In this LEDC episode David and Mike talk to Jack Shaw, of Labour Together, The Productivity Institute and the Bennett Institute about his latest report on the Local Authority financial crisis. Our discussion ranges from the ‘devils in the detail’ of current local government financial crises to the big picture challenges of wider reform of sub-national financing and investment. Jack’s detailed work confirms both the depth and breadth of the near financial breakdown in the sector, but the discussion suggests grounds for modest optimism. The Autumn 2024 Budget provides some short-term stabilisation funding, together with the prospect of more fundamental financial and investment reforms in the medium term. But delivering more positive scenarios will require political bravery that has been in short supply, and a national commitment to empowering local leadership that has so often proved transitory over the political cycle.
The Local Authority financial crisis is real
Jack describes his recent work with Professor Andy Pike (also a former LEDC guest in this episode) on ‘the geography of Local Authority (LA) financial distress in England.’ By looking forensically at all 317 England LA Medium Term Financial Strategies (MTFS), Jack and Andy debunk the accusation of the previous Secretary of State, Michael Gove, of LAs ‘crying wolf’ about financial distress. Broken down by regional geography, political control, and type of LA, the funding gap forecasts show the depth and breadth of distress. This financial crisis amplifies a crisis of LA legitimacy, as it is largely driven by costs of care, Special Educational Needs, and Temporary Accommodation – services that don’t provide direct or visible benefits to most Council Tax and Business Rates payers. It also challenges commitment to non-statutory functions like LED. The Budget provides some temporary financial relief – but is it merely postponing more acute austerity?
But are there reasons for optimism?
As in our recent episodes on spatial strategies, the Autumn 2024 Budget, the industrial strategy Green Paper, and devolution, Jack sees grounds for optimism in the longer-term reforms under way. These include planning reform; devolution; Local Growth Plans; actually determining the fair funding review; single settlements; among others. The growth in capacity of the Combined Authorities (CAs) and in the soft power of directly elected mayors, and the strengthening collaboration and coordination between local and regional tiers, all bode well. Given the roots of CAs in economic growth, this is an opportunity for LED and regional policy and practice. Spatial strategies, in particular, could give real confidence to both private investors and pension funds to make more of a commitment to place-based development at scale.
What do local and regional leadership teams need to deliver stronger financial resilience and improved economic impact?
Jack argues strongly for fiscal devolution together with broadly permissive integrated settlements. Tourism taxes should be relatively easy both nationally and locally – but deliver relatively modest resources except in limited places and circumstances. A city like New York has over 20 financial levers and there is a lot to learn from overseas – Jack mentions golf and pet taxes as two examples.
But permissive fiscal devolution and integrated settlements needs to be matched by more consistent political courage to make contentious local revenue raising decisions, some with existing instruments. Why are there so few aggressive uses of mayoral precepts or something like workplace levies? Although CAs and LAs will always prefer grants to borrowing, can they be bolder with development financing and instruments like TIF for packages of sites at scale?
Alongside financial confidence are substantive challenges of agreeing and proactively managing decisive changes through regional spatial strategies, completing coverage of purposeful devolution agreements and building the capacities to deliver them. And, if CAs and LAs can evolve towards greater financial resilience and multiple funding instruments, ensuring spend is allocated on viable LED programmes and projects.
Conclusion
Our discussion with Jack provides a strong follow on to last month’s episode with Henry Overman on the need for robust evidence and evaluation on what works. Jack’s academic work illustrates how a forensic detailed research brief – like the work with ALL 317 English LAs on financial distress, or Jack’s current analysis of ALL expressions of interest for devolution deals – provides critical underpinnings for policy development and helps deliver better decision making and implementation.
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