The Independent View: What does the Spending Review mean for UK cities?

This week’s announcements were both a preview of the coalition’s spending plans for 2015/16 and a sign of the government’s direction of travel. For cities, the spending review was mixed. Despite the Government delivering the Single Local Growth Fund devolution was fairly limited, with an emphasis on central government control rather than local autonomy, and most of the policy announcements lacked a focus on ‘place’.

Wednesday’s announcement of the Single Local Growth Fund was an important move towards greater localism, but the allocation of £2bn a year for five years was paltry compared with the £49bn over four years Heseltine argued for. Between 39 LEPs, it’s not a great deal of money (roughly the same as the 9 Regional Development Agencies had in the mid-2000s).

Half of the £2bn a year pot is already allocated, including £400m from the New Homes Bonus (which is already localised) and £300m of already allocated transport spending. Alongside this, there is a further ring-fenced £500m transport, and £330m for further education capital spending. While it is positive that the Chancellor has committed that the fund will be at least £2bn for the rest of the next Parliament, giving LEPs some degree of certainty around investment, it is still a much smaller fund than cities need to address the challenges they are facing.

The Spending Review also confirmed that local government will again be hit hard by cuts. The announced cut of 10% for 2015/16 will, Stephanie Flanders (BBC) suggested, be a 35% cut in real terms since 2010 (although the Chancellor argued that other measures meant that the ‘true’ cut for local government would be 2% in 2015/16). Combined with the cuts and caps on welfare, which will affect some city economies significantly, it will be challenging for many cities to manage their shrinking budgets alongside rising demands for their services.

A more positive (if not game-changing) £3bn was announced for 165,000 new affordable homes by 2017/18, although providing these homes with a falling grant (from the current £22,000 to £18,000 per home) will test the ability to build viable schemes in some areas of need.

There is also the newly announced ‘Rent to Buy’ model, another demand-side scheme which will help people access housing but will not affect the supply, and therefore price of housing. Talking with Housing Associations, the key issue with making investment decisions recently has been certainty; in increasing the guideline social rent to CPI +1% (from the current RPI +0.5%) for 10 years (2015 to 2025) the government have provided some much needed certainty to the sector.

We also welcome the One Public Estate scheme, announced before the review. Cities should look to maximise the benefits of their public sector assets by using unused public sector land to help deliver local priorities. However local authorities will be disappointed that the cap on borrowing against their assets was not lifted, missing out on ‘an extra 60,000 affordable homes’.

To help cities manage cuts more effectively, more action is needed on innovative measures such as Manchester’s Earn Back proposal in its City Deal. This proposal involves Manchester keeping a proportion of the benefits generated by increasing local economic growth. This example is highlighted in the Treasury’s report and should be explored by other cities seeking to benefit from their local investment.

The announcements this week went a small way to giving local areas greater freedoms to deliver change, however the level of support was disappointing, especially for cities that are struggling with capacity. Our research and analysis will continue to look at how cities are affected by these announcements and can best address their priorities at the local level.

* Ed Clarke is an analyst at centreforcities.

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This entry was posted in The Independent View.
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3 Comments

  • Most of our large cities outside London commit the serious error (in this government’s eyes) of voting Labour. So perhaps we shouldn’t be surprised that local government funding to them is cut much more severely than to the leafy shire counties of the south. The argument from Grant Shapps that they’ve already absorbed hefty spending cuts without the roof falling in so they can do it again is asinine – any fule knows that you can only cut so much before you start to inflict real damage and hardship.

    As for the Single Local Growth Fund, you’re right – the amount is paltry compared to what the Heseltine Review recommended and it is not (mostly) new money – the transport element is just taken from other transport funding streams. In effect, the government is replacing a number of guaranteed funding streams with a pot of money that you have to bid for – OK if your bid is successful, not such happy news if you’re turned down.

  • The spending review is yet one more piece of evidence that ‘The Core’, i.e. London and the South East, is trying to preserve itself at the expense of the rest of the UK. In the same way that the human body, in minus 40 degrees will sacrifice the fingers and toes to frostbite to save ‘The Core’,.. so the political class sitting in the ‘London Core’, is ready and willing to sacrifice everyone north of Watford.
    And for anyone poised to deny this fact, how could we forget, recent ‘London Core’ chatter about ‘regional pay’, no doubt to be followed by regional benefits, regional state pensions, regional healthcare, regional education……?.
    Yea,.. to Hell with the North!

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