Andrew Carter is Chief Executive of Centre for Cities
In recent weeks, we have seen a surprising shift in political debate. While much political attention remains focussed on the Brexit high-drama of Westminster, there is now an increasing sense that some politicians are beginning to look at issues closer to home once again.
Earlier this month, James Brokenshire lauded the Local Government Finance Settlement as paving the way for a ‘fairer, more self-sufficient and resilient future’ for local government. After ten years of very large spending reductions this is long overdue. While the belt tightening introduced in 2010 has undoubtedly made local authorities leaner and more efficient, all the evidence now indicates that they are unable to take any further restrictions without it significantly limiting their ability to provide the public services that many residents depend on and expect. This was evident in the responses by MPs on both sides of the House to the Secretary of State’s parliamentary statement setting out the 2019 Settlement.
Urban authorities have felt this pressure most acutely. Centre for Cities’ annual Cities Outlook analysis found that Britain’s urban areas have borne nearly three quarters of all real-term local government funding reductions since 2009/10, despite being home to just 54 percent of the population. This is equivalent to a £386 fall in spending for every city dweller, compared to £172 per person living elsewhere.
The social care crisis adds to this problem. A decade ago, just four cities, out of the 62 we studied, spent the majority of their budget on social care; now half of them do. Barnsley now ranks as both the city that has seen the largest fall in spending since 2009/10 (a 40 percent reduction), and also the place that dedicates the largest share of its budget to social care (62 percent of its budget). This is no coincidence.
These funding pressures are not just bad news for public services, but also bad news for the British economy. The UK’s 63 biggest cities account for around 60 percent of all the UK’s jobs, business starts, and total GVA. Therefore, anything that hampers their development is a handicap to UK plc. In the past decade, strategically important services have seen significant spending reductions in cities. For example, spending on activities to improve their economic performance has fallen in cities by 43 percent. If this continues it will not bode well for the UK’s long-term economic performance. As noted by the National Audit Office recently, cuts to planning services over the last decade means the likelihood of hitting the government’s target to build 300,000 homes per annum is much less likely. As ever thus, a decision taken in one part of government has knock on effects for another part, often in a perverse way.
While the forthcoming Spending Review is an opportunity for the Government to address these challenges, it would be overly optimistic to expect significant amounts of extra funding for local government. Despite the Secretary of State’s warm words, the Local Government Finance Settlement still deals councils a further reduction to their central government grant. However, the good news is that some of the policies that would support city finances to be more sustainable in the long-term could be delivered at minimal cost to HM Treasury.
First, the Government should scrap the current rules stipulating that money raised through council charges in one area can only be spent in the same area. It makes little sense that councillors struggling to keep libraries open or roads maintained are prevented from accessing funds raised in other areas, such as through parking charges. Local leaders are best placed to make decisions about need in their area and the Government should give them the tools to do so.
Second, while it may be controversial, we need to examine the idea of giving cities powers to introduce localised taxes. Following the passing of the Scottish Government’s recent budget, and with significant public support, Edinburgh became the first British city to implement a £2 per night tourist tax. Enabling cities across the country to follow suit would bring them in line with places such as Paris, Amsterdam and Berlin. It would also raise money to spend on public services without a cost to local taxpayers.
Finally, the Government should reform the current local government finance rules that stipulate that councils can only set single-year budgets. This rule encourages short-term thinking in local government and restricts councils’ capacity to reform public services, and fund the up-front revenue costs associated with developing the major strategic housing or infrastructure projects that drive the economy forwards.
There are signs that we are heading in the right direction. Brokenshire has just reaffirmed the Government’s belief in the merits of city devolution in rejecting the One Yorkshire campaign proposals. Local government minister, Rishi Sunak, has also indicated that the government is open-minded about devolving fiscal power to cities. In the next Spending Review, the Chancellor should move this one step further and unlock cities’ economic potential. It is vital for our future prosperity that he takes this opportunity.