England & Wales Democracy, devolution and governance, Finance

Should local government borrow its way to growth?

This article was first published by Total Politics.

George Osborne’s third Budget has created a bit more of a stir than one might have expected given that it was in many ways a steady as it goes Budget: a “stability first” Budget as the Chancellor labelled it.

For local government there was some meat there, with a noticeable emphasis on the role of cities in driving economic growth. It was encouraging to hear about the City Deal for Greater Manchester, which could open the door for many more localised deals with the Treasury that help councils to innovate. 

For a sector that has already driven major efficiency improvements over many years the ability to cut deals that work across public spend in their area is the next and greatest frontier in reducing spending and achieving better outcomes. It’s also the logical outcome of the government’s whole place community Budgets. As always, however, the question is whether the Treasury and the big spending departments of state such as Health and Work and Pensions will play ball. Early indications on this remain mixed.

Outside the major cities other parts of local government will be thinking about how they can get in on the act and start to agree local deals, develop local enterprise zones and economic partnerships and draw down high tech infrastructure.

We also saw a discount on loans from the Public Works Loan Board and extra support for tax increment financing (TIF), which allows councils to borrow against projected growth in business rate income.

Some may detect an irony that these measures appear to be encouraging local government to borrow its way to growth at a time when national policy remains resolutely oriented in the opposite direction. Others will see it as welcome evidence of a localist approach that frees local government to innovate financially.

For many in local government, however, the measures in the Budget may well seem less immediately important than some of the other big changes that are going on elsewhere, the localisation of business rates and creation of ‘tariff’ and ‘top up’ councils and the localisation (and reduction) of council tax relief.

All these reforms generate uncertainty and, for many, anxiety. They are sure to create a higher degree of variation across the country, but they all devolve financial responsibility down to local level.

Local government may not have been the focus of Osborne’s Budgets, and certainly the measures that affect it have not received the attention that other parts of the Budget have. But they were there and they were consistent with the localism agenda.

Jonathan Carr-West is a director at the Local Government Information Unit. Follow him on Twitter @joncarrwest