CSR: Council cuts will put focus on TIFs and LEPs

MONEY for local authorities was taken away with one hand – but more control over what’s left handed back with the other in the spending review.

Chancellor George Osborne admitted that the forthcoming funding settlement would be ‘unavoidably challenging’ for councils, who would be expected to save 7.1% over four years, but promised to free local politicians from red tape and give them more discretionary powers over spending.
 
And he confirmed that the Treasury would introduce a new way for towns and cities to fund major capital projects in the future. Tax Incremental Finance (TIF) – through which the Government lends to councils against the promise of increased revenue from future business – would go ahead, despite initial opposition from the Treasury.

The confirmation of TIF schemes will be seen as a major boost to the UK’s emerging Local Enterprise Partnerships – the new bodies charged with driving economic growth when regional development agencies are abolished. Local authorities will look to link up with private investment to create schemes that use TIFs to leverage major funds from government.

There was another potential boost to LEPs, too, with the surprise announcement that the Regional Growth Fund would be extended and increased. Mr Osborne had previously announced the fund would have £1billion over two years to replace the funding that used to go to the RDAs for business support and inward investment. Anoth half a billion would now be added in a third year, he said.

Jackie Hendley, chair of Birmingham Forward and tax partner at KPMG, says: “Mr Osborne’s comments about TIF were not a surprise and offer some good news for Birmingham.

“Birmingham has put itself forward as a pilot for TIFs, providing it with an opportunity to progress some of its investment plans. The city council, in its Big City Plan, has provided a real example as to how this can work in action here in the UK.

“This is a new, interesting method of financing which should enable developments to continue, thereby providing opportunities for Birmingham and for our members.”

Mr Osborne said: “There needs to be a dramatic shift in the balance of power from the central to the local. “We will give GPs power to buy local services, schools the freedom to reward good teachers, and communities the right to elect their police and crime commissioners.
 
“We will use new payment mechanisms for prisons, probation, and community health services. And we will encourage new providers in adult social care, early years and road management.”

The chancellor promised “a massive devolution of financial control”, with the ending of the ring fencing of all local government grants from April next year.  Ring fencing ties local council’s hands and committs them to spending on certain services. Only schools and public health grants will remain ring fenced, he said.

However, council tax payers wouldn’t be expected to shoulder more of the burden, he said, as the government promised to maintain next year’s council tax freeze.

Alexandra Jones, chief executive of the Centre for Cities think tank said: “Unquestionably the spending cuts are going to hit all UK cities hard.  Jobs will be shed across the public sector, with knock on effects among private sector suppliers.

 “People will have less money to spend on the high street affecting our city centres. And, with welfare facing such severe cuts, cities with a high share of residents claiming benefits will undoubtedly feel the pinch.  It’s often these cities that have borne the brunt of the recession and industrial decline, and are most reliant on the public sector for jobs.
 
“The extension of the Regional Growth Fund for a further year is welcome, as is further decentralisation and the removal of ringfencing. But finally winning responsibility for these decisions will be bittersweet – and unpopular – with limited money available.  The pressure will now be on local authority leaders across Britain’s cities to take the right decisions on where to save and what to cut – to get private sector growth back on track.”