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Comment – A faster track for the city-regions, by Peter Fairley

The agreement to part-fund London’s Crossrail project through a supplementary business rate sets a precedent for local authorities. It could boost regeneration while kick-starting the city-regions agenda

The funding agreement for the £16bn Crossrail project marks much more than the go-ahead for a new railway line in London. It also provides a framework for a rebirth of the city-regions agenda and the promotion of economic growth in core cities outside London.

Despite the government’s rhetoric since 1997 on the regeneration of cities and on the devolution of power to the regions, there has not been enough relaxation of central financial control to allow cities to think strategically about economic development. Regeneration has been driven from the centre and so has been targeted and selective.

The sheer cost of Crossrail has forced the government to look at innovative ways of raising funds and to consider passing on parts of the project cost.

The resulting funding agreement will allow the mayor of London to leverage a supplementary business rate of 2p across London from 2010 — a significant breakthrough for the devolution of tax-raising powers.

Outside London, the ability to choose to levy a supplementary business rate is both convenient and politically acceptable for local authorities, as the decision will be determined locally.

But those that want to preserve and enhance their autonomy from the centre will be able to do so only by pooling their resources with those of their regional neighbours.

Business rate supplements: a white paper, published alongside the recent Comprehensive Spending Review, says that the SBR will be levied locally — limited to 2p in the pound — by the highest-tier authority. It also says that efforts by authorities that work together and pool resources for large capital projects will be welcome.

This could be achieved through Multi Area Agreements (MAAs) or through more formal statutory sub-regional authority structures. This is likely to be a necessary outcome if local authorities are not to be left behind in a competitive economy.

Most upper-tier local authorities lack the population and business base to raise sufficient funds from a 2p supplementary tax to finance substantial infrastructure. This means that, irrespective of historic local rivalries, councils will increasingly

face a Hobson’s choice of either pooling resources or struggling to compete economically with areas where authorities have embraced the finance-raising power of a big city-region.

This is already starting to happen. The Association of Greater Manchester Authorities has suggested that a formal government structure be created to cover the whole city-region. A Greater Manchester city-region of ten councils could raise £28.9m a year, making it possible to leverage borrowing to finance expensive capital projects. For example, this would raise more than £570m, based on a Public Works Loan Board annual fixed-interest rate of 5% for a ten-year loan.

That could help pay for improvements to transport networks or regeneration schemes, which could in turn kick-start economic development.

With such financial firepower in Greater Manchester, the councils in the West Midlands would face huge pressure to follow suit or else risk being left behind in the race to attract business investment. A West Midlands grouping of seven authorities could raise £27.5m a year, giving it the ability to borrow £550m over a ten-year period on a fixed-rate loan.

But what governance structure would be needed to embrace and formalise this collaboration? Is the government’s proposal of MAAs, enabling an informal alliance for specific projects and for limited durations, workable and sustainable in practice? And if these structures have to be developed and priorities agreed while there are annual elections in the metropolitan councils, will progress be as swift as the government hopes?

Although it might take time to come to fruition elsewhere in the UK, the Transport for London model is instructive.

In July 2007, the Conservative Party’s Cities Task Force concluded that more cities should be given Transport for London-style powers and responsibilities. This would enable transport to be viewed strategically and holistically, while preserving local authorities’ autonomy to set local priorities.

Through such an arrangement, it would be possible to raise the funds necessary to meet their city-region infrastructure needs, such as a new tram system in Leeds or Liverpool, an east-west rail link between Oxford and Cambridge via Milton Keynes, or the expansion and regeneration of Birmingham New Street station.

Crossrail has forced the government to cede financial — and so political — power to local authorities. The city-regions agenda could yet be kick-started by recognition from local areas that the sum of their parts is greater than the whole.

Peter Fairley is an account manager at Grayling Political Strategy

Article Date: 18-Jan-2008


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