Regional cities lose out in Westminster power grab

Massive budget cuts leave Liverpool in a precarious position. nataliejohnson

The coalition came to power in 2010 full of talk about ending the era of top down government and shifting power away from Westminster. The intervening years have given us one broken promise after another: the centre keeps grasping for more power, and local governments are feeling the squeeze.

In his spending review statement, chancellor George Osborne held up the Department for Communities and Local Government (DCLG) as the model of “lean government”. Among other massive cuts, the department has seen its local government resources budget reduced by 10%.

It is the more peripheral cities that will suffer the most, with the leaders of Liverpool, Newcastle and Sheffield co-authoring an open letter to the government in late 2012 warning that the existing cuts already threatened their ability to function.

Indeed the leader of Newcastle City Council estimates that some £100m of cuts will have to be made to his city’s budget over three years. Liverpool City Council estimates that the cumulative nature of cuts will see their budget reduced by some 52% from 2010 levels, with cuts this year alone totalling £32m.

Council tax has been frozen, saving the average citizen £100. It’s a nice idea, but not everyone will benefit. The most severe economic and social deprivation is consistently found in major cities and, while these places raise the most total revenue from tax, the per-capita totals are often much lower. Thus a council tax freeze will hit these cities significantly harder, while those cities that have higher per-capita totals face fewer cuts to services.

Without the ability to increase council tax, many cities have been forced to raise funds through business levies. They must strike a delicate balance: charge too little and the coffers run dry, charge too much and business goes elsewhere.

All this must be achieved while trying to keeping meaningful council services going, against a backdrop of cuts. Without decent services, an area becomes even more unattractive to live in and less economically viable to potential investors. A nasty spiral.

Local governments can promote growth themselves through various schemes and funds designed to foster enterprise. One government-backed proposal by Lord Heseltine recommended a national fund worth £12 billion per year to encourage economic growth through innovation and competitiveness. The amount George Osborne announced in the spending review? Just £2 billion. A large number, to be sure, but this is no panacea.

Perhaps anticipating disappointment, we have seen some local governments turning to alternative means of revenue generation. In early June, Liverpool City Council embarked on such a move, snapping up Everton Football Club’s training ground in a deal worth £12.9m. In return Everton will become tenants of the city council, paying rent each year to use the facility.

Critics have questioned how the city can afford such an outlay while making drastic cuts elsewhere. Mayor Joe Anderson responded by saying that the city had merely used a loan to secure the money – effectively taking out a mortgage on the site. In one year, £13m is a lot of money, especially when thought of in terms of new schools, roads or care homes. The longer term question is whether this represents a smart investment, or one the city has simply been forced to make to ensure its survival.

Some local government leaders have even argued that giving councils the ability to borrow against their assets is the only way to ensure that public service delivery as a whole can be increased. However, this is clearly dangerous, equivalent to remortgaging the house in order to stave off a pay-day loan. The temptation to secure short term gains through massive borrowing will always be present. We need safeguards to ensure that we don’t see a spate of city councils going bankrupt, unable to pay their loans, as has happened in the US.

The UK has one of the most controlling centre-local relationships of any country in the western world. Indeed, while the government wants our local areas to innovate, they still maintain control of the scope and scale of this innovation. This spending round simply continues this trend, highlighting how much control Whitehall has over the fate of our cities.

Cities have become increasingly innovative as they struggle to keep their finances in shape. But cutting services, remortgaging public property, and taking on football clubs as tenants? This does not represent a sustainable business model that will secure their long-term financial independence from Whitehall.

Rather, these moves show our city leaders have been forced to the gambling table, in a game where the odds are increasingly stacked against them.