Councils and their role in local growth

Stimulating local economic growth is no small task, as those with this remit in local authorities well know, writes Jennifer Glover.

Success is contingent on a huge variety of factors – housing, transport, skills, schooling, the investment landscape, planning, and of course macro-economic trends and central government policy. Given that councils have a direct role in leading work in many of these areas, working at the centre of their communities, the actions of local government have a big impact on the success of their local economy. Those working in local councils have a detailed knowledge of where new potential lies in their area and how to unlock it.

Equally, councils feel the effects when the local economy is not performing. When there is low or low quality employment, councils are at the front line, dealing with the negative outcomes this produces – poor health and mental health, social isolation, homelessness and poverty. At the same time councils may see their funding constrained as council tax relief and housing benefit rise, and there is a greater strain on their services.

It has therefore always been in local government’s interests to keep their local economy healthy as a key way of serving their residents and creating resilient places that promote wellbeing.

There is a huge range of innovative work being done by councils across the country to boost growth, and all of it is uniquely tailored to their region’s needs. (See our essay Future Local Part 6: At the Centre of Local Economic Life for examples.) By investing in civic infrastructure – skills, transport, education, housing and health – councils lay the groundwork for a healthy economy. They can then build on this through specific activities designed to support local businesses and to grow employment – providing business advice, growth capital, supporting local organisations through procurement, and advocating on behalf of their region to inward investors – working closely with other local partners such as Business Improvement Districts, Enterprise Zones and Local Enterprise Partnerships.

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A changing context

Manchester Northern Quarter

Manchester’s Northern Quarter

So we’ve established that councils have always had a hand in promoting growth as a part of their core duties to their residents. However since 2010 the situation has changed in a lot of ways – and the incentives to invest in your local economy have been strengthened (in both carrot and stick form!).

The first change, of course, is that local government has seen huge cuts to its funding since the financial crash. Local authorities lost 27 per cent of their spending power between 2010/11 and 2015/16 in real terms (JRF) and are unsurprisingly feeling a huge strain, particularly social care and increasingly children’s services. This is compounded by demographic pressures from an ageing population, as well as an overspill of problems caused by the strain on the NHS and issues surrounding the recent changes to the welfare state.

Secondly, devolution began picking up steam during the coalition government and the conversation is continuing to evolve. As chancellor, George Osborne made it clear that the devo agenda was first and foremost about growth, and that areas which could deliver it would be rewarded with more powers.

This promise of more powers for local areas was an attractive one, and many places have succeeded in setting up a combined authority structure and started to think more deeply about their economic and industrial strategies as they gained control over things like transport.

Thirdly, and closely related, is the system of local government funding. Alongside the early conversations around devolution came the introduction of 50% Business Rate Retention (BRR), which saw local authorities able to keep 50% of the growth in their business rates intake against the base year, providing a new incentive to grow their local economy.

Following this, Osborne promised a radical overhaul of local government funding in the pursuit of ‘financial self-sufficiency’ for councils. His plan was to phase out the centrally-distributed Revenue Support Grant and instead allow local government as a whole to retain the pot of business rates and to keep more of the proceeds of their individual area’s growth. This was the basis on which councils have been working, prioritising and budget-setting for the last couple of years, working under the assumption that RSG would be phased out by 2020. The message was clear: your driving responsibility as a council is local economic growth, and your fortunes will be tied to your ability to deliver it.

However, since the political turmoil of last summer, there has been a ‘vision vacuum’ from central government on the subject of devolution, as ministers grapple with the complexity of Brexit. It appears that the appetite for pursuing more deals for other regions, and for devolving further powers to existing Combined Authorities, has waned. Areas that were left hanging in the middle of negotiations, as well as those who have already received new powers, have been left wondering what devolution actually means now. Is the promise of more powers still on the table? Is the government still serious about making devolution work in a meaningful way?

The Local Government Finance Bill was the next step in the plan for 100% business rate retention, enshrining this new system in law, but when the general election was called the Bill was dropped and as it stands shows no signs of being revived. Mention of local government finance was conspicuously absent from the Queens Speech.

Of course, there were big question marks over how 100% BRRS would work in practice: how tariffs and topups would be replaced; how often the baseline would be reset; how to protect councils against financial collapse; and whether business rates were the right mechanism for incentivising growth.

I even allowed myself to be a bit optimistic when the Bill fell, thinking it might give local government a bit of breathing room to think more carefully about what the system should look like in practice.

Nevertheless, despite its flaws the 100% BRRS model at least provided a direction of travel (even if the uncertainty about details was causing headaches for councils trying to plan their budgets).

For councils, who have been told repeatedly over the past 7 years that they should be investing in their local economy so that they will be able to fund themselves through business rates post-2020, the current lack of policy direction adds yet another layer of uncertainty and complexity to their financial planning.

Although Sajid Javid last week announced that 100% Business Rate Retention was still on the cards, opening applications for more pilot areas, we should continue putting pressure on DCLG for clarity. In the meantime the work on economic growth continues and should be a priority even without the promise of retaining 100% of the proceeds of growth.

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How can councils change the local growth debate?

Birmingham city centre redevelopment

In the absence of a coherent message from central government about the next steps for local growth and local government finance in general, there is an opportunity for councils to step into the vacuum and re-shape the conversation. Discussion of local growth in recent years has been narrow in focus, a problem which was exacerbated by conversations around business rate retention; success in the context of 100% BRR would be a growing business tax base, which is far from a nuanced indicator of the resilience of a community. We can take this opportunity to broaden the discussion to encompass inclusive growth, place-shaping and high quality employment, rather than pursuing growth for the sake of growth.

Finding a niche is important, which requires knowing your area intimately. Which skills do you have and which need developing? Which sectors do you see potential in? What does the employment profile look like and are people happy with the jobs on offer?

Councils are already responding in a variety of ways, using the resources at their disposal to promote growth.

Place-shaping

Place-shaping must also be a central part of any economic strategy. Plans must reflect the particular needs and priorities of local people, and promote inclusive growth. Particularly in places that experience a ‘brain drain’ that hampers the development of high skilled industries, investing in people-centric town planning and urban design, ensuring people feel safe on the streets and making it a nice place to live, can directly contribute to growth.

Good town planning can mean a vibrant high street that attracts visitors from far afield to spend money. And partnering with emergency services and police forces to make the night time economy fun, safe and healthy, can even save money in the longrun by preventing spending on dealing with anti-social behaviour.

Cultural regeneration has worked well in some areas. By investing in tourist infrastructure and funding museums, theatres and community groups the council can contribute to creating a positive experience for visitors and making sure that it remains a place that residents want to live in.

Skills are another essential component, particularly as we move towards a digital-first economy. Improving provision of computing and programming skills in schools and adult education will allow people to compete in the national and global job market.

Building bridges

Within their area, councils are well-placed to build links with other organisations to work together towards the common goal of growth. Authorities in many areas are building fruitful links with local businesses, universities and LEPs, listening to their needs and investing in the infrastructure that will help them thrive. Things like providing funding advice, sourcing apprentices, providing flexible workspaces and creating innovation zones can all help strengthen the performance of local businesses. Working with universities on research into the local economy and supporting them in things like their accommodation needs can boost the success of higher education locally.

Equally, councils can be outward-looking too. For instance, central government’s focus on Industrial Strategy at a national level seems unlikely to change, and money is still flowing through Local Enterprise Partnerships, so local government could start aligning itself with this strategy more closely and make the case for closer working with BEIS and others.

In the absence of strong leadership from central government, local authorities can seize the opportunity to ‘go it alone’, building city-to-city, region-to-region relationships bypassing national government. This approach is working in many areas, such as Stockton Council, which has created links with Japanese firms that have subsequently set up in their borough creating many jobs.

The Northern Powerhouse ‘brand’ is now recognisable internationally, giving leaders of northern councils an opportunity advocate for their community with more clout with foreign investors and forge partnerships with other regions.

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Edinburgh Christmas Market

The list could go on. There are so many ways of approaching this objective and each must be locally-specific. To some extent, councils may be at the mercy of international market forces, but they still are extremely well placed to affect the prosperity and wellbeing of their residents, and indeed already are. We shouldn’t wait for central government to tell us the future shape of local finance and the role of the sector – local government must seize this opportunity to put forward its own case. Whatever happens next with 100% Business Rate Retention and devolution talks, it is vital that local authority voices are heard in finding a model that responds to local needs for local growth We must continue to highlight the excellent work being done across the country in pursuit of local economic growth, but also the lack of levers currently on offer to ramp up these efforts.

We’re keen to share stories from different councils about how you have been approaching local growth, to enable others to learn from your experiences. We are currently working with the Institute of Fiscal Studies and PwC on bringing forward the voice of the sector in discussions around finance and local growth – watch this space!

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This blog is adapted from the presentation given by Jennifer Glover at LGiU’s Policy Cafe event on local growth and economic strategy, kindly hosted by Bradford Council in June. It was a chance for LGiU member councils in Yorkshire to compare notes and discuss the future of local government’s role in promoting local economic growth. Find out more about LGiU’s Policy Cafe series.