A Brave New World
Civitas, 21 March 2011
Today I attended a Thames Gateway London Partnership seminar; ‘Financing the Future of the Thames Gateway’. The Seminar provided an interesting insight into how local governments are beginning to grapple with the new economic climate, and more importantly, the new expectations placed upon them by the Coalition’s devolution and localism policies.
It is a pertinent adage that the ‘devil is in the detail’, but perhaps an even more relevant expression for the new Government and its localism agenda should be: ‘genius is one part inspiration and nine parts perspiration’. If David Cameron et al have given us the inspiration with their conception of the ‘Big Society’ and a bottom-up approach to government, it is the perspiration of local governments, and ordinary British citizens which is required for these ideas to work. The TGLP seminar provided a very useful insight in this regard, with much of the discussion centring on how local governments can take advantage of new Governmental initiatives for financing local and regional development.
The prospects for the London Thames Gateway, and in particular the ‘Golden Triangle’, the area stretching east from Canary Wharf to London City Airport, and north from the O2 Centre to the new Olympic Park in Stratford, are, by the admittance of those who attended, bright, at least more so than many other areas of the country. However this is not to underplay the issues which face local governments in the London Thames Gateway, as they are indicative of the problems faced by all local governments in responding to new economic and political conditions. One area of particular uncertainty is the role that public spending and central government investment will play in the future.
Discussing this issue was the keynote speaker Tony Travers, who spoke on how local government can stimulate growth without central government investment. Mr Travers described the current situation as a ‘new world’ in which the financial relationship between central and local governments would change, from one where local governments relied on grants, to one where they must take advantage of incentives. ‘Business Improvement Districts, ‘Local Enterprise Partnerships’ and ‘Tax Increment Financing’, are just a few of the many incentives local governments can take advantage of, all carrying with them opportunities, but more importantly, also posing significant challenges.
Nowhere is this more apparent than with the plans to allow local authorities to retain the business rates levied on business premises. For many advocates of localism (including this author), such a move is widely welcomed, however it will add a new dimension to local government’s financial decision making. Mr Travers predicted that in the future successful local authorities will be proactive, have developed planning skills and strategically base financial decisions on expected future revenue streams, something which some centrally-funded councils have little experience of. Successful councils will use incentives, such as ‘Tax Increment Financing’ to implement successful infrastructure developments which expand the council’s tax base, failing councils will not do this, or will do so unsuccessfully, producing wasteful funding outlays which decrease the likelihood of future action. Similar pitfalls could affect councils who fail to, or unsuccessful use incentives such as the ‘New Homes Bonus’, the ‘Business Rate Supplement’ or the ‘Community Infrastructure Levy’ as all involve councils making decisions which could affect both their future and current revenue streams, placing them in an improved or weakened financial situation.
All this is a far cry from the situation where local councils’ economic independence was sacrificed for financial security. One delegate warned that ‘local government should be careful what it wishes for’, a warning perhaps reflecting the fact that (in Mr Travers’ words) ‘councils are more exposed than in the past to the vagaries of the economy’. This exposure provides an opportunity but also a danger for local governments.
The question then is what can be done to improve the prospects of success for local governments in this ‘new world’? The answer seems to lie in the adages cited above; localism will only be successful if local governments know how to properly take advantage of the incentives and freedoms provided, the ‘detail’ and the ‘perspiration’ must be got right. To this end, the Government and local governments must be encouraged to expand the dialogue and discussions about how they can prepare for greater autonomy, indeed events like the TGLP seminar are a vital component of this.
In the long-run, localism and the devolution of power will hopefully help produce a more responsive, more efficient, leaner state, which is necessary if Britain is to tackle its burgeoning public debt and the future public expenditure commitments for an ageing population. However, the danger is that in the short-term localism will exacerbate regional disparities and exacerbate the financial and social problems of poorly-run authorities – this must be avoided.