Back to the drawing board: localism and economic growth

The clocks have gone back, plunging the nation into self imposed darkness at 4.30 kicking off the annual, “Greenwich Mean Time, what’s that all about then?”

And a similar debate is emerging as worried local authority chiefs, business leaders and even Coalition ministers wonder if the government’s plans to stimulate regional economic growth will be able to lighten the darkness of public sector job losses and spending cuts.

Local government is undoubtedly one of the least sexy topic in politics, especially when it comes to the issues of……YAWN, administrative structures. Please bear with me now, because the radical reorganisation of local government currently taking place will have a very real impact on the biggest issues facing the country, deficit reduction and the Coalition’s economic holy grail, private sector growth.

The Coalition’s embrace of localism is not just about the devolution of political control, it is a promise of a new era of economic growth lead by a new spirit of private enterprise in towns and cities across the country. This spirit is typified by the noise about decentralisation and a new era of civic radicalism at the Conservative Party conference in Birmingham, replete with references to the great figurehead of that city’s original municipal revival “radical Joe” Chamberlain. The Coalition’s plans to create modern day Chamberlains; executive Mayors in the 12 largest regional cities have been undermined by local opposition over the confused details and contradictory nature of the proposals and have been described by one council leader as “totally undemocratic.”

The Coalition’s policy for local economic growth has been defined in the Comprehensive Spending Review and the recent BIS White Paper on Local Economic Growth.

The Comprehensive Spending Review has reshaped how local government will operate in Britain; the eye watering cuts of 51% to the Department of Communities and Local Government and the annual 7.1% reductions in Local Authority funding are going to have a profound affect and lasting affect on how councils operate, and the relationship between central and local government. For most departments the CSR was a struggle to minimise their losses, fighting for every line of expenditure, but for Eric, if not his department it has been welcomed as the start of a bold new experiment in localism.

There are two forces at work in this experiment, and it’s a potentially volatile mix; firstly local authorities have been identified as a major source of readily available spending cuts. This is local government as a land of town hall fat cats, equality and diversity bureaucrats, health and safety jobsworths, environmental enforcement non jobs, all with their gold plated public sector pensions. They are bloated bureaucratic organisations that grew fat under the Labour tax and spend years, riddled with duplication and inefficiency that have become a burden, crowding out private sector growth.

But there is another local government, a local government that is a potential source of dynamism and innovation that was strangled under Labour’s central control. Freed from the tyranny of Whitehall councils will be free to create innovative solutions to local problems that reduce the costs of central programs like welfare, criminal justice and health service by taking on a greater responsibility for commissioning of local services through place based budgeting. Councils can also drive local economic growth by cooperating with each other and private enterprise to coordinate local economic growth.

Localism is an attempt to balance these contradictory visions of local government. Deep spending cuts will force to make very difficult decisions about what services to prioritise and where to make inevitable cut backs; in effect they will decide who losses out. This will involve stark and painful choices.

In exchange for taking a big slice of the pain of public spending cuts councils will have an increased scope to respond in their own way, with less responsibility to meet targets from central government and less restrictions on how they spend their money as the level of ring fencing by central government is slashed. As Eric Pickles sets out in his letter to Local Authority Chief Executives, this is an era of “new financial freedoms and flexibility” for councils.

The upcoming Localism Bill will build on this trend, and while the finer details aren’t yet clear, the drive towards will be towards increasing powers and competency of councils while reducing their statutory responsibilities to provide some of the services that at the moment they have a legal responsibility to deliver.

As councils cut back on services, as they make redundancies, as unemployment increases the government is banking on a new era of private sector growth to compensate for the contraction in the public sector economy. BIS’s White Paper on Local Economic Growth has set out the Coalitions strategy of rebalancing local economies and stimulating private sector growth using the tools Regional Growth Fund and Local Enterprise Partnerships (LEPs) to fill the void left by Regional Development Agencies

However there are big questions marks over the whether this approach can really make a substantial economic impact given the lack of funds and strategic coordination. The confusion around the creation of LEP’s raises a number of serious questions about how such an uneven group of organisations, with no additional funding will be able to coordinate an economic miracle on the scale that the Coalition is banking on to absorb the impact of public spending cuts.

These problems are a telling illustration of tensions in the government’s localism approach, as a total of 62 proposals were submitted to fill the void of the 9 Regional Development Agencies, a number that far exceeded the Coalition’s expectations. The 62 bids were a motley assortment; some are fully formed proposals building smoothly on existing city regions and multi area agreements began under the Labour government.

Other proposals were hastily constructed, with squabbling local authorities unable to come to an agreement, resulting in a number of contradictory and overlapping bids disgruntled partners in the local private sector and no clear mechanism for local accountability. The White Paper approved 24 of these proposals, while the remaining areas have been sent back to drawing board by the government, to produce proposals that reflect both local priorities and the requirements of the national government. The map of current LEP proposals makes an interesting jigsaw, with the North East conspicuously blank.

As yet no functions of Regional Development Agencies have been transferred to LEP’s, either they have returned to BIS or they will just cease to function, LEP’s will have the right to bid for greater powers but given the early experiences this is far from guaranteed.

LEPs are backed up by the Regional Growth Fund, a transition fund to help areas bridge the economic chasm opening up as the public sector economy contracts, but will it have a significant impact? The RGF will allocate £1.4 billion over 3 years, which is less than the annual budget of the RDA’s, and while the Conservatives have incessantly criticised RDA’s as wasteful and bureaucratic repeated evaluations demonstrated they were among the most cost effective government organisations, spending less than 10% of their budgets on administration. It’s hard to see how a three year fund will be able to compensate for the impact of public spending cuts, let alone kick-start a dynamic economic miracle in areas where the existing private sector is correspondingly weak.

The scale of the economic challenge facing many regions is set out in a recent report by Price Waterhouse Coopers that painted a grim picture of the impact of the public spending cuts on employment and economic growth, especially in the North of England:

“Whilst symbolically important, we also question whether on its own the Regional Growth Fund (RGF)… will provide enough incentive or access to funds to make a material difference, as the proposed scale of the RGF is less than 25% of the annual Regional Development Agency (RDA) outturn for 2009/10. We also question whether local authorities and the newly created Local Enterprise Partnerships (LEPs) will have the resources, fiscal powers and capacity to mitigate the impact of cuts and promote growth locally.” 

This is the challenge facing the Coalition’s strategy for economic growth outside London and the South East, an entire administrative layer of well funded government bureaucracy devoted to stimulating economic growth has been removed, replaced with a temporarily funded collection uncoordinated bodies.

In setting out its localism agenda the Coalition has recognised that devolving power will be unpredictable, even messy. This is either a deliberate strategy to avoid responsibility for the ensuring mess as councils “slash and burn” services and local economies decline, or it is a genuine willingness to let go of the reins of political control in order to allow different areas to try substantively different approaches to suited to their areas, or most likely, a bit of both.

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