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The football team at University of Georgia (my alma mater) has a mantra: finish the drill. It means that, no matter how hard you have worked and how far you have come, what matters the most is reaching the goal.
Government is in the same place today with getting the economy growing again. Here we stand, T-minus 36 days until the next Spending Review. This could either be a very important moment, with Government pushing through significant policies and programmes, or it can be a Spending Review simply about reducing the deficit. Our latest research, Ways and Means, highlights why Government needs to seize this opportunity to make reforms that support local economic growth.
As the system stands, government devolved more powers to local government to support growth at the same time they are being taken away. Localism has made much more progress in name than in practice, but the onus for delivering growth still lies with local economies.
Despite progress, Whitehall holds much control over local authorities’ finances, both in setting the budgets and how authorities can use their funds. On the whole, central government determines the budgets for 60 per cent of local authority spending. With the remaining 40 per cent local government raises, Whitehall sets rules and regulations around the amount raised and how it can be used (see figure below).
The system of centralised control over local budgets creates growth-hindering challenges for local government. Importantly, the system provides no structured way for local government to coordinate budgets for cities. Budgets are allocated to individual authorities, but people often live, work and consume across many administrative boundaries each day. If funding was allocated to reflect how people live their lives, services could be more efficient.
Also, because government funds authorities reflecting departmental silos, coordinating budgets to reflect the real economy is difficult. For instance, spending on improving the public realm can increase public transport revenues, business performance (leading to more VAT and corporation tax), and so forth. But, the budget for spending on public realm does not span across departments, even though they are linked. In addition, the division of budgets across departments makes each department’s services more vulnerable to cuts compared to spreading risk by coordinating services.
There are even greater challenges the Spending Review should address. Community Budgets, of which there are four pilots in progress, provide a platform for local government to join up their budgets that provide better services, reduce costs, and generate long-term savings for government. But, the pilots have found the programme to be financially unsustainable because local government bears the up-front costs while savings or additional revenues from the joined-up services accrue to various Whitehall departments. This means local government cannot recoup their outlay, and paying off the original investment is difficult if not impossible. What cities need is a Community Budgets approach that allows them to capture the benefits of investing in joined-up services.
Bespoke City Deals are one way government is giving local government more freedom to invest in their local economies and benefit from doing so. But, the Deals process has been slow and is limited in scope and scale. Without wider reform, city budgets will face continued bureaucracy to invest in growth rather than being empowered to support the local economy.
If the Spending Review does not grant greater freedoms for local government, Government’s expectations for local authorities to deliver growth will outstretch their ability to do so. Over the next 36 days, the Centre will publish a series of short reports, briefings and infographics to provide greater insight into how Government should be shaping policy to support local economic growth. Keep an eye out for this work on our blog and twitter (@CentreforCities and @urbantweetUK) to see if Government can finish the drill.
Senior Consultant, City Economics at Arup
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