Two implications from Greg Clark's appearance at the CLG Select Committee session on the Financial Settlement.
Last week, the Communities and Local Government Select Committee questioned the Secretary of State on the new funding settlement set out in December – as well as the plans for devolving business rates by the end of the parliament. Two main points stand out from the discussion.
As stated by Greg Clark, by 2019-20 revenue support grant will account for only 5 per cent of local government funding, compared to 16 per cent this year and 80 per cent in 2010. There is no doubt these reductions pose significant challenges for the sector – the need to provide the same, if not more, services with less – but it also provides an opportunity to improve how the system works. Far from being encouraged to support economic growth and be custodians of their place, local authorities under the current system are effectively public service delivery bodies reliant on funding calculated on the basis of population needs, which they have very little ability to influence or improve.
Greg Clark was explicit that his intention was to move towards a system where there is a clearer connection between what councils do, the decisions they make and their revenues.
From our perspective, this move is the right one. Giving places more responsibility to raise and retain their own funding will provide UK cities with sharper incentives to back investment in the things that can really make a difference to their local economy. Things like building new homes, investing in the local skills base, or delivering new infrastructure to better connect people to jobs, and businesses to customers.
That isn’t to say that the shift from a largely needs-based and grant-funded system of local government to one in which local government has more control (but also bears more risk) over its own funding will be easy. There are places that are less able to generate revenues from their local economy, and this recognition will need to be seriously considered in the design of any new system. Which brings me to my second point.
Ever since the devolution of business rates was announced by the Chancellor, there have been question marks surrounding the nuts and bolts of how such a system would work. Will the same top-ups and tariffs that redistribute revenues between high and low growth authorities still apply? Will the growth levy that penalises authorities that experience so-called ‘disproportionate financial benefits’ from business rates growth in their area stay in place?
In the past week it has become clearer that firstly, none of this detail has yet been worked out, and secondly, the Government expects local authorities themselves to come forward with proposals for making the system work for them. Both Greg Clark and senior civil servants (£) have been clear in their expectation that local government should be engaged in, and responsible for, designing a system that works.
This presents an opportunity, albeit a challenging one, for local government to be at the heart of a process to design a new local government funding system. One that is able to strike the right balance between providing incentives for growth and ensuring a sustainable funding solution for all parts of the country.
Crucially, it means that the local government sector as a whole has the important task ahead of speaking with one voice to help design a system that can work for as many local authorities as possible – with the inevitable and necessary compromises that will entail.
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