Cllr Philippa Roe, the new Leader of Westminster City Council, sets out eight measure the Chancellor could take to recognize and support the role of local government in stimulating the economy and reforming public services.
The role that local government can play in creating jobs and growth is often overlooked. However, a recent survey by the London Chamber of Commerce showed that three of the most important issues for businesses are (i) infrastructure, (ii) transport and (iii) safer streets – all areas where local government is major player.
Local authorities also possess strong local leadership that can work to bring public and private sectors together to focus energy and resources where they are needed most. Along with the Leaders of Hammersmith and Fulham and Kensington and Chelsea, I will be working closely with the Government over the next six months to look at how we can work in new ways together through a Whole-Place Community Budget to better drive growth and reduce dependency. We look forward to presenting our plan for change to the Chancellor in October.
However, growth is the national priority and we cannot wait until October to start the conversation with central Government. I therefore set out a number of ideas that the Chancellor could look to implement in this Budget that would help councils deliver on this agenda. Included also, are a number of measures that could help local authorities speed up and improve how they operate particularly around arcane financial and accounting rules – in doing so delivering value for money, creating greater incentives for investment, creating new markets and a speedier service to businesses and developers– all of which will help local economies and boost jobs and growth.
1. Create Local or ‘High Street’ Enterprise Zones
The government has announced the creation of 21 national Enterprise Zones, however, we believe that there is scope to go further by allowing local authorities the power to designate their own local or ‘high street’ enterprise zones as part of the government’s current reform of the local government finance system. The current proposals for reform of the business rate regime, having been sufficiently watered down by civil servants, will not adequately solve the problem of disconnection between local government and business and fails to introduce a strong and transparent incentive for investment.
By designating a hyper-local enterprise zone, a council (or collection of councils in two-tier areas or across borders) that committed resources to a specific high street improvement scheme or business area would be able to retain all, or a proportion of, rateable value increases on that street and the surrounding area above general trends. Working in a similar way to TIFs but instead of borrowing, councils would instead invest in schemes by whatever means and then receive a return over a revaluation period of five years. This simple measure would allow councils up and down the country to embark upon public realm improvements and regeneration projects safe in the knowledge that at least some of the costs will be recouped after a revaluation. At a time when budgets are being squeezed this could help get projects off the ground creating jobs and investment.
2. Localising welfare and incentivising councils to tackle unemployment
Currently we have a national, centralised employment system characterised by the Work Programme with little understanding of local variations and no incentives for councils to actively seek out and tackle local unemployment. Councils could be incentivised to work with those long-term unemployed by being allowed to keep a portion or share of any savings accrued to the Treasury from not having to pay benefits. Councils could also have a greater say over existing employment schemes and agencies such as Job Centre Plus, joining up and coordinating efforts at both tackling unemployment and creating local growth. This is an area that Greg Clark has already taken a keen interest in as part of his cities work.
3. Growing the number of Business Improvement Districts
The Chancellor could promote the concept of BIDs as a means of unlocking private investment in the public realm and more service-orientated expenditure whilst encouraging a stronger link between business, residents and local government. Five BIDs in Westminster contribute around £7m to the local economy. A recyclable £1m fund could, in the first cycle help establish 45 BIDs (assuming 90% approval). Just this first cycle and initial £1m could unlock around £50m in private funding, by business for business over the course of the BID term.
4. Borrowing for Investment – Housing
The forthcoming abolition of the Housing Revenue Account in April will allow local authorities the ability to manage their stock and retain rental receipts in exchange for taking on a proportion of the existing debt. However, the settlement will include an arbitrary cap on borrowing against housing assets and / or the rental stream due to concerns within government of this counting against the national debt. The cap also runs contrary to the prudential borrowing code which applies to other local authority finance and will mean housing will be a considerably under-leveraged asset once the HRA is abolished. This will suppress councils’ ability to invest and build future housing stock at a time of a national housing crisis. The Chancellor would simply need to reclassify the HRA as a trading account thereby removing it from the central government balance sheet as is the practice in most of the developed world.
5. Short Term Accounting Rules
In the private sector the financial viability of companies is considered not only in terms of their current financial position, but also their future prospects. This means that they can invest heavily in the short term in order to achieve better long term performance. Local authorities have no such freedoms when it comes to delivering savings, achieving a balanced annual budget, and as a result this inhibits their ability to reform local public services and creates a bureaucratic, resource-intensive industry in its own right, encouraging local authorities to constantly look backwards, rather than focus on medium to long term financial planning. One potential alternative would be for a system which supported longer term financial planning. External auditors could be used to confirm the viability of a medium term financial plan which might include a short term deficit reflecting the delivery of longer term savings.
Current public procurement rules are an impediment to the growth of small businesses, new markets, and innovative approaches to service delivery. For example, procurement rules require that any new mutual is subject to OJEU rules. This would mean any contract worth more than £150k must be openly advertised in the Official Journal of the European Union so that any organisation can bid for the work. The requirement to tender is also a major disincentive for staff willing to enter into new service provider organizations or mutuals – why agree to being moved out of the public sector if you have no guarantee of an initial contract? New legislation and new thinking is therefore essential if new models are to become established such as offering ‘protected status’ for the first couple of years of operation whilst creating new markets and spin-offs. Legislation also prevents councils from favouring tenders from local companies that support the local economy. EU procurement law and the rules on local authorities are therefore a major impediment to innovation, the growth of small businesses and market development.
7. Planning Fee Reform
Development planning is critical to the growth agenda, particularly the service provided by local authorities. Rapid consideration and determination of planning applications provides certainty to the sector, can save millions of pounds through avoiding delays in development and helps to deliver growth. Westminster handles more than 12,000 applications every year, the most of any local authority. Nearly 50% of these applications are for listed building consents, conservation area consents and tree applications – none of which are chargeable to the service user. The restrictions result in the City Council and the local taxpayer having to subsidise the service by more than £5m every year. Reforms in this area would provide stability and clarity. Westminster has received the support of many major developers and landowners who are prepared to pay an additional fee for a quicker decision and back the introduction of a fairer, localised fee charging system.
8. Capital / Revenue Flexibility
Local authorities have undertaken work to assess the limitations of existing capitalisation rules, a point made all the more relevant by – for example – repeatedly needing to apply to CLG for permission tocapitalise redundancy costs, change costs and additional pension costs. This has highlighted the degree to which the demarcation between capital and revenue is restrictive, with specific limits set by government unnecessarily increasing the impact of structural changes on front line services. For example, further service reductions are often required simply to absorb the one-off cost of redundancies. This is a particularly pertinent issue given the need to reduce costs and the government’s public service reform agenda. Current restrictions can therefore amplify rather than absorb changes undermining both government and councils’ own desire to reform public services.