Economic recovery still seems disappointingly elusive. A double-dip recession has been confirmed and, as Sir Mervyn King reminds us, ‘a storm is heading our way from the Continent’.
The Bank of England governor warns that the UK economy will not return to pre-financial crisis levels before 2014. In the meantime, the vast majority of the coalition’s cuts have still to be implemented.
So where is the growth going to come from? Christine Lagarde, the International Monetary Fund’s managing director, says the Bank should consider reducing interest rates. But, given they are at historically low levels, it’s hard to see King adopting this approach.
Even less likely to be heeded is Lagarde’s call for Chancellor George Osborne to prepare a Plan B should Britain’s economy remain weak.
Unfortunately, the IMF makes no mention of local government, which could be leading the way here. The coalition has put great store by its localist credentials. It has passed a Localism Act, promoted elected mayors and localised the business rates (admittedly with a 50% clawback).
But this has hardly captured the public’s imagination. The recent local elections produced a woeful turnout of 32% in England, while the Big Idea of mayors was rejected in nine out of ten cities. In Bristol, the one city to vote in favour of a mayor, the turnout was 24%.
As Tony Travers will point out in the June issue of Public Finance, austerity and apathy seem to have undermined enthusiasm for local politics. We have reached our collective city limits at precisely the time when local economic development could be providing the stimulus that UK Plc needs.
Councils themselves say they are powerless to effect the type of change necessary. They feel circumvented by Whitehall and lack the financial tools to drive local regeneration.
There is an alternative, however, according to Alex Thomson, the chief executive of the Localis think-tank. Writing on the PF Blog, he called for bolder funding mechanisms and greater financial freedoms.
He wants an expansion in Tax Incremental Financing, support for local asset-backed vehicles, more encouragement of pension fund investment and a boost to municipal bond schemes. Additionally, the Community Budget pilot scheme could be extended nationwide.
It’s a huge opportunity for local government to oversee the regeneration of our towns and cities, and with it a regeneration of the UK’s economy.
Such a move wouldn’t solve the chancellor’s problems overnight, but it might be a first step to recovery. And Madame Lagarde would surely approve.
This article first appeared in the June edition of Public Finance
