Written evidence submitted Core Cities UK [SRF 023]

 

SPENDING REVIEW AND LOCAL GOVERNMENT FINANCE27 NOVEMBER 2020

Core Cities UK is an alliance of 11 large UK cities: Belfast, Birmingham, Bristol, Cardiff, Glasgow, Leeds, Liverpool, Manchester, Newcastle, Nottingham and Sheffield.

Core Cities UK is pleased to have the opportunity to respond to the inquiry into the impact of one-year spending review and local government finance. Core Cities group includes the cities of Cardiff, Belfast and Glasgow which operate within their own national administrations and where many of the issues we raise are devolved matters. However, these cities are also facing many issues faced by their English counterparts as a direct result of the pandemic. 

 

We attach a copy of our CSR submission and a further paper on innovative fiscal instruments, which together represent a significant set of achievable policies to resolve the local government finance crisis, and deliver economic recovery and renewal.

 

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.  As furlough ends, this is likely to result in mass unemployment challenges, which could be exacerbated by Brexit in a no deal scenario.

1.1         These sectoral impacts have also had a drastic effect on local government income, including from Business rates.  It is important to also 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 £1.147billion (at 28 Oct 2020), with a shortfall of almost £600million after all government support received up to this point.  This will undermine any attempts to deliver a successful future planning the system unless addressed and therefore cannot be separated from this debate.

1.2         At a moment of great economic instability, a sustainable local government finance system which delivers certainty for cities and investors is fundamental to success. This is not a single, ‘in year’ funding issue, but will continue to affect cities and other local authorities into and beyond next financial year, pushing more places toward issuing Section 114 notices unless addressed.

1.3         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 elderly[1].

1.4         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.

1.5         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.

1.6         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.

1.7         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.

1.8         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.

1.9         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.

1.10     It is vital therefore that any fiscal devolution 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.

1.11     In addition, innovative financing mechanisms must now be deployed to support cities in delivering investment to drive recovery and future growth. 

1.12     Core Cities would welcome the opportunity to give oral evidence in our submission. 

 

Submission

2           The approach the Government should take to local government funding as part of the 2020 Spending Review and what the key features of that settlement should be.

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         Cities are the key to recovery, particularly the urban core which can do the heavy lifting: C19 has impacted profoundly on cities, but they have weathered pandemics before, are here to stay and critical to our economic future.  Core Cities city regions are mutually dependent networks of towns and cities which have equal importance.  Success relies on understanding how the assets, capacity and institutions of big urban centres can best be put to work to benefit the whole.  Without Core Cities firing on all cylinders, other places will continually struggle and Levelling Up cannot be achieved.

2.3         This crisis creates an opportunity to address long term issues that have held the UK back: To address not just the direct challenges of the pandemic, but to build on the Levelling Up agenda and changes accelerated by C19 to chart an ambitious new course for a resilient, international future.  To succeed, strategies must deal with underlying issues that were already holding back cities: low productivity; deprivation and poor health; low skills-levels; carbon emissions.   To revolutionise urban connectivity and infrastructure: digital; mobility; energy; strengthened global links and increased innovation. 

2.4         The alternative is ‘Levelling Out’, a limited recovery resulting in disengaged urban communities, with health, educational and productivity challenges worsening, acting as a drag on national economic performance.

2.5         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.

2.6         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:

3           The current financial situation of councils, how this has affected their ability to deliver services and the demand for services, including Adult Social Care.

 

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 Council tax.

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. After taking account of all Government support, a gap of £616million (as at October 2020) remains for this year, which is on a course to increase significantly next year and push authorities to the brink of virtual bankruptcy. 

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 £1.47bn (Oct 2020). Government is aware of the emergency our sector faces, and cities have welcomed the substantial amounts of money they have committed to help, they need to invest even more and re-think their approach.

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 Covid-19. 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         Key impact points include:

4           What the financial challenges facing councils are as a result of the COVID-19 pandemic, including lost income and local tax losses.

 

4.1         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’. 

4.2         The combined expenditure pressures and income losses for the eight English Core Cities alone are forecast at £1.47bn, and the current funding gap, taking account of all central government support, is almost £600m for these same eight cities. 

4.3         Key financial impacts:

4.4         Sustainable local government finance is 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. 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

4.5         To support the recovery of our cities and city regions we have called for:

4.5.1        Adequate Business Support Package. Simple, accessible financial support for all businesses affected by Lockdown, with enhanced packages for hardest hit sectors including hospitality, culture and tourism. The full wage of anyone self-isolating must be met by this package.  This is critical to maintain the economic infrastructure we will rely on for future growth, and ensure compliance with isolation.

4.5.2        Extended self-employed support as well as Furlough and. In Furlough, no-one’s income should fall below the national minimum wage. Self-employed support scheme should return to 80% grant. Introduce a new duty on employers to ensure they can’t prevent employees from following the advice to self-isolate: no worker should have to choose between their job and health. Clear guidance on employment rights for those at risk.

4.5.3        Sustainable financing of local government as above. Our city authorities are entering this second Lockdown carrying big budget gaps. This presents us with an immediate crisis, but also has grave implications for our citizens into 2021/22 and beyond. This must be resolved to maintain frontline service delivery through a minimum two-year settlement.

4.5.4        Winter support package for vulnerable people. Addressing immediate need including food poverty, mental health services, and extra support for communities disproportionately impacted in the first wave. A shielding support package to allow local authorities to support those most in need (clearly defining the new category of ‘critically vulnerable’). A £20 increase to Universal Credit and other legacy benefits to combat fuel poverty, and an extension of Free School Meals to cover the Christmas holidays.

4.5.5        Safe and secure places to stay. Extension of the ban on evictions, and a return to ‘Everyone In’ rough sleeping policy to at least the end of March 2021. Suspend No Recourse to Public Funds so all those facing hardship have the support they need.

 

4.5.6        Setting out a position on commercial income, which has been hit by C19 but also rises in the Public Works Loans Board rates as a way of reducing some inappropriate investments (a sledge hammer to crack a nut) using case studies of schemes that could not have happened without access to PWLB.

5           What the impact is of another one-year spending review and a further delay to a multi-year settlement and the Fair Funding Review.

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 Review (due late November 2020). Some savings cannot be delivered in year, so will impact on next years budget, and ‘fallow years’ where savings might otherwise be made, cannot now happen.

5.3         The absolute priority is for this gap to be closed through additional national resources.  There are other measures which we would welcome alongside this, as follows.

  1. Additional resources to close funding gaps as part of a 3-year financial settlement.  The Spending Review is 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.

 

  1. 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.

 

  1. 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).

 

  1. Create flexibility in fiscal mechanisms to get recovery going.  For example, by extending the time horizon and other flexibilities for Enterprise Zones / Tax Increment Financing schemes, significant investment could be brought forward without cost to national or local government.  Revolving-door investment schemes, which already exist in some cities, could be further enhanced – for example by direct Government investment, and devolution of the UK Shared Prosperity Fund – creating recyclable investment pools which could repay initial investment over time (see attached paper on fiscal instruments).

 

November 2020


[1] OECD Policy Responses to Coronavirus (COVID-19); Cities policy responses; July 2020