Progress | Centre-left Labour politics

Give councils more power to shape economies

It’s been clear for some time that the current austerity is not being evenly felt, with recent reports again showing that local authorities in the poorest areas of the country are being crippled by disproportionate cuts. Both Ed Miliband and Jon Cruddas recently committed to devolving more power to local authorities, but would a Labour government in 2015 really do things differently?

When local government is forced to choose where to cut, very often its hands are tied. With a legal and moral requirement to protect children and the elderly, it’s not surprising that investing in building a stronger, more resilient economy is taking a back seat. But any local authority can see first-hand that the current set-up makes little sense. It is in these very areas where public investment is most needed for long-term economic success: nationally and locally, spending on physical and human capital has huge returns in the long run. Improvements to transport infrastructure can bring a return of £5-10 for every pound spent, while for every jobseeker moved into work the Treasury can expect to gain more than £8,000 per year. Local government is often best positioned to drive forward local economic growth.  However, instead of being given the powers to build a stronger local economy – in the process saving the Treasury money – local authorities look on powerless, as another government department picks up the costs of failure.

Such is the current government’s vision of localism: cutting funding sharply, and forcing local government into short-term decision-making, instead of giving them the powers to invest and save. Would a Labour government put the power to drive local economic growth where it belongs?

The logic of devolving more powers to local government is clear, and even more so in a time of austerity: rather than spraying money from the centre, by trusting local government with both spending and taxation powers, growth can be both stimulated and captured efficiently. Local authorities – especially the Core Cities – have long been pushing for more powers to spend on skills and infrastructure, and have a far better financial record than central government in responsible investment. Polling also shows that the public are in favour of more local accountability.

However, local governments need more than the power to spend grants from central government – local government in the UK raises a far smaller proportion of its own money than most other comparable countries, with only 12.9 per cent of money spent locally raised locally. Such a system breeds financial vulnerability, not the confidence required for effective investment.

IPPR North’s recent report, Rebalancing the Books, argues that, for devolution to be most effective, the tax and spend on economic development needs to be more aligned in local areas so that both the Treasury and the town hall can benefit. If they were free to invest in both people and in infrastructure, local government could succeed where the central state has failed, and align the funding for investments with the economic benefit that result. Some schemes already exist which allow local government to invest based on the higher tax take generated by infrastructure. Likewise, community budgets have built structures through which the public sector can spend in a far more efficient way, intervening early to prevent greater costs down the line.

The building blocks are therefore in place for the next Labour government to roll out a settlement with local authorities, which allows them to take on the structural challenges which have for many years evaded the solutions of centralised government. Local authorities want to prove they can shape local economies into areas of higher employment, wages and growth. Would a Labour government rise to this challenge, and give local government the powers it requires to deliver on this promise?

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Luke Raikes is a researcher at IPPR North. He tweets @lukeraikes

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Photo: iwouldstay

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Luke Raikes

is a researcher at IPPR North

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