This piece is not about the politics. It’s about funding.  It’s main message is that Localism is the new Regionalism.

Especially, this piece – with apologies for its unenviable length – seeks to summarise the deluge of  Local Government funding initiatives and consultations which appeared immediately prior to Christmas.

Regional Policy by Eland House and Victoria Street

Instead of making tracks to Priestley Wharf to see Advantage West Midlands, West Midlands Councils and LEPs must look to funding available and allocated at national level and, just as important, to increasing their own powers. From management of EU Structural Funds to devolving Community Budgets, the Departments of Communities and Local Government and Business Innovation and Skills have replaced the Regional Development Agency.

1)      Core Cities with their LEPs will fare best. They might do even better with an Elected Mayor – though this shouldn’t become a celebrity sideshow contest.

2)      Non Core Cities with a LEP will become more dependent on their LEP. Though Wolverhampton can benefit from the Black Country LEP and Coventry from the Coventry and Warwickshire LEP,  perhaps they should think of leading a new national Non Core Cities Group? They might establish links with Nick Clegg’s Core Cities Unit and invite them to meetings.

3)      District Councils and second tier authorities need seriously to think about reinventing themselves. Through funding and governance changes, in future, there will not be a “mainstream” or typical District Council.

A) LOCALISM FUNDING – THE NATIONAL PICTURE

Before examining different funding routes for the three groups of councils above, this Section details DCLG and other funding now available or allocated at national level.

 i) The Economic Background

For all authorities, irrespective of their size or grouping or whether or not the Eurozone stays intact, the economic background is not good.

While in his Autumn Statement the Chancellor spoke of two more austerity years stretching into the next Parliament and taking £30bn more out of the economy, there has been little mention of further spending reductions he required during the present Parliament until 2015. In the Local Government Chronicle on Thursday 15 December 2011, Tony Travers, Director of the Greater London Group at the London School of Economics in a piece called “Bad Times are Here to Stay” wrote:

“In the light of the Chancellor’s announcement that there will be a public sector pay cap for a further two years, adjustments have been made to spending levels for the years up to 2014-2015. The Department for Communities and Local Government’s ‘local government’ spending line has been cut by £240mn in 2013/2014 and £497mn in 2014/2015”.

He continues:

“Health service spending will rise by 3.8% in cash terms this year, while local authority revenue spending fell by more than 3%. DCLG capital programmes have been chopped by 46%, compared with an 11% public sector average”.

“Council expenditure at the end of the current decade will probably be at the level, in real terms, it was 20 years previously”.

“Public sector austerity will last until at least 2017/2018 – unless the Eurozone implodes, when cuts might have to continue until beyond 2020. This may be a bleak midwinter message, but it is an entirely realistic one. Bad times are here to stay”.

And though local councils may extend their territory though setting up Health and Wellbeing Boards, forthcoming changes in Education Capital and Revenue Expenditure could mean that much future education funding completely bypasses them.

The relative position of the West Midlands is shown in the Price Waterhouse Cooper UK Economic Outlook Chapter Four “Regional Household Exposure to Finance Stress

“The West Midlands stands out as a potential area of concern here, with both low earnings growth and high increases in unemployment, perhaps reflecting the particularly severe impact of the recession  on relatively cyclical manufacturing industries in that region”

“The North East and Wales are the regions that have suffered the highest levels  of household financial stress since the  recession began, followed by the West Midlands. A mixture of high increases in  unemployment and economic inactivity rates; marked falls in house prices and increases in personal insolvencies have all contributed to these findings”.

“Closing the North-South divide is therefore more difficult than ever for government, particularly at a time when money is tight and so the scope for significant transfers to more highly stressed regions is limited, particularly within England!”

ii) European Funding

EU funding will be covered in a later posting on this site. Under current 2007 to 2013 EU Structural Funds Programmes, Local Councils and LEPs may continue to apply for European Regional Development Fund, provided they can find the required match funding contribution. Applications may be made for ERDF, irrespective of size or council designation.

The West Midlands has more limited access to European Social Fund than some other regions, where some local councils have opted themselves to become ESF CoFinancing Organisations.

Councils can also apply under a wide range of Transnational Programmes including Eighth Framework. Applications may be made under most of these, irrespective of council designation.

And, despite previous difficulties, there’s always possible future development of JESSICA (Joint European Support for Sustainable Investment in City Areas)  and JEREMIE (Joint European Resources for Micro to Medium Enterprises) – about which more at an appropriate time.

iii) Regional Growth Fund

A detailed analysis of the regional breakdown of receipts from the first two rounds of Regional Growth Fund bids shows that almost 70% of the projects successful in the first round (April 2011) were located in the North of England. Second Round Winners show 55% in the North.  So far this shows that the West Midlands is not a major beneficiary region from Regional Growth Fund.

However, the formulae for the Growing Places Fund and New Homes Bonus are more favourable to the West Midlands.

iv) Growing Places Fund

On Monday 07 November 2011, the Growing Places Fund Prospectus launched  a £450m invitation for local partnerships to bid for infrastructure funding that will promote economic growth and the delivery of jobs and homes. The fund has been distributed indicatively by formula to LEP areas. The formula includes a 50% weighting given to resident population, and 50% given to “employed earnings”. These distribution criteria benefit more populous areas with higher rates of employment and higher average wages, mostly in London and the Greater South East.

So far the North has only received a collective total of 10%. The South East has received 20% whilst the broadly-defined ‘London mega-region’ as a whole has received around 40%. LEPs in the North East have received less than 5% of the GPF allocation, the North West under 15% and Yorkshire and the Humber just over 10%.

The Black Country has received £9.6mn.  Greater Birmingham and Solihull £14.9mn . Coventry and Warwickshire received £8.5mn.  Much will depend on structures involving local councils to use this revolving loan fund. 

v) Community Infrastructure Levy 

Though trailed by the previous Government, amended Community Infrastructure Levy Regulations were introduced on Wednesday 06 April 2011. DCLG is currently consulting on amendments following the Localism Act 2011, to require local authorities to pass some receipts to neighbourhoods where development is taking place and to clarify how receipts fund ongoing costs of providing infrastructure. All this gives more local choice over how to implement and utilise the CIL charge.

With DCLG’s capital programmes cut by nearly 50%, funding for new or replacement infrastructure funding might come from:

  • Central Government Formula Grant
  • Council Tax
  • Disposals from Property Portfolio
  • Prudential Borrowing
  • Government Ring Fenced Grant
  • Partner Investment (Network Rail or Energy Supply Company)
  • Other Grants including Lottery
  • Community Infrastructure Levy.

The National Infrastructure Plan published on Tuesday 29 November 2011 alongside the Chancellor’s Autumn Statement mentioned 500 projects and programmes worth more than £250bn. The Chancellor announced a number of initiatives, including borrowing against future Community Infrastructure Levy receipts.  In addition, the Chancellor announced £1bn for the road network and £1.4bn for rail infrastructure and commuter links.

As the DCLG March 2011 Presentation shows, Community Infrastructure Levy may be spent on infrastructure which legally includes (the list in the Act is not exhaustive):

  • Flood defence
  • Open space
  • Recreation and sport
  • Roads and transport facilities
  • Education and health facilities
  • Affordable housing

Authorities are advised to keep their infrastructure evidence simple and should demonstrate that there is an Infrastructure Funding Gap against existing funding streams. Authorities seeking to raise funds through CIL have to strike a careful balance between:

–        Meeting all or part of the infrastructure funding gap; and

–        The potential impact of CIL on the economic viability of development across its area.

One of the more solid works of reference on CIL is from the Planning Officers Society in October 2011. In addition, the Planning Advisory Service has been recently recruiting pilot authorities. So help is available for those authorities seeking to move forwards on CIL.

Shropshire is one of the DCLG’s Phase One Front Runners for the  introduction of CIL and has embarked on an admirably detailed local consultation at parish level about local projects using CIL and other funding. There are no West Midlands authorities in Phase Two of the DCLG queue. Because CIL is an important source of revenue, there is surely a need for more West Midlands authorities to become involved.

The Newark and Sherwood CIL came into force in December 2011. Redbridge and Shropshire followed on New Year’s Day 2012. Portsmouth and London (with its importance for Crossrail) are at Examination Stage. Broadland, Croydon, Huntingdonshire, Norwich, Poole, South Norfolk and Wandsworth await Examination.

Though six more authorities are consulting on their charging schedule, after Shropshire, there are no West Midlands authorities in any of these lists.

Since the first twelve CIL Charging Schedules show significant differences, it is difficult to predict average yields from CIL. But they will be significant.

Bristol predicts £14mn over five years. In its detailed Levy Rationale Background Paper in March 2011  Shropshire identified an overall Infrastructure Funding Gap of £385,459,000 for 2010 till 2026 for Road Transport Facilities, Flood Defences, Education, Medical Facilities, Open Space, Sports and Recreation, Police and Electricity Supply – based on estimates and existing developer contributions. This initially equlated to £17,800 per projected dwelling.

In her succinct but methodical Examiners’ Report to Shropshire Council on Friday 02 September 2011, Sue Turner concluded:

“Since the Core Strategy was adopted, work on infrastructure planning has continued.  The LDF Implementation Plan 2011/12 provides an up to date picture of the infrastructure projects to which CIL is expected to contribute.  It identifies a funding gap of £212,815,912 and an indicative CIL requirement of £180,148,912.   All of the figures above show that there is a significant infrastructure funding gap and demonstrates the need to levy CIL”.

Shropshire’s prediction of £180mn over 15 years shows that CIL can be a significant source of future income. In accordance with the DCLG Code of Practice, 10% of net CIL monies will be directed to strategic infrastructure schemes, and 90% of net CIL monies will be spent on local infrastructure.

Shropshire’s Community Infrastructure Levy documentation is all online and represents a first class online or distance learning tutorial in building a Charging Schedule and introducing the Levy.

As CIL Charging Schemes proceed, their Examiners may need to revise some CIL estimates on account of the following:

  • Ageing population and changing implications for a range of social infrastructure facilities
  • Changing household patterns. Many current planning ratios are based on historical household demands. More single person households are changing the pattern of education demands. Primary and Second School contributions are changing.
  • Digital Media and changing models of learning, particularly in the FE/HE sector
  • Externally commissioned service delivery and new models of delivering social infrastructure in partnership with retail and leisure establishments.

There are still outstanding issues about Councils’ ability to borrow against future CIL receipts, though Sections 1 to 7 of the Localism Act 2011 probably give more powers than some local councils may currently recognise. The easiest way to begin progress is through the Planning Advisory Service or Planning Portal sites on Community Infrastructure Levy.

CIL is not the only way in which local authorities can pre fund infrastructure since they can use income, loans and bonds, especially from 2013 onwards. But the Levy represents a step forward through its removal of the uncertainties and arguments surrounding the Section 106 process.

It will take time before most local authorities have a CIL scheme in place. Currently, only 35% have Adopted Local Plans and there is some interesting debate on what constitutes a “local plan”.  All this means that the remaining 65% may not be able to afford to wait for CIL and should get moving.

vi) New Homes Bonus

There was an extended piece on New Homes Bonus in Who Speaks for the West Midlands?

There is a useful DCLG New Homes Bonus Calculator on the DCLG site. From this Wolverhampton provisional total receipts for Year One and Year Two are £1.2mn and for Coventry are £2.8mn. For Birmingham these are £7.4mn. The ongoing issue to be decided is the extent to which New Homes Bonus is fully funded or siphoned off the Formula Grant.  

vii) General Power of Competence

The Localism Act 2011  provides local government with substantial new powers, greater freedom and flexibilities through a General Power of Competence, which will enable them to act in the interest of their communities and in their own financial interest. Local Government will be able to generate efficiencies and raise money by charging and trading in line with existing powers. Local authorities now have the opportunity to own assets, develop property and generate revenue. A growing number of councils are also examining a Local Authority Mortgage Scheme, with support for first time buyers through underwriting so much of their deposit.

viii) Communities

The Coalition is inching its way towards devolved powers, including Total Budgets at Community Level.

On Community Budgets, the Government announced on Wednesday 21 December that in Birmingham, Balshall Heath, Shard End, Castle Vale will become a pilot for more pooled budgets focused on prevention. Balsall Heath Forum and Shard End will be a community led approach. Castle Vale Community Partnership will led by a Housing Association. This process should mean moving power away from central government and allow communities and councils to assume greater control of, for example, skills, transport and employment. Community budgets should lead to more pooling of public service budgets.

Alongside Community Budgeting, Councils should not ignore the size of funding available for community projects in which they may become partners or for which they may provide match funding. Community groups have access to funding programmes to which local councils don’t. In September 2011 Big Lottery’s “Reaching Communities Programme” offers up to £500,000 for revenue and capital projects for most deprived LSOAs.

The Community Builders Fund, the latest round of which which closed on Friday 09 December 2011, has offered up to £750,000 loans and investments to support ‘community anchor’ organisations.

Various Social Investment and Social Impact Bond proposals offer similar sums from which their private investors seek a return. It’s worth keeping up to date with the Social Investment Business website.

There is more detail about funding for Community Projects elsewhere on this site. 

ix) Retention of Business Rates

Under new proposals in its Consultation Response to Proposals for Business Rate Retention, on Monday 19 December 2011,  DCLG proposes that councils will be able to retain a greater percentage from the business rates that they generate. It is hoped that the proposals will create incentives for councils to promote local economic growth as they will directly benefit from any increase in rates. Against this, there is increasing concern that the progressive redistribution which operates through the current centralisation of business rates will disappear.

Arising from previous concerns, in its Consultation Response, DCLG now proposes an initial rebalancing of resources using tariffs and top ups, based on previous average income, depending on whether an authority has received more or less in business rates than others. Despite this, there are still concerns about the potential of some areas to raise much more in business rates than others.

Local authorities will be able to come together to form a pool, with scope to generate additional growth through collaborative effort and to smooth the impact of volatility across a wider economic area.

B) GROUPS OF LOCAL AUTHORITIES

1) Core Cities

Throughout these difficult times, the Government’s designated eight Core Cities of Birmingham, Bristol, Leeds, Liverpool, Manchester, Newcastle, Nottingham and Sheffield will have more direct access to funding.

Unlocking Growth in Cities” – launched by Nick Clegg in Leeds on Thursday 08 December 2011 – heralded a series of ‘tailored deals’ between Core Cities and Central Government. There was no talk of a “second wave” for the rest. And some are predicting that only Core Cities will be able to bid for Tax Increment Financing in the new Local Government Finance Bill, published on Tuesday 20 December 2011.

Perhaps most depressing for Core Cities are the document’s current comparisons of GDP per capita and patent applications between English and comparable non capital cities in Germany, France and Italy. Only in education to tertiary level of 25 to 64 year olds are English non capital cities comparable.

For Core Cities, these proposed “tailored deals” represent a tempting menu:

  • Giving cities one consolidated capital pot for investment
  • Giving cities powers to create Business Improvement Partnerships
  • Access to new infrastructure funding through Tax Increment Financing
  • Devolving major local transport funding and the power to commission local, or even regional, rail services, including managing franchises
  • Giving cities the power to consolidate local public sector property assets into a single local property company
  • Creating ‘City Skills Funds’ and ‘City Apprenticeship Hubs’

Six out of the eight Core Cities have a Passenger Transport Executive, with precept powers –  so they have a regional reach. The Core Eight have their own structure and organisation, based in Manchester. Manchester, the most ‘core’ of all, benefits from the Greater Manchester Combined Authority as a forerunner for further devolved powers. In April 2011, the new Authority replaced a range of single-purpose joint boards and quangos to become a formal administrative authority for all Greater Manchester for the first time since abolition of the Greater Manchester County Council in 1986.

Though the Authority is still progressing initial procedural matters, ultimately, instead of GMCA’s bidding on a project by project basis, more funding could be devolved so that decisions on funding and expenditure could be taken in Manchester.

Bob Neil MP as DCLG Under Secretary told the Commons’ Delegated Legislation Committee on Monday 14 March 2011:

“The measure involves the authorities having competence concurrently with the joint authority, so the Government are satisfied that this is not a regionalising and centralising model, but that it is something of genuine collaboration”

But, despite this reasoning,  this is in reality Regional Government under another name. It’s also interesting that the Greater Manchester Combined Authority was set up under the Labour Government’s Local Democracy, Economic Development and Construction Act of 2009 not the Coalition’s Localism Act of 2011.

2) Non Core Cities 

It is the larger Metropolitan Authorities and Cities, especially in the West Midlands, which are left out of all this. Apart from Coventry and Wolverhampton, there is a long national list including Carlisle, Plymouth, and Preston. Each has a significant subregional hinterland. They might seriously think about becoming a new National Network and build relationships with Nick Clegg’s Core Cities Unit.

Coventry and Warwickshire LEP has other projects for a Growing Places allocation of £8.5mn apart from Coventry City. Coventry will vote on an Elected Major in May 2012. The Black Country LEP has £9.6mn to spend across four Black Country Boroughs. Preston will have to argue that the £13mn for Lancashire LEP under the Growing Places Fund should be spent in Preston. While some of this will happen, it would be better still if Non Core Cities might develop more direct access to their own funding.

Elected Mayors

What follows is not written in support of having directly-Elected Mayors, but to illustrate the Government’s consistency of approach in their favour.

There are currently 13 Elected Mayors. Though the Secretary of State has power to direct authorities to hold referenda – as he has done already – a petition by 5% of the total electorate can do so. This has already happened in Salford. Outside the Core Cities, under the Localism Act there will be referenda in May 2012 in Bradford, Coventry and Wakefield for Elected Mayors.

Overall policy on Elected Mayors appeared in the “Open Public Services” White Paper in July 2011, under Section 5.10 “Democratic Decentralisation: the key policies we are already implementing”:

“- giving cities the power to elect mayors …We will also consider making it easier for other cities to take up the option of city mayors. Decisions on whether a city should adopt the mayoral model should ultimately be for local people”

Directly elected Mayors hold office for four years. They decide on the size of the cabinet, appoint cabinet members and decide on the delegation of  executive functions. These executive powers may also be held by Council Leaders. Mayors set the Council Budget and formulate significant policy framework plans but amendment or rejection of proposals requires a two thirds majority in Council. Based on their mandate, Elected Mayors also have a range of “informal powers which enable them to influence, persuade and co-ordinate on a wider scale.”

Much of the argument for Elected Mayors made by the previous Labour and current Coalition Government is based on low turnouts at Local Council Elections. Though many local and regional debates show no strong preference for elected Mayors, the Chancellor of the Exchequer announced in his Autumn Statement on Tuesday 29 November 2011 that:

“As part of its commitment enable Tax Increment Financing, the Government will also consider allowing city mayors to borrow against future CIL [community infrastructure levy] receipts where this can make a significant contribution to national infrastructure.”

“Funding and Financing Infrastructure Investment” on page 7 of the National Infrastructure Plan, published alongside the Chancellor’s Statement, makes the same point:

“As part of its commitment to enable Tax Increment Financing, the Government will also consider allowing city mayors to borrow against future CIL receipts where this can make a significant contribution to national infrastructure”

The November 2011 DCLG Consultation “What can a Mayor do for your City?” makes the position clear in Section 21 on page 10:

“The Localism Bill, if enacted, will provide the Secretary of State with a power to transfer by Order, subject to Parliamentary approval, local public functions to any local authority outside London. Local public functions are functions currently the responsibility of government or other public authority, which are carried out in relation to the people who live, work, or carry on activities in the authority’s area”.

Unlocking Growth in Cities” also emphasises that “tailored city deals” with transfer of powers for economic growth, infrastructure development, housing and planning, skills and employment may be available, but also that they represent a “two-way transaction”. Page 10, Section 1.18 “The Government’s Asks” says:

– “leadership and accountability: where cities want to take on significant new powers and funding streams, they will need to demonstrate strong, accountable leadership, an ambitious agenda for the economic future of their area, effective decision-making structures, and private sector involvement and leadership (cities with a directly elected mayor will meet this requirement)”.

All these policy documents above are not offered as evidence to support elected mayors but to underline the coherence of the Government’s preferences. They show how strongly the Government keeps pressing the case.

One of the strongest arguments against all this was mounted by Sir Howard Bernstein’s comment “An Elected Mayor is Not for Us” in Manchester Confidential on Tuesday 13 December 2011:

“In Greater Manchester, we have demonstrated that for reform to be successful, it requires a genuine bottom up approach rather than one that is driven top down from central government. Imposition of a mayor for the City of Manchester cuts across this approach”.

The Greater Manchester Local Enterprise Partnership (GM LEP) has also said that plans for directly elected mayors would bring no advantages to the city region.

Their argument is stronger because Greater Manchester now has a Combined Authority, which gives constitutional form to more than twenty years of the Association of Greater Manchester Authorities. All this shows that if Non Core but regionally significant Cities don’t favour Elected Mayors, they may need to strengthen their arguments for local accountability.

The risk with the Government’s strong preference for Elected Mayors in all these proposals is that some areas may get sidetracked with local celebrity contests from some of the real debates and arguments. Apart from accountability, DCLG seeks to devolve powers to bodies operating at the appropriate geography.  Though “Unlocking Growth” has much comment about cross boundary working. “Local economic area” is defined as the “functional economic area as defined by LEP.”

3) District Councils

Describing its “Future Councils: Life After the Spending Cuts“, published in September  2011, the New Local Government Network said that lack of funding and new rights for citizens to control service delivery “could, by 2020, leave local authorities in the same kind of position as the state government of California: struggling to provide services in the face of high demands, low income and increased direct democracy”.

Its author, Simon Parker, describes a gradual series of significant changes driven by budget cuts and rising demand for public services, so that by 2020 few Councils will be recognisable. He continues that beyond initial “traditional” cost cutting, some authorities will seek to slim down their core. Beyond this, some councils may become largely commissioning bodies. This brings back memories of Nicholas Ridley, MP for Tewkesbury. Throughout the 1970s and early 1980s from the Conservative Front Bench, he advocated that Councils should meet once a year to agree contracts with the private sector.

Liam Scott-Smith in the New Local Government Network’s ” Delivering Distinctiveness“: The Future for District Councils, amplified this further.  He offers four basic models:

–        Residual Councils are authorities who outplace a large proportion of  their services to outside providers. They may retain a pool of funding which can be targeted at specific projects or services for the poorest  communities.

–        Clustered Councils are authorities who through sharing so many services become de facto federations. Councils may cluster in major city-regions as each authority recognises the need to pool sovereignty to encourage greater economic growth.

–        Commercial Councils are very entrepreneurial councils. They will set up trading arms and be heavily involved in selling services to other local authorities. These councils could also begin to trade with business and the community.

–        Lifestyle Councils will focus primarily on promoting an areas brand and way of life. Such authorities will focus on capturing a niche focus through which to promote a distinctive local existence, both economically and socially associated with their areas.

These are significant options for District Councils and second tier authorities in times when local government is changing. They need working through for individual authorities. For example, why shouldn’t a Further Education College be a central feature in town centres rather than Tesco?  Hinckley and Bosworth offers the examples of strategies based on North Warwickshire and Hinckley College, a Business Improvement District and MIRA. There are many more.

District Councils will not have the same access as Core  Cities and Non Core Metropolitan Authorities to the bigger funding programmes. So the Government’s proposed funding reforms not only give second tier districts a chance to build local level partnerships but ultimately may force them into new relationships. Assembling funding packages from Community Infrastructure Levy, New Homes Bonus, retained Business Rates, including NHS, Further Education, Academies, LEP and Community Project contributions, will become more frequent.

So all this presents an opportunity for District Councils and second tier authorities to develop a distinctive role. The danger for many is not that their structures are unsustainable, but that they may not recognise opportunities in these changing times for increasing their influence and leadership. District Councils need more ownership of this inevitable process of change. If they don’t, they may become its victim.

And, Finally

My reason for such a lengthy post is that the flurry of Government documents published just before Christmas was plentiful and significant:

All this means that things are beginning to move. There is a general theme running through all of this – that local councils should act now before they are forced to act.

Above all, remember. It’s never over till it’s over.