Executive Summary

Cities have a crucial role to play in supporting inclusive growth. They are home to 54 per cent of the population, and 60 per cent of jobs. Cities are where people try to find new work, training or support to progress. And cities have a central role to play in creating an environment to enable this. But with few powers to control or raise taxes locally and after nearly a decade of spending cuts from central government, it is becoming increasingly difficult for authorities to fund these activities.

While governments have been able to boast of record rates of employment in recent years, wages have stagnated and the levels of in-work poverty now exceed those of out-of-work poverty. This disconnection, with economic growth failing to translate into fewer people living in poverty, has driven inclusive growth up both the political and economic agendas.

In this context, it is important that cities find ways to increase revenues, leverage returns on their investment, encourage investment from other stakeholders, and coordinate the spend of organisations within cities to support better outcomes for residents at all levels of the income distribution.

This report explores the funding and finance options available to cities, and considers what types of approach are likely to be most appropriate. There are four approaches that cities could potentially take to fund and finance inclusive growth policy:

  1. Taxes and fees – raising or retaining income from taxes, charges and fees
  2. Partnerships with financial intermediaries – entering into financial partnerships to support inclusive growth and generate revenue streams
  3. Asset and property management – ways of leveraging investment from the private sector to support economic regeneration
  4. Convening private investors – maximising collective spend within cities and city-regions, and leverage further co-investment

A long list of options in each of these areas were reviewed in turn with consideration for how they link to inclusive growth; how feasible or deliverable mechanisms are likely to be in the UK context and in different cities; and the scale of funds or leverage potential associated with different approaches.

It also examines the ways in which national government can help widen cities’ access to funding and finance to support better outcomes for their communities.

Every city should establish an Inclusive Growth Investment Commission.

Cities should establish Inclusive Growth Investment Commissions with three main objectives: 1) identify barriers to achieving inclusive growth, 2) develop financial mechanisms to address inclusive growth priorities, and 3) coordinate spend within the city or combined authority.

The Commissions should explore ways to raise revenue through the introduction or retention of taxes and fees. Cities are currently relatively limited in their ability to do this and many of the potential options would require a change in legislation. One of the most feasible options with a clear link to inclusive growth is the Workplace Parking Levy (WPL).

  • Cities where applicable, should consider how the introduction of a WPL could help to fund and lever in additional investment for public transport.

The Commissions should also find ways to lever investment through financial instruments, land and assets, and their convening powers.

  • Cities should consider supporting Responsible Finance providers with grant funding or capital lending to help fill the finance gap for businesses in need.
  • Cities, particularly those with less buoyant economies, should consider how LABVs can be used to develop key sites to support economic growth.
  • Cities should work with intermediary organisations to convene investors and donors to create place-based funds for inclusive growth policies.

These innovations cannot make up for the cuts in national government funding, lack of fiscal autonomy at the local level or the need for public service reform. It is also likely to remain far easier for cities with more buoyant economies to access funds and investment than less buoyant ones. The decisions made by national government continue to have a fundamental bearing on the ability of city authorities to fund policies that support better outcomes at the local level.

Government should:

  • Allow cities to introduce a hotel tax as part of a broader set of measures to devolve more tax-raising powers to cities.
  • Work with local authorities to pilot different forms of ‘welfare earn-back’ to enable public service reform.
  • Abolish stamp duty on asset transfers between public sector organisations within a city or city region.
  • Allow all cities to purchase land through Compulsory Purchase Orders (CPOs) at existing use value.
  • Support city funds by creating additional incentives for donors and investors, through providing match funding and widening eligibility for existing tax reliefs.