How will the ‘devolution revolution’ be financed?

September 1, 2016 at 17:15

Financing a devolved government At CFG, Locality, NAVCA and Children England’s The Voluntary Sector and Devolution Summit we’ll be looking at the key concerns about financing  local government under devolution deals.

One of the main reasons for devolution is to create empowered city regions that had more control over drivers of economic growth. The Government believes that cities that have more control over their local economy will be able to drive economic growth; particularly in the regions which are believed to struggle to compete against the disproportionate economic pull of London.

Countering this imbalance has seen measures proposed such as allowing local governments to retain 100% of local taxes, including £26 billion from business rates. Local authorities will be granted the power to cut business rates in their areas to increase competition and boost enterprise and economic activity.

Furthermore, areas that agree to introduce elected mayors have been granted greater flexibilities over their funds, with powers granted for local areas to increase rates for local infrastructure projects backed by local businesses .

However, this raises concern for areas that do not have a current devolution deals. With the recent change in government and with May not displaying much firm commitment to Osborne’s Northern Powerhouse (a key part of the Cameron and Osborne’s devolution plans), there can be no guarantee that areas in England that do not have a devolution deal will be offered the same financial terms as the first 10 deals.

For local authorities who have or are pursing devolution deals, the chance to have more power over local services is a big attraction. For some devolution it is an opportunity to protect local communities from some of the worst effects of austerity and cuts.

Many areas see it as a chance for more control over their own finances, separate from the whim of central government funding decisions. For example, when government committed in the 2015 Spending Review to ending Whitehall grants to council completely by 2020, this had a more significant impact on certain areas of local public services than others.

One of the major policy changes, and one that has produced much debate has been focused is the introduction of 100% business rate retention by local councils. Currently business rates are divided 50% between central government and local government, with the central government pool being used to support areas with less funding.

The government argues that the introduction of 100% business rates can counter the impact of central grant cuts to councils (the complete removal of central grant is expected by 2020), as councils will be able to attract new businesses with improved rates.

However, this has resulted in warnings from both MPs and economists that this could create inequality across England as areas that do not have the ability to attract new businesses will struggle to develop economic growth. Devolution deals and retention of business rates threatens to overturn this consensus and potentially ‘lock in’ regional inequalities.

Supporters of devolution argue that greater powers for devolved areas will lead to improved economic performance and thus reduce inequalities without the need for significant redistribution of resources. Important questions of principle and equity in the radically shifting financial landscape remain largely unraised and undebated.

The government have highlighted the business community as a key stakeholder in the devolution plans, from Local Enterprise Partnerships to the emphasis on economic growth rather than local democracy. The role of Local Enterprise Partnerships (LEPs) will be very important in devolution deals as they will be able to approve infrastructure projects and council tax rises (if they meet certain conditions).

While LEPs must include the voluntary sector, this is often not the case. It is important that we must emphasise our financial contribution to local communities, whether that’s through employing people, providing services for users or other means.

With businesses being given so much control over the financial future of devolved regions it is important that we ensure that the voluntary sector remains vocal about being involved in the process of devolution and the future of their local communities.

How devolution will be funded across England and what this will mean for both public service funding and general funding for charities, are questions that need to be raised and need to receive answers from the government. Arguably, devolved areas will only succeed if they have the financial resources to deliver change.