investment.

Cornwall recently re-engineered a Highway Agency’s scheme, reducing the cost by £20 million to £59 million and to offer to deliver it on behalf of the HA. In doing so it has agreed to meet the preparatory costs, provide £30 million of locally sourced funding and underwrite any cost increases and fix the national contribution to £30 million.

Local government has a positive net worth of £504 billion and a net asset base of £250 billion. Freeing local government from Treasury restrictions would create headroom to invest in local infrastructure whilst still complying with prudential rules. For example, removing the cap on the amount councils can borrow for housing would allow them to deliver up to 60,000 additional homes in five years, providing homes needed to support growth and unlocking £20 billion of wider economic impact.

Business-friendly regulationLocal regulators work with businesses across the country on a daily basis to cut red tape and help them comply with the law. This creates an environment where businesses have the confidence to invest, grow and create new jobs.

Our ambition is for local government to be able to work with businesses in a local area to understand risks and determine what level of regulation is appropriate. Local trading standards, environmental health and licensing services are well placed to free up businesses from unnecessary regulation and can design and operate a scheme which is right for business and right for local communities, without central direction and prescription.

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This means that councils must have the freedom and tools to work with businesses to determine exactly what level of regulation, if any, is needed in each local area. And this might vary from place to place depending on the risks. The vast majority of businesses are responsible and unnecessary routine inspections can be a distraction that achieves little. Councils need to be free to focus their scarce resources to do whatever it takes to address problems that are of the most concern to their communities.

Our vision for local regulation is guided by four key principles:

• We are open to businesses – however and whenever.

• Our services understand how businesses work.

• Our work to support businesses is targeted and effective.

• Our services are transparent and open to scrutiny.

Councils and councillors are best placed to gauge the needs of their area. Law abiding businesses should not have to endure multiple licensing and inspection regimes – a locally designed system without central direction will deliver a sustainable level of regulation, freeing up millions of businesses from unnecessary inspections and help create conditions in which businesses can thrive again.

Better opportunities for local unemployed residents and new investment for businesses is the offer that could be made. However, it requires a leap in local autonomy, but a leap that would better the lives of local residents and help local businesses grow.

CONCLusION

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© Local Government Association, July 2013