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Written evidence submitted by Core Cities UK

Public Accounts Committee Call for Evidence – Local Government Finance – 11 March 2021 Core Cities UK is an alliance of 11 large UK cities: , , , , , , , , Newcastle, and . Core Cities UK is pleased to have the opportunity to respond to the PAC Inquiry into local government finance. includes the cities of Cardiff, Belfast and Glasgow which operate within their own national administrations and where the central issues we raise are devolved matters. However, these cities are also facing many similar issues to those of their English counterparts as a direct result of the pandemic. Our Budget submission1 and a further paper on innovative fiscal instruments (Annex 1) together represent a significant set of achievable policies to resolve the local government finance crisis, and deliver economic recovery and renewal. As set out below, the current circumstances create a perfect storm for local government finances. Although immediate support is needed to cover gaps, without a long-term solution, the system cannot sustain itself and more authorities will be pushed toward S114 notices. Where this has happened, temporary solutions have been forthcoming, but often at the point of extreme crisis, and only for those authorities involved. A more proactive position could avoid this situation, and in this response we set out ways to achieve this.

1 Introduction: supporting cities to deliver recovery, growth and Levelling Up

1.1 COVID-19 (C19) has created a public health crisis but also a growing economic, and related local government finance crisis which we must deal with now. Structural changes in city centre economies, accelerated by C19 and further restrictions has hit sectors like retail, hospitality, culture and tourism very hard. 1.2 These sectoral impacts have also had a drastic effect on local government income, including from Business rates. It is important to recognise that Local Government is facing a severe funding crisis, due to increased expenditure and reduced income as a result of the pandemic and years of reductions under austerity. For the eight English Core Cities alone the funding gap currently stands at £1.2 billion, with a shortfall of almost £362million after all government support received up to this point (Round 8 return2). 1.3 Although Core Cities economic importance to the UK economy is unaffected by the pandemic, their centres are particularly vulnerable to the impacts of COVID, and will need support to adapt in order to benefit UK recovery. This in turn relies on strong place leadership with the resources at its disposal to make a difference. Unless addressed, the funding crisis facing Core City authorities will undermine any attempts to deliver a successful future economic recovery. 1.4 At a moment of great economic instability, a sustainable local government finance system which delivers certainty for cities, other urban and non-urban authorities and their investors is fundamental to success. This is not a single, ‘in year’ funding issue, but will continue to affect

1 https://www.corecities.com/cities/agenda/economy/looking-ahead-budget-2021-our-submission 2 8th return to MHCLG for the DELTA return titled ‘COVID-19 local authority financial management information’ 11 December 2020 and therefore predates the Government’s announcement of the last national lockdown LGF0006

cities and other local authorities into and beyond next financial year, pushing more places toward issuing Section 114 notices unless addressed. 1.5 C19 has had asymmetric impacts on places and people and has hit the economies of big cities and city centres particularly hard. Yet many policy responses have been, and still are, place blind. The worse health impacts in urban areas are not due to density, but rather to structural inequalities, particularly on large and persistently deprived communities, Black, Asian and Minority Ethnic groups, women, migrants, people in poverty and elderly3. 1.6 Likewise, the disproportionately negative economic effects on Core Cities are due to the concentrations of business in big cities, yet it is exactly these economic assets that make cities so critical to future recovery and growth of the national economy. The shockwaves from economic stalling in our urban centres have affected every other place across the UK, including surrounding towns with which we are closely linked. It is therefore critical that the economic infrastructure of big cities is protected as far as possible in order to ensure that the UK has the means at its disposal to return quickly to growth. 1.7 Given the depth of the economic challenges ahead this must now be a priority and we must build on the proven track records of all our cities for localised interventions to support cities as a whole, but also city centres and high streets to adapt and recover. 1.8 The challenges of C19 make the economic role our cities play even more important to the national future. The 11 Core Cities city regions deliver 26% of UK output, are home to a set of assets, infrastructure, skilled labour and business density built up over centuries that cannot simply be replicated elsewhere. Our cities have weathered pandemics before and will do so again. 1.9 C19 has impacted profoundly on urban life, changing how we live, work and socialise, leaving major health, educational and economic challenges. The UK is a highly urbanised society and economy, built on the benefits of physical, business and population density that boosts productivity. There will be changes in urban areas, but they are here to stay and critical to our economic future. 1.10 The big opportunity for the UK is to address not just the direct challenges of the pandemic, but to build on the Government’s Levelling Up agenda and the changes accelerated by C19, using this moment to chart an ambitious new course for our shared urban future. To succeed, strategies must deal with the underlying issues that were holding back urban economies before C19 hit: low productivity; deprivation; low skills-levels; carbon emissions; poor infrastructure; and climate adaptation. 1.11 Bold plans are needed to revolutionise the UK’s urban connectivity and infrastructure including: digital; mobility; energy; strengthened global links and increased innovation. The result will be a fully modernised, competitive UK economy better able to trade on the global stage; with growing business, quality jobs, improved social mobility, health and educational attainment back at home. 1.12 It is vital therefore that any future Local Government Finance framework including business rates retention recognises and supports this role of cities if the UK is to recover from the economic shock of C19, help other places to Level Up and return quickly to future growth. There are no other places in the UK outside London that can deliver this role. 1.13 In addition, innovative financing mechanisms must now be deployed to support cities in delivering investment to drive recovery and future growth. Longer term, it seems likely that the way in which local government is funded, and that business is taxed e.g. from increased

3 OECD Policy Responses to Coronavirus (COVID-19); Cities policy responses; July 2020 LGF0006

online retail sales, will need to adapt. That is a conversation that should be started now, with those places with the largest economic bases who understand current needs, the shifts that are taking place, and can think creatively about a future system.

2 Summary of Core Cities position 2.1 Properly resourced local government is a basic building block of success. Cities have been hit hardest by C19 not because of population density, but deprivation and inequality in terms of health impacts, and business density, particularly in city centres, in terms of economic impacts. For example, obesity increases C19 mortality risk by 50%, and people in deprived communities are far more likely to suffer from it. 40% of low productivity in Core Cities can also be attributed to deprivation. Local authorities have a key role to play yet in cities face an unparalleled financial crisis, which unless addressed will undermine population health, recovery and future resilience. 2.2 Core Cities have worked tirelessly as authorities and closely with national governments to address the health, economic and other challenges presented by the C19 crisis that has emphasised the need for well-functioning local government. Our staff are on the front line of direct delivery, and we are using our place leadership and convening powers to support communities and businesses to get through. The funding issues we raise are not unique to cities, but if Core Cities start to fail, other places will too. 2.3 The absolute priority is for this gap to be closed through additional national resources, but there are other measures which we would welcome alongside this:  Additional resources to close funding gaps as part of a three-year financial settlement. The Spending Review 2020 has been set at one year, but without a longer-term settlement our authorities will be unable to plan and constantly approach financial crisis. It is in the interests of national and local government, communities and businesses to create a longer term, sustainable settlement.  Allow greater use of capitalisation for 2021/22 and 2022/23. This should apply to additional costs, for example for redundancies, transformation programmes, or some of the C19 related costs not covered – or likely to be covered - by grants.  Reform Public Works Loan Board rates. Interest rates should differentiate between investment in prudent schemes in local authorities’ own areas (halve the new interest rate) and building a commercial property portfolio elsewhere (retain the current interest rate).  A cross-sector discussion, involving local leaders from across the UK, on how we can co- create clear exit strategies for local lockdowns, giving our communities and businesses a goal to work towards. 2.4 Sustainable local government finance remains a key part of a bigger puzzle of how we build a local recovery from C19. It is time for government to rethink policy and budgeting along the lines of ‘place’, harnessing local innovation by giving places the freedom to adapt and grow to new challenges and support cities to level up. This should include aligning services to get better results and save money in the long-term.  Increase capacity in local government to deliver and direct public services in a co- ordinated and efficient way  Pool economic and infrastructure funds and resources locally  Deliver national funds to support city and city region recovery  Increase focus on prevention, cutting waste and duplication 2.5 We welcome the Government’s commitment to work with local government on the lasting impact of the C19 pandemic. It is vital that the Government guarantees the financial challenge LGF0006

facing councils as a result of C19 be met in full, including funding for cost pressures and full compensation for lost income and local tax losses.

3 The current financial situation of the Core Cities 3.1 C19 has significantly worsened cities’ already challenging financial position. It is, first and foremost, a terrible human tragedy, but it has also produced a double whammy of rising costs - for example on PPE for social care staff - and plummeting incomes from Business Rates and non-payment of . 3.2 During the pandemic local government has stepped up and delivered. It has housed homeless people, delivered free school meals to vulnerable children at home, distributed millions of pounds in funding to small businesses and conducted successful local Track and Trace. This has not been without a cost. 3.3 C19 activities and impacts have been cross-cutting across service areas, and it may not be possible to apportion additional spend to service areas. The combination of increased Covid costs and reduced income so far in just the eight English Core Cities is around £1.2bn (Round 8 return). Government is aware of the emergency our sector faces, and whilst cities have welcomed the substantial amounts of money they have committed to help, the government need to invest even more and re-think their approach to support the financial sustainability of local government. 3.4 Cities would not have dealt with the impacts of C19 as well as they did without the local integration that has happened. There is a clear need to retain a local, place-based focus on the whole population, and gaining collective clarity on a position may help the group (recognising these are devolved matters in some Core Cities). 3.5 The ability city authorities to respond to the pandemic was already over-stretched, and without resolving their financial crisis, they will not be able to play a full role in future recovery. A sustainable settlement is needed, alongside other freedoms that will help short term. Longer term, Government needs to ‘think different’ and when it comes to finance – look at the model in other countries where cities keep more of their local tax base which spreads risk. 3.6 Since 2010 there has been a fundamental shift in the way councils are funded which have made essential public services particularly vulnerable to the financial effects of C19. Cities therefore had to concentrate funding on our statutory services, for example adult social care, and were forced to take difficult decisions to reduce funding in other areas like youth services, culture and economic development, which although not a legal requirement, are essential to the success of cities and city centres. 3.7 Other key points include:  The figures in Round 8 return do not reflect the full impact of the national lockdown. It is likely that full year costs will increase in the next return.  Core Cities have limited reserves that can be deployed to fund the pandemic. Reserves are needed to support economic recovery, cover identified risks and provide some financial resilience and therefore any redirection to C19 would mean that they will need to be replenished in 2021/22 and there will be a delay to improvement projects.  Local authorities have seen an average increase of 9.4% in the working age Council Tax Support above that budgeted, which will mean reduced income for Council Tax receipts beyond the 2020/21 period. The position has reduced by 0.8% since last month’s reporting.  Core Cities have welcomed the indications of continued support into 2021/22 but have requested some further clarity on some measures such as public health and leisure services. LGF0006

 Position for 2021/22 remains unsustainable and local authorities will require Government support and early notification to allow for setting of a balanced budget.  Although circumstances are slightly different for cities in the Devolved Administrations, many of the same issues and concerns apply there as well.

4 Core Spending Power 4.1 The impact of the pandemic has highlighted that government grants distributed to councils remains complex, obscure and out of date. The Core Cities are calling on the Government to resume the Fair Funding Review, but with a guarantee that the transitional mechanisms will not only ensure that no councils experience a loss of income but also protect councils from reductions so that they can plan with confidence with a future three-year settlement. This also apply to any business rates reset in resetting the council’s baseline. 4.2 Councils have been flexible and have had to adapt many of their services to respond to the impact of the pandemic and it is yet to be seen how permanent some of those shifts are. When the Fair Funding Review is relaunched, the Government needs to review progress made to date to ensure that the local government funding system is fit for purpose, and flexible enough to deal with any such shifts in council service delivery. 4.3 In the recent provisional local government settlement 2021/22, the Government figures indicate that Core Spending Power will rise by an average 4.5 per cent in 2021/22 in cash terms. These Government forecasts are on the assumption that every local authority will raise their council tax by the maximum permitted without a referendum. 4.4 However, this assumes that council tax bills will rise by maximum allowable levels, including 5 per cent precept for social care authorities, next year, and this will place a significant financial burden on households at a time of economic uncertainty. Due to C19, there has been a 9.4% increase in the Local Council Tax Support caseload for the core cities, compared to assumptions at budget setting. Core Cities have agreed alternative or deferral payment plans to support those in hardship as well as funding several areas including topping up the local welfare provision, support new Council Tax Support claimants, making discretionary housing payments and provision of food and fuel vouchers and school uniforms. 4.5 In addition, increasing council tax and social care precepts raise different amounts of money in different parts of the country, unrelated to need and disproportionally hitting those least able to pay, and raises less in more deprived areas. 4.6 It is welcome that the government acknowledged the differential amounts that a social care precept raises across and has included additional grant funding for adult and children’s social care which will not be ringfenced, providing councils with flexibility on how their allocations are best used locally. However, the £300 million additional social care grant does not meet the cost pressures that these vital services face. It is disappointing that the improved Better Care Fund has been frozen. 4.7 Councils play a key role in ensuring children receive the best possible support while schools are closed as disrupted education can contribute to larger inequalities later in life. Councils also need additional support from the Government to meet the ever-increasing demand for support for children and young people with SEND. However, as the medium- and long-term impacts of the coronavirus pandemic become apparent, more children and their families are likely to need support. 4.8 Councils have increased children’s social care budgets year on year at the expense of other services, but have been unable to keep up with increasing demand. Additional funding is urgently needed to ensure children are safe and well, and to reinvest in the important LGF0006

preventative services not only to prevent children and families reaching crisis point but to ensure that in supporting cities to level up, children and young people can realise their potential and contribute to their communities. 4.9 The adult social care precept provides limited means to raise additional funding, but it is not sustainable. It raises different amounts of money in different parts of the country, is unrelated to need and adds an extra financial burden on households. Nearly 10 per cent of the average council tax bill is now made up of the precept. The ability to raise extra council tax remains a short-term measure and not a long-term sustainable solution. 4.10 The provisional amount of £622 million for the New Homes Bonus (NHB) has been included in Core Spending Power in 2021/22. The Government needs to work closely with councils as part of its review of the NHB in order to ensure it helps us deliver more homes and works for local government. It is important that sufficient clarity about the outcome of the review is provided to councils as soon as possible to allow them to plan their 2022/23 budgets and beyond. Core Cities have however made an evidence based case that NHB in effect removes funding from them and allocates it to already high-growth housing areas, and instead of actually incentivising housebuilding rewards what would have happened anyway. 4.11 There continues to be no support for HRA income losses except cashflow support through slippage of returned Right to Buy receipts. The benefit of this is extremely limited. In addition, there has been no response from Government on the consultation regarding extending the period for use of Right to Buy receipts from 3 to 5 years and the percentage retained, which could contribute to addressing these pressures. 4.12 Core Cities look forward to working with the Government to ensure that the 2021/22 and future settlements provide a sustainable long-term funding for local services.

5 COVID-19 impacts 5.1 We have worked as local authorities, and closely with national government, to address the health, economic and other challenges presented by this pandemic, which has emphasised the need for well-functioning local government. Our staff are on the front line of direct delivery, and we are using our place leadership and convening powers to support communities and businesses to get through. 5.2 Funding for the next financial year is a major concern with some cities not setting budgets until after the Spending Round and the Local Government Settlement were announced. Some savings cannot be delivered in year, so will impact on next year’s budget, and ‘fallow years’ where savings might otherwise be made, cannot now happen. 5.3 Whilst we welcome the additional financial support that has been provided to local government to address significant funding gaps resulting directly from C19, we urge government to go further, and deliver its commitment, working with us to do ‘whatever it takes’. 5.4 The Chancellor’s pledge to compensate for 75 per cent of irrecoverable council tax and business rates income, and to extend the scheme to fund a portion of councils lost income from fees and charges during the early part of the next year provide some much-needed stability but will need to be reviewed and probably extended. Full compensation for C19 related costs, including lost income, is required. 5.5 The announcement that local government will be fully compensated for the freezing of the business rates multiplier in 2021/22 is welcome. However, this decision to not reset the business rates baseline reduces flexibility in the business rates system, and without LGF0006

alternative means of funding to levelling up and relative to needs, council income would reduce in the medium term. 5.6 Local government needs a funding system that raises sufficient resources for vital public services that is fair for residents and gives local leaders the tools to support their communities. It is important that the local tax system, including business rates, provides as much certainty as possible and the Core Cities are considering potential local taxation alternatives with a view to achieving further fiscal devolution. This is a debate that Government should commit to participating in, securing buy-in across parties to ensure a sustainable future system. 5.7 Councils need clarity on public health grant funding available in 2021/22 as a matter of urgency. The current delay is making it extremely difficult for councils to plan effectively when public health services are vital to the fight against C19. 5.8 Sufficient ongoing funding is needed to ensure all local authorities can continue to meet their public health responsibilities beyond C19 as well. The Government should match the growth in public health grant to growth in overall NHS funding under the Long Term Plan. 5.9 The net effect of C19-related additional spend and income reduction for 2020/21 remains uncertain, particularly in light of continued restrictions. Although the position has improved during recent months due to the allocation of additional emergency funding, estimated pressures still exceeds the emergency funding allocated thus far. LGF0006

ANNEX 1: CORE CITIES PAPER: FINANCING RECOVERY AND FUTURE GROWTH

Summary

Over the last ten years successive Governments have invested in a variety of local financial instruments including through Cities (City Deals), Counties (County Deals), Combined Authorities (Devolution Deals), Towns (Towns Fund) and Local Enterprise Partnerships (Growth Deals). The above geographies and structures all play a role in driving local economic growth.

The Core Cities recognise the benefits that these mechanisms have delivered for our cities, and for other areas e.g. through LEPs, and for the UK’s economy. However, because of the strict boundaries and time limited nature of the deals, particularly New Development Deal, Tax Increment Financing and Enterprise Zones, those benefits have not always been maximised when economic circumstances and priorities change, as is now the case in the wake of COVID-19.

Core Cities want to work with Government not only to look at how the current Deals and Zones can be maximised now, but to deliver on complementary measures such as new TIF Areas so that not only do we make the provision of infrastructure viable and therefore deliverable, but we also incentivise the occupiers who will create the wealth and opportunity needed across the UK.

We propose a cross departmental task and finish group, comprising BEIS, HMT, MHCLG and relevant spending departments as required, e.g. DfT. The objective should be to develop an analysis with options, reporting back jointly to Core Cities CEOs, Permanent Secretaries, and then to local and national politicians. We recognise Government will take its own view – as indeed will cities – but feel that there is benefit in considering these flexibilities that Government will at least want to explore, and which has already been suggested in previous ministerial dialogues. Although Core Cities are making this approach and willing to put work in, such proposals could clearly benefit many other places across the country.

In seeking support from Government to help provide local partners with the financial capacity to drive forward their Economic Recovery Plans three separate steps are suggested as the basis of any detailed proposition to Government:

1. A quick, high-level analysis of existing Financial Instrument arrangements across each area with a view to maximising their potential to kick start post C-19 Economic Recovery Plans;

2. Re-assessing the potential for existing Enterprise Zones / TIFs and related Deals to be re- energised and for the existing opportunity to retain business rate growth within any Zone to be extended.

3. Establishing new or extending existing Financial Instrument arrangements as a component of any new funding arrangements that flow from any forthcoming Shared Prosperity Fund.

Each of these 3 areas is briefly outlined below. Our shared view is that such flexibilities will:

 Greatly improve local economic performance and productivity  Increase long term competitiveness and short-term job creation / retention, playing a major part in Levelling Up the UK; and  Achieve a more resilient local economy for the future through greater diversification and opportunity  Accelerate delivery of the Government’s Industrial and Trade Strategies as a boost to economic activity locally enabling the UK to play its part on the new global stage. LGF0006

Further background

Over the last decade the above structures have secured resources from Government via the Local Growth Fund, City Deal arrangements, a significant number have at least one Enterprise Zone in their geography, and a number have promoted a range of pan-area fiscal arrangements to provide investment into pan-regional growth opportunities. Successful operation relies on bringing together local government, businesses, academia and other key stakeholders within specified geographies to build local economic growth and prosperity across all English Regions.

Looking forwards the Government has yet to publish the Devolution White Paper, or its position on the UK Shared Prosperity Fund and the National Infrastructure Commission’s Assessment recommendations. These announcements are major opportunities for the Government to provide new fiscal stimuli to drive forward the national post C-19 Economic Recovery Plan covering investment in skills, employment and businesses, new infrastructure and in those key economic growth sectors where the UK is globally competitive, and to devolve funding and freedoms to repurpose it to address these issues.

This paper seeks to put forwards funding and fiscal interventions for Government to consider that enables, as far as possible, all parts of England to kick start their local post C-19 Economic Recovery (and may have relevance to the Devolved Administrations). The paper seeks to promote the need to leverage the existing investment capability already established within LEPs and the other above structures, from revolving funds such as the Growing Places Fund, through City Deals and from EZ retained business rates. The investment released through these mechanisms could then be applied to a wide variety of local priorities, including supporting SME start and scale-ups.

The paper also argues that such arrangements should be a feature of any future funding landscape and can be enhanced by additional monies generated through proposals to extend the EZ business rate retention period from 25 years to 40 years. As such the LEP and other arrangements above established over the last 10 years provide the most obvious place to start in terms of seeking new investment flexibilities to promote such a kick start.

Funding and Financial Instruments: Short term Interventions

1) Maximising the potential of Existing Financial Instruments

Over the last 10 to 15 years a wide range of financial instruments have been developed by cities, counties, Local Economic Partnerships, and other pan-regional structures across the UK. Most of these places have secured the resources for these arrangements from EU Structural Funds, the JESSICA EU / EIB funded programmes and also from those shaped locally by Local Growth Fund arrangements and funded through a cocktail of discretionary grant funding sources such as EU Structural Funds and UK Government Local Growth Funds. Across the UK financial instruments have been established locally to promote business development, stimulate new commercial development, secure new residential development and accelerate the creation of new green infrastructure. Other localised financial instruments such as Earn Back or Tax Increment Financing arrangements within New Development Deals have also emerged over the last decade and they too would also fall within this purview.

All localities potentially have more investment capacity to be released from existing financial instruments or from Government relaxing some investment criteria and speeding up / rationalising those processes associated with releasing monies to local areas.

2) Enterprise Zones (and similar, e.g. Accelerated Development Zones, Tax Increment Financing) LGF0006

As a result of the Government announcing support for new Enterprise Zone designation across several budgets a number of the early Zones have now reached a point where new businesses establishing themselves within a zone no longer qualify for any of the EZ reliefs on offer and as a result are no longer operable. Others have a limited period within which the reliefs are still available. Across all EZs the business rate base is not subject to a business base reset from the date of inception and all business rate growth over a 25-year period can be captured and reinvested in economic development activity.

As a means to strengthen Local Authorities ability to respond to and recover from the effects of the pandemic we would like to develop with central government a more flexible approach to existing schemes by considering the following options.

1. Ring-fencing an area’s growth on a flexible basis until payback can be achieved.

2. Seek to extend the period that businesses can secure existing EZ/TIF benefits within the existing operable schemes for a further five years;

3. Seek a physical expansion of existing EZ/TIFs to include a range of new opportunities that could be catalysed by scheme designation;

4. Seek to put in place a consistent mechanism to deal with business rate appeals within all Zones, as the current approach erodes the growth of the business rate base and the capacity to reinvest in economic growth activity in those Zones that were designated early;

5. Seek to extend the period that all business rates growth within EZ/TIFs is retained from 25 years to 40 years encouraging local stakeholders to borrow against a proportion of forecast business rate income to invest in their post C-19 Economic Recovery Plans;

6. Seek to ensure, as far as possible, that there is an alignment of benefits for business between Enterprise Zones and any newly established Freeports, including flexibilities to join up Freeports to incentivise re-shoring. For example, such a proposal would not embrace any reliefs associated with customs and tariffs policy but could include a number of tax measures under the Government’s control, such as R&D Tax Credits; and

7. Consider the economic benefits of a second wave of TIF/EZ schemes.

8. Seek to extend the period that businesses can secure existing EZ benefits within the existing operable EZs for a further five years;

9. Seek a physical expansion of existing EZ s to include a range of new opportunities that could be catalysed by EZ designation;

10. Seek to put in place a consistent mechanism to deal with business rate appeals within all Enterprise Zones business rates baselines as the current approach erodes the growth of the business rate base and the capacity to reinvest in economic growth activity in those Zones that were designated early;

11. Seek to extend the period that all business rates growth within EZs is retained from 25 years to 40 years encouraging local stakeholders to borrow against a proportion of forecast business rate income to invest in their post C-19 Economic Recovery Plans; and

12. Seek to ensure, as far as possible, that there is an alignment of benefits for business between Enterprise Zones and any newly established Freeports. For example, such a proposal would not embrace any reliefs associated with customs and tariffs policy but could LGF0006

include a number of tax measures under the Government’s control, such as R&D Tax Credits.

This combination of proposals will not only accelerate growth with the red line boundary of an Enterprise Zone but it will also enable places to broaden and deepen their financial capacity to kick start local economic recovery through an extended period of business rate growth being captured and re-invested into those economic recovery plans. With over 30 LEPs having at least one Enterprise Zone in their area the potential to generate additional investment, in activities to support people, businesses and local infrastructure, could be very significant.

3) Establishing New and / or Expanding Financial Instruments

The very stark position that all of the varying geographies, which have established localised financial instruments, is that most, if not all, of these arrangements will either end or have very limited capacity to respond to the economic challenges that are in front of us. EU Structural Funds are almost exhausted and the Government’s Local Growth Fund programmes last only to March 2021. This financial landscape, combined with many of the established investment funds seeing their mandate terminate over the next few years, means that many, if not all, of these funds are incapable of building on proven interventions that will be undoubtedly required to aid recovery. Without new funding these existing financial instruments will have a limited future impact on recovery.

Over the next few months Government will announce proposals for the UK Shared Prosperity Fund (UKSPF). There is a strong argument that such a Fund should actively promote the establishment of recyclable funds, focused on driving local productivity and competitiveness in a manner that promotes inclusive growth. Creating this facility nested within a devolved funding arrangement would provide significant opportunities for innovation and productivity gains to be made at a local level. Given the timescales involved it is likely that the any new instruments funded through the Shared Prosperity Fund would not be in place until 2021 when, hopefully, we will have moved into a phase of growth. Low cost borrowing could however be used by Government to effectively bring forward UKSPF. There is therefore an argument to made to bring forward UKSPF as quickly as possible.

4) Funding and Financial Instruments: Longer Term Interventions

The previous section has focussed on consideration of liberalising and enhancing investment capacity that already exists to varying degrees within each area. Capturing and potentially broadening these fiscal instruments in a time of great economic stress demonstrates the benefits of taking an investment led approach to the delivery of local economic strategies. We would encourage this approach to continue. However, in any future funding landscape to promote post C-19 economic recovery we would want a dialogue to address arrange of other fiscal interventions to promote local economic growth and prosperity. These would include, for example:

 Opportunities to introduce revenue raising powers associated with greater fiscal devolution to drive forward economic growth;  Longer-term, flexible, devolved funding to the appropriate level to ensure effective delivery, that: o enables local areas to plan and invest with confidence; o devolves infrastructure finance as recommended by the National Infrastructure Assessment; and o is backed up by the Devolution White Paper; LGF0006

 Developing more traditional gap funding / patient equity approaches to encourage the redevelopment of brownfield land for significant employment opportunities; and  Reviewing the Housing Revenue Account arrangements to provide the necessary long term investment platform for significant housing retrofit in this sector of the housing market.

March 2021