21 September 2010
Plans announced by Deputy Prime Minister Nick Clegg to relax financial restrictions on local authorities have been almost universally welcomed.
In yesterday's address to the Liberal Democrat conference in Liverpool, Clegg revealed the
government would bring in Tax Increment Funding powers, allowing councils to borrow
against future gains in business rate income.
The measure will work alongside another reform yet to be detailed, expected to enable councils to keep some business rate income from new developments.
The government hopes that the changes, taken together, will provide councils with both the means and the incentive to encourage large-scale infrastructure projects and commercial redevelopments in their areas.
Richard Kemp, leader of the Local Government Association’s Liberal Democrat group, said the reforms could bring ‘significant sums’ into communities through capital investment.
He told Public Finance last night: ‘This means that councillors, although they will have to face difficult times, should stop whingeing, and start being creative.
‘They now have a new funding stream which they should use to talk to developers, talk to partners, to add on to other money. We can be serious players at the development table.’
But Nigel Keohane, head of
research at the New Local Government Network, noted the Treasury could still
have a say in which schemes are approved.
‘We’d have to have care that
they were as open as possible about that, as long as councils were obeying the
general prudential code which applies to all borrowing,’ he said.
It was the ‘one area we need to make sure the Treasury delivers on’, he added. But he warned that Whitehall could be prescriptive in what the money could be used for.
‘These are significant sums that could make a real difference, especially as capital investment is being reduced by half over the lifetime of this Parliament,’ he said.
He also hoped that Clegg’s announcement would signal the start of a shift towards a range of new financial freedoms for councils, such as the power to use local government pension funds and investments more innovatively.
The move was also hailed in the private sector. Liz Peace, chief executive of the British Property Federation, said she was ‘delighted that the government has taken such a far-sighted step to ensure that new infrastructure – which will be vital to rebuilding the UK economy – can be delivered even at a time when public funding is scarce’.
Matthew Farrow, head of energy, transport and planning policy at the CBI, agreed, pointing out that the body had recommended the government considers Tif in its submission to the Comprehensive Spending Review.
Clegg had told the conference that councils would have ‘more freedom than ever before’.
‘This may not make pulses race in the country at large… but I assure you it is the first step to breathing life back into our greatest cities.’Writing on the PF Blog, Laurie Thraves, policy manager at the Local Government Information Unit, warned of ‘enormous risks associated with borrowing against future growth’. He added: ‘Councils… could find themselves getting into hot water if ambitious projections for growth fail to deliver.’
Helen Randall, head of the public sector commercial department at lawyers Trowers & Hamlins, cautioned that the powers could be of more use in areas where business rates were already high. ‘There is the risk that [Tif] is a tool that will be of most use to the most successful areas that perhaps need less help,’ she said.
