Last week’s Budget included new plans to allow local authorities in our most deprived areas to develop and fund their own enterprise strategies.

The new Local Enterprise Growth Initiative (LEGI) will target £300 million over the next 3 years at around 30 local authorities. It aims to boost enterprise in our most rundown towns and cities, with long-term funding to support local business and inward investment.

Critically, the LEGI will give “significant discretion” to local authorities to do their own thing. This signals an important shift in government policy. Up until now, economic development has largely been decided by central government and RDAs. With this Budget, the Government is finally starting to devolve real financial autonomy to our towns and cities.

This is just one part of a bigger devolution story. First, the Local Authority Business Growth Incentive (LABGI), starting next month, will give local authorities an incentive to maximise local economic growth. The LABGI will allow them to spend a proportion of any increase in local business rate revenues on their own priorities. Projected to raise £1 billion over 3 years, it will inject a welcome element of competition between local authorities.

Second, the Lyons Inquiry into Local Government Funding offers the prospect of even more significant financial devolution. Due to report in December, Sir Michael (former chief executive of Birmingham City Council) is likely to recommend not just council tax reform but additional revenue raising powers for local authorities. Given his bold recommendation last year to relocate civil servants outside London, this latest Lyons review should be worth the wait.

So, this Budget is helping to usher in a new era for local authorities. Equipped with real financial autonomy – via LEGI, LABGI and Lyons – local authorities will soon be able to play a much bigger role in delivering economic growth and enterprise.

But for this to work, devolution must be real. If our towns and cities are to realise their full economic potential, local authorities must have real freedom and flexibility. Second, we need to keep this in context. The annual turnover of a typical local authority is around £500 million – five times the total average annual cost of the LEGI. Third, local devolution requires the co-operation of other key partners – especially the RDAs, Learning & Skills Councils and Business Links. Given that the main delivery mechanism, Local Area Agreements, are so new, we need to make sure they don’t get bogged down in institutional inertia.

The Centre for Cities, launched earlier this week, welcomes the Chancellor’s plans to empower local authorities. Through our research programme this year, we will be making the economic case for stronger city leadership and helping to identify the right toolkit for local authorities. The Budget was an important step in the right direction. The challenge now is to make this work.

Budget summary: Local Enterprise Growth Initiative (LEGI)

• £300 million over the next 3 years (£50/100/150m). Targeted at around 30 local authorities. Long-term funding, available for 5-10 years.
• Local authorities in NRF areas will be eligible. Competitive bid process. Winners will get £2-10m a year, to develop their own enterprise plans.
• ODPM will lead. Three funding rounds each year, to be routed through Government Offices and Local Area Agreements.
• £10 million later this year, to pump-prime the development of local plans.

Dermot Finch is Director of Centre for Cities.