The business of government is never done. No sooner had ministers published last week’s Spending Review than they launched yesterday’s local growth white paper, which adds new detail to the anti-top-down approach of the Coalition. With a foreword by Nick Clegg and published by Vince Cable’s Business, Innovation and Skills department, the white paper offers what must be seen as very much a Liberal Democrat take on the world.
The document puts forward policies that are designed to promote private sector growth throughout the country by a mixture of a reformed land-use planning system, the regional growth fund and tax-base incentives. It is most definitely not a national plan. Indeed, the approach of the newish government involves the rejection of even the merest hint of Soviet-style industrial planning. The new economy that, it is hoped, will emerge from the remains of the pre-2007 one will emerge as a result of leadership from local enterprise partnerships and city mayors.
Cable’s white paper expands on earlier proposals to introduce a ‘New Homes Bonus’ and for councils to retain growth in the non-domestic rate base. England will, therefore, see the introduction of local government tax-base competition for the first time since full equalisation was made possible in the early 1980s. By giving more planning permissions and getting new homes and business premises built, authorities will be able to build up their local tax take. For some councils, this will be a welcome addition to their income. It is impossible to know yet if the incentive will be sufficient to deliver an increase in house-building or to revive areas with low levels of private sector employment.
It will certainly need to. If the British economy is to be transformed by a bottom-up enthusiasm for new homes, offices and factories, the incentive system will have to be powerful. Moreover, it will need to be predictable by councillors making planning decisions. The previous local authority business growth incentives scheme (LABGI) was hopeless precisely because it was impossible to predict whether or not a particular planning decision would produce more income for the council concerned.
An incentive scheme will shift development towards some areas while leaving others behind. Councils with relatively high land values, powerful development markets and plenty of available land should be able to cash in. Those where such conditions do not apply may eventually find themselves losing grant as growing authorities pre-empt resources that would previously have fed into the revenue support grant. No one can yet predict how things will work out.
Like many other government policies, this one has a ‘trial-and-error’ element to it. It might provide just the stimulus that localities need to be more entrepreneurial and to kick-start private sector job growth. Or it might not. Whitehall may need to re-visit the tax-base incentive policy so as to make it more effective – that is, by increasing the size of the incentive. There will almost certainly need to be interventions to assist left-behind areas. Things are never dull, that’s for sure.
Tony Travers is the director of the Greater London Group at the London School of Economics
