If central government can't let go, local economies won't grow

Ideas to boost local economic growth are within touching distance, but Whitehall is refusing to grab the opportunity
Adelie penguins Paulet Island Antarctica
If government takes a leap of faith, local economic growth will follow Photograph: Steve Bloom/Alamy

Local government's role in economic growth is being reshaped by four developments, two inside parliament and two outside.

The Local Government Finance Act gained royal assent last week, incentivising councils to grow their local economies by allowing them to retain new business rates. However, the scheme is hedged with a mass of regulations, such as the complexity of the safety net to protect councils whose business rate income plummets, so the likely benefits of the scheme are far from clear.

In addition, it remains to be seen how different types of authority will be affected when the new funding system for councils collides with the next round of spending cuts.

Communities secretary Eric Pickles claimed the new system could deliver a £10bn boost to the economy, a notably asinine example of ministers pushing out figures unsullied by evidence. Meanwhile the conservatory-based revival of the economy continues with the growth and infrastructure bill, now in its commons committee stage.

The bill misses the opportunity to give councils the power to work with local colleges and businesses to match training to jobs. The government's refusal to address this endemic failing in the economy is the triumph of dogma over common sense.

Essex county council is just one of many which is seeing local firms look to eastern Europe to supply engineers it cannot find at home. This reform would do far more to build long-term economic strength than the government's move to centralise planning powers.

Outside parliament, reports by two local government big beasts of the last century are pushing debate about giving councils a key role in getting the country out of recession. 'No stone unturned', a report commissioned by the government from former deputy Prime Minister Michael Heseltine, bangs home the importance of councils to reviving the country's fortunes. (Heseltine has a gargantuan ego; the report is subtitled "one man's vision" and includes such gems as "it is 57 years since I moved to London from Oxford university".)

While Heseltine's three decade commitment to local government is to be applauded, the familiarity of his prescriptions leaves the nagging worry that he is restating why he has been right all along, rather than honing his ideas in light of new realities. In particular, it seems pointless to suggest there should be yet another review of local government structure to create more unitary councils.

After the fiasco of the NHS reforms, the government would never countenance another set of wholesale, top-down, public service reforms of that scale, particularly ones that would pitch district and county Conservatives against one another.

Some ideas are confused. He calls for civil servants outside London to "be brigaded into local growth teams". While the idea of civil servants being "brigaded" to march in step to the localist tune is an entertaining notion, it will not liberate the power of local economies. Having civil servants trying to bring together policies locally which are uncoordinated and conflicting centrally won't work.

Heseltine's growth report stresses the importance of pension funds to infrastructure investment. A few days earlier the future homes commission – led by Sir John Banham, the former Audit Commission controller who oversaw the last local government reorganisation – called on the government to unlock the £180bn sitting in council pension funds to kickstart a massive and sustained building of new homes.

The commission called for the creation of 500-700 sustainable new communities every year for the next two decades, "in or close to virtually every city, town and village", and describes local government's role as "pivotal".

Its central idea of using local authority pension funds seems to have momentum. Days later Pickles announced a consultation on raising the cap on how much the 89 local government pension schemes can invest in limited partnerships – the usual way to plough money into building property – from 15% to 30%.

That is certainly a promising start in delivering the commission's blueprint. But making it all happen will require both determination and political courage. Without it the housing crisis will continue and possibly the best opportunity to stimulate local economic growth will have been missed.

The overall picture created by these four developments is frustrating. The local answers to getting the economy moving again are there, but they are frustrated by the refusal of central government to let go.

