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Council finance changes aim to boost regions, Clegg to say

By Richard Johnstone | 18 February 2013

The government’s council finance reforms for England aim to correct the ‘historical anomaly’ that has led to the UK economy being concentrated in London and the Southeast, Deputy Prime Minister Nick Clegg will say today.

In a speech at the Mansion House in the City of London this evening, Clegg will say that localisation of business rates and City Deals will help ‘rebalance’ the UK economy, along with the transfer of financial powers to the devolved nations.

Clegg is expected to say there is an ‘overreliance’ on London, which currently generates more than one-fifth of the UK’s economic output. It is important to challenge the orthodoxy that the economy was ‘inevitably’ focused on the capital, he will add.

English regions have declined over the latter half of the twentieth century in part been due to economic shifts away from heavy industry towards service-based economies. However, countries such as Germany, the US and India show that ‘second-tier’ cities can flourish and boost national economies, he will say.

Compared with these, the concentration of commerce and wealth in London and the Southeast looks like a historical anomaly. ‘The most successful economies are driven not just by their capitals, but by multiple thriving centres,’ Clegg is expected to say.

‘Take Germany: Munich is an economic powerhouse, Frankfurt a financial centre, the Rhur [has] a cluster of industrial cities, Berlin is the country’s creative heart.’

This illustrates the ‘challenge’ to rebuild the economy so that it runs ‘on all cylinders’ across the UK, he will add. ‘If all of our big cities closed their output gap – in other words met their potential – we would see an additional £41bn on gross domestic product every year.’

The coalition government is giving cities extra freedoms through City Deal agreements, and is also localising half of business rates to councils in England from this April.

This decentralisation means ‘every part of Britain will feel more empowered’ by the time of the next election in 2015, Clegg will add.

‘We’ve created two new tax powers for every single [English] local authority: From April councils will be able to hold on to 50% of local business rates – a massive incentive to draw in investment. And we’re making it possible for local authorities to borrow against future business rate revenues in order to invest in the infrastructure their private sector needs.’

Clegg will also urge City financiers to do more to support economic development of cities following the changes, saying the government has ‘learned the limitations’ of Whitehall.

‘Growth outside the capital strengthens London too. Their burgeoning private sectors are your customers. The regions are your trading partners and their breakthroughs are your gains.

‘Successful cities draw on each other’s innovations. When you take the best from each city and put it all together, you create an economy that is greater than the sum of its parts.’

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