Submission from Sheffield City Council (FDC34)

Summary of key points

• Cities are critical to the UK’s growth and financial stability prospects but they are being disproportionately affected by funding reductions.  Councils are the most efficient part of the state and have a track record for managing resources prudently but Government have undervalued the role councils play in leading places.  Government should rapidly seek to drive the democratic renewal of public resources and services by enabling councils to control a greater proportion of locally-generated resources and exploit their position of locally accountable civic leaders to drive local service integration and economic growth.
• The decentralisation debate should not fall into the trap of focusing just on economic growth – it needs to be complemented with a focus on public service reforms if cities are to be able to support growth with sustainable, integrated services.  In addition, the city region geography is right for decentralisation but in some cases (e.g., single city budgets), the city geography is most appropriate.
• Decentralisation and constitutional reform cannot be kicked into the long grass.  The UK needs London and the Core Cities to be economically successful and productive to deliver sustainable growth.  Governments must seriously look at the plethora of international evidence which demonstrates that countries with greater local control are economically more successful and work with Core Cities to implement a roadmap to decentralisation.
• Councils have existing borrowing powers within the Prudential Code to invest in growth but now lack the resources to do so.  This situation is compounded by Combined Authorities, with robust governance arrangements, being unable to borrow for non-transport investments.  Government must remedy this situation or risk growth being curtailed.

Introduction: a perspective on devolution from Sheffield City Council

1. Sheffield is the fourth largest city in England with a population of 552,698.  It is a creative, inventive and energetic city that contributes over £10bn a year to the UK’s economy.  Sheffield is the economic heart of Sheffield City Region with the concentration of the knowledge intensive industries that have been, and will continue to be, a primary source of employment and productivity in the area.
2. Sheffield is also one of the eight Core Cities who together are responsible for 27% of the national economy, home to 16 million people and have half of England’s leading research universities.  Globally, cities are viewed as the places which will drive the future economic fortunes of nations, capitalising on their unique dynamic populations, businesses and creativity.  Cities and their surrounding urban areas are seen as “the engines of economic prosperity and social transformation” which are “empowered by their economic strength and driven by demographic dynamism” and “positioning themselves at the cutting edge of reform, investment, and innovation”[1].
3. Alongside our fellow Core Cities, we believe that if the UK is to pursue a path of sustainable growth for the long term with residents and businesses supported by affordable, high quality public services, cities need to be given greater control over powers and resources which support economic growth and deliver public service reform. 
4. The UK remains one of the most centralised countries in the world and evidence suggests that countries which are most centralised and dependent on their capital city for economic growth are less successful[2].  The chart in Figure 1 from a recent report by IPPR demonstrates the extent to which, for all the rhetoric on ‘rebalancing’, the UK is still unsustainably reliant on London for economic growth. 

Figure 1: Regional GVA (bubble size), GVA growth and GVA per capita (axes intersect at UK average)[3]

5. In 2012, the eight cities have agreed and are delivering the first wave of city deals with Government, which saw the devolution of a limited amount of power and funding to the Core Cities.  The deals represented both a practical step towards achieving some small-scale decentralisation from Whitehall but also a significant philosophical shift in the dynamic between ‘national’ and ‘local’ and the extent to which we recognise the critical, unique role played by cities in the UK’s socioeconomic wellbeing. Ironically, in the context of cities being increasingly recognised by leading thinkers and politicians as crucial to the UK’s economic progress in the twenty-first century, it is those very places which are bearing the brunt of budget cuts, undermining the capacity of the major cities to match their ambitions with the resource capacity to support those ambitions.  Figure 2 demonstrates that, compared to other areas, the Core Cities have been handed disproportionately heavy budget reductions which is systematically undermining the ability of cities to achieve their socioeconomic ambitions.  By 2015, the money Sheffield City Council receives from Government will have reduced by 50% since 2010.  Over the same period, Surrey County Council are seeing their spending power increase to around the same level as Sheffield City Council.

Figure 2: Change in Spending Power £/Dwelling 2011/12 to 2015/16
(adjusted to be comparable with 2015/16)

6. The Sheffield City Region (SCR) City Deal[4] has enabled SCR to demonstrate how, given greater control of power and resource, local public and private leadership can deliver a skills system which better meets local business needs and use capital resources more effectively to maximise the GVA impact of infrastructure investments.
7. The deals marked a step-change – they let the decentralisation ‘genie out of the bottle’ – but enabled only limited, piecemeal decentralisation.  For a stronger economic future with stable finances and affordable, high quality public services, the UK needs its cities to be punching their weight internationally and harnessing the unique social, economic and cultural dynamism which is only found in cities.  To achieve this requires cities to be set free with a comprehensive shift in the location of power and resources in England.
8. The decentralisation debate often focuses heavily on the economic benefits that can be achieved.  While important, this focus is too narrow and risks missing a major opportunity to pursue a more ambitious decentralisation programme across the spectrum of Whitehall responsibilities.  Economic growth is vital but needs to be underpinned by high quality, sustainable public services which are shaped by the local needs of residents and support the local population to be successful and productive.  The fragmentation and the lack of local distinction that characterise some services driven by Whitehall cause inefficiency and ultimately cost the state more.  Local areas are best placed to use their knowledge to bring services like health, social care, welfare and housing together through single budgetary frameworks (e.g., a city budget) to improve outcomes for people, reduce inefficiency and support economic success. 
9. Decentralisation should be seen as an opportunity for significant democratic renewal in England.  It is an opportunity to bring accountability for services closer to the people that use them, capitalising and expanding local government’s democratic mandate to advance the socioeconomic wellbeing of places.  We would therefore urge the Committee to ensure there is a balance in focus on economic and public service reform outcomes when considering fiscal devolution because the intrinsically linked and equally vital to the strength of cities.
10. Unfortunately, the scale of the funding reductions handed to councils compared to the wider state since 2010 (Figure 3) suggest both a lack of regard for the role of local authorities and a systematic underestimation of the value and leadership which local authorities bring to places.  In contrast to the prevailing view that local authorities are mere deliverers of waste collection and parking services, the reality is that councils are already the most efficient part of the public sector.  They are the elected leaders of some of country’s key economic heartlands; stand up for the needs and aspirations of local people and businesses; and have broad responsibilities in advancing social inclusion and protecting the most vulnerable people in society.  Councils are best placed to lead the comprehensive reform of public services in a locally accountable way and in partnership with the local private sector, create the necessary conditions to drive economic growth.  The value that local democratic leadership brings to the state appears to have been lost or unvalued in recent years.

Figure 3: Real-terms absolute changes in departmental spending, 2010/11 – 2015/16 (£bn) (from IPPR)[5]

11. Recent research by the Core Cities has demonstrated that by 2030, the Core City urban areas could deliver 1.16 million more jobs and £222 billion into the economy.  That is equivalent to the entire economy of Denmark and equal to almost £14,000 for every person living in a Core City urban area[6].  Building on the research, Core Cities have set out clear proposals for policy change which would deliver a different future for the UK and would better harness the scale and capacity of cities to drive growth, create jobs and deliver affordable services.  These proposals for change have been set out in the recent publication Competitive Cities, Prosperous People: A Core Cities Prospectus for Growth.

The concept of devolution to cities and city regions

How ‘devolved’ areas would be defined geographically and set up

12. We believe that the geographic area for ‘devolved’ areas would need to locally defined, with locally accountable leaders able to agree the geography at which devolved powers and resources make sense.  There needs to be an element of flexibility built into the approach to devolution which recognises that: this cannot be a one size fits all approach as cities and city regions are different and should be able to define their own geographies; and that the devolution of some responsibilities (eg. skills and transport) may suit a broader geography than the devolution of other responsibilities (eg. a single health and social care budget) which are more suitable for devolution to a city-level geography.
13. To support devolution, place needs to have a greater role in policy making than the distinct (and sometimes) conflicting specific policy responsibilities of government departments.  The existing model of nationally-set policy attached to budgets managed and directed by departments has, in some key socioeconomic policy areas, resulted in policy which has no linkage to the actual needs of people and businesses locally; the fragmentation of delivery between agencies; inefficiency and duplication; and critically, cities which under-perform economically and cost the state too much.  To quote Lord Heseltine:

Besides neutering local leadership, the monopoly of Whitehall is dysfunctional on two counts. First, too many decisions are taken in London without a real understanding of the particular, and differing, circumstances of the communities affected. And second, with responsibilities divided up between policy departments, no one in government is tasked to look holistically at the full range of issues facing a particular area[7].

14. We believe that, the primary geography for the decentralisation of power should be to the ‘functioning economic area’ or travel to work area.  This is the geography which makes most sense in for the socioeconomic activities of places because business, transport, labour markets and housing markets do not stop at local authority boundaries.  Katz and Bradley refer to such geographies as metropolitan areas:

A metropolitan area or metropolitan region is typically a collection of municipalities that together form a unified labor market and is often defined statistically by the commuting patterns of its residents between home and work … The geographic extent of these broader regions takes in economic activities that are often found outside cities themselves, such as manufacturing, logistics, and agriculture[8].

15. However, there may be some responsibilities which are best devolved to cities themselves because of the uniqueness of the city geography, the scale in both population terms and public service provision and the capacity of the public and private agencies.  This reiterates the point made above (Paras. 8-9) that decentralisation should not be only viewed through the lens of economic development and should be understood as an opportunity to deliver integrated public service reform attune to the needs of place, removing the fragmentation and top-down delivery from Whitehall where all places are treated the same, and enhancing public service democratic accountability.
16. Cities are well-placed to lead major public service reform at a scale that would deliver better outcomes for residents but also efficiencies which would have significant impacts on public expenditure.  For example, modelling by Core Cities demonstrates that by integrating health and social care for older people could reduce delivery costs by 15%.  That would be equivalent to a city like Newcastle saving £44m and £29.5m on its health and social care expenditure respectively.  Where appropriate, devolved service solutions led by cities could be scaled up to their wider urban areas.
17. We would not expect governments to devolve responsibilities to areas without an area being able to demonstrate adhering to certain principles and providing the necessary assurance to governments that power and resource will be used to improve outcomes and that locally elected leaders will be accountable for decisions.
18. In the last 12 months, Sheffield City Region (SCR) has become the first city region since Greater Manchester to undertake a Governance Review and develop a ‘Scheme’[9] in order to establish a Combined Authority (to be called the Sheffield City Region Authority).  From April 2014, the SCR Authority will be a statutory body made up of the nine councils in SCR, establishing local accountable leadership for the economic area in partnership with the private sector leadership of the Local Enterprise Partnership (LEP).  This model was recently described by Bruce Katz as “a model for the rest of the world” and provides a robust, accountable foundation to which further centralised powers can be devolved.
19. Sheffield City Region are urging Government to move forward quickly with our Combined Authority proposal to ensure that SCR Authority is a legal entity by April 2014 as it is critical to our ambitions for decentralisation and the plans for growth which are set out in the SCR draft Growth Plan[10].  As fellow Core Cities and other areas move forward with Combined Authority proposals, we would urge Government to review the Local Democracy, Economic Development and Construction Act 2009 which enables Combined Authorities to be established.  The legislation needs to be more flexible, enabling local partners to establish Combined Authority geographies which reflect the economic geographies of their areas.  Fundamentally, we agree with Lord Heseltine’s perspective that arbitrary administrative boundaries should not prevent local areas forming governance arrangements which appropriately reflect their real economic geographies.
20. Further, we would also urge the Government to address the inability of Combined Authorities to borrow to fund non-transport related investments.  The significant decrease in local authority funding means that while establishing Combined Authorities to drive economic growth across economic geographies is a positive step, there is little resource to actually invest in that growth.  Government want the Combined Authorities that are ‘fit for purpose’ but we cannot achieve our ambitions if we cannot invest in growth.

How ‘devolved’ areas would be governed, including the role of business in decision making and how ‘devolved’ areas would be held to account

21. We believe that for the devolution of fiscal and wider powers to proceed, local governance models must be founded on strong local democratic accountability and therefore must be connected to the relevant democratic institutions such as local authorities or combined authorities.  Government would rightly wish to be assured that any devolution of control over public funding is to a body that can be held to account democratically by local people.
22. That is not to say that the role of business is not significant and over recent years, the local authorities in Sheffield City Region and the private sector leadership of the LEP have established a robust partnership which is recognised as one of the leading LEPs.  The proposal to move to a Combined Authority model is a reflection of the strong partnership working that has developed and recognition that, if the City Region is to achieve its ambitions for economic success, greater local control over the tools that support growth is needed.  The SCR Governance Review found that the best method of establishing the necessary accountability was a statutory partnership of the local authority leaders – a Combined Authority.
23. As part of the proposals put forward in the Core Cities Growth Prospectus, we have also urged Government to enhance local accountability through decentralisation by agreeing to ‘dual accountability’ arrangements between Government and cities.  This would involve devolving accounting officer functions, establishing stronger accountability over issues like skills, employment or housing which are important national and local policy areas.
24. It should be emphasised that by decentralising power away from Whitehall to locally elected institutions would increase the democratic accountability of decision making and of local service delivery.  This would therefore support a renewal of democratic accountability in the UK, giving local people more say over decision making.

How public services, including employment, skills and welfare, should be organised to complement devolution

25. At a principle level, these key elements of public and economic policy need to have greater regard to the distinct needs of local areas – they need to be more locally-led and be better integrated, overcoming the fragmentation that can come with separate budgets and agency responsibility.  The evidence suggests that where local areas have been in charge of delivering these services, better outcomes result.  For example, where national providers are delivering the Youth Contract, around 27% of young people have successfully found work or training.  However, in places where councils have been in charge - linking provision to distinct local circumstances - the performance is double that of national providers with 57% of young people finding work or training in Leeds and Bradford and 47% in Newcastle and Gateshead[11].
26. A good example of this is in SCR’s City Deal,[12] as the City Region have been delivering a localised skills model with £28m of devolved national skills funding which is led by a public-private governance board at the City Region level.  This puts the purchasing power in the hands of local employers to direct skills investment into the areas of local economic need.  The ‘Skills Made Easy’ programme operates with a brokerage model in which intermediaries work with local Small and Medium Enterprises (SMEs) (who have not previously engaged in the skills system) and training providers to get the courses employers need to grow their businesses.  Through this model, SCR is bringing additional apprenticeships into the workforce and increasing business capacity through upskilled staff.  We are also starting to see changes in the training provider network in the SCR as training providers are increasingly shaping their provision to meet local employer demand – hence better linking training provision to economic need.  This has included delivering additional apprenticeships courses which were not previously available in SCR.
27. SCR’s draft Growth Plan builds upon this model with a proposal for a ‘Skills Bank’ which will establish a single funding route to support the training needs of businesses, using an increasing proportion (based on performance)of SCR mainstream 16-18 skills budget and relevant EU funds[13].  This proposal is intended to be co-designed with BIS/SFA and represents an opportunity to move towards a localised model for skills based on successful performance.
28. The City Deals are an important inflection point for decentralisation but have resulted in comparatively small-scale change when considering the level of centralisation in the UK.  They have also predominantly focused on economic growth and not the wider devolution affecting major issues for cities such as welfare, housing and skills. Reform in these areas is often ‘done to’ places based on national policy drivers and delineated departmental budget streams.  Cities present an opportunity to deliver public service reform at scale, using local democratic city leadership to overcome division between agencies, reduce costs and improve services.  This reinforces the point made in Para.15 that some decentralisation would make more sense at a city-level with the potential for scaling up to wider areas.
29. To deliver more holistic and sustainable change for public services, the Core Cities have developed a proposition for more comprehensive reform to the skills and welfare system in cities which proposes the alignment of local and national funding to create a single framework.
30. What is clear is that without such integrated whole-system change, outcomes will not be improved.  Evidence from Greater Manchester’s Community Budget pilot has shown that while Government have disproportionately targeted cuts at local authorities (which deliver many prevention services), the overall quantum of public spending in the city has actually increased.  This is because the cost of more palliative, often higher cost services (eg. welfare, health, social care) has increased, thus failing to reduce the overall cost of public services and increasing dependency.
31. Core Cities’ proposed ‘Single Labour Market Agreements’ (SLMAs) would operate for five years and would be based upon:

• Devolved budgets and locally commissioned provision with strong engagement of businesses
• Locally commissioned Work Programme post-2016, providing stronger local linkages and support
• Comprehensive public service reform – aligning skills and employment with wider public services in a whole-system approach and a single, ‘Place Based Settlement’ for cities (building on the learning from Community Budgets).

32. In short, the Core Cities proposals demonstrate the need for economic growth and public service reform, with services commissioned locally from single budgets to better meet local need, reduce the cost of the state and support economic activity.  A recent IPPR report suggests:

The benefits of breaking down silos and mobilising the full range of actors can be better realised at smaller geographic levels. Transport, housing, employment, skills and welfare policies have to work together to optimise local growth, and also these different policy areas can be joined up at a local level in a way that is not possible at a UK level. There is also a growing awareness that networks of business, community and public sector leaders are well positioned to tackle the big issues in a way which government alone cannot, and that these networks operate at a more local level.[14]

The strength of the evidence that devolution would lead to economic growth, local improvement and better local governance, including examples of what areas could do with their new powers such as use them to invest in infrastructure and local services

33. As part of the Core Cities Prospectus, the cities have presented the projected socioeconomic impact that could be achieved by Core Cities if the proposals in the prospectus are agreed.  This includes:

• Additional £222bn of GVA by 2030
• 1.16m more jobs 2030
• Generating £41.6bn for the national finances (nearly half the national deficit)
• Self-sufficient cities by 2030 (currently, the Core Cities together are net receivers of funding by around £40bn a year – we receive more than we contribute)

34. The joint submission by Core Cities to this inquiry provides an useful overview of the key sources of research and evidence which demonstrate that not only is the UK one of the most centralised states in the world and the most “geographically imbalanced economy of all EU member states”,[15] the country is too dependent on the success of the capital city for economic progress.  This was something emphasised by the Coalition Government when it set out an aspiration to ‘rebalance’ the economy in 2010. 
35. We would refer the Committee to some key sources of evidence which demonstrate that countries with more devolved control over resources are economically more successful.  These include:

• State of the English Cities (2006) http://www.ljmu.ac.uk/EIUA/EIUA_Docs/State_of_the_English_Cities_Urban_Research_Summary.pdf  
• Second Tier Cities in Europe: in an age of austerity why invest beyond the capitals? (2013) http://www.ljmu.ac.uk/EIUA/EIUA_Docs/Second_Tier_Cities.pdf
• OECD Competitive Cities in the Global Economy http://www.oecd.org/regional/regional-policy/oecdterritorialreviewscompetitivecitiesintheglobaleconomy.htm
• Rebalancing the Books: how to make the 2015 Spending Review work for all of Britain (IPPR, 2013) http://www.ippr.org/images/media/files/publication/2014/01/rebalancing-the-books_spending-review-north_Jan2014_11674.pdf
• Northern prosperity is national prosperity: A strategy for revitalising the UK economy (IPPR, 2012) http://www.ippr.org/images/media/files/publication/2012/12/northern-prosperity_NEFC-final_Nov2012_9949.pdf
• Competitive Cities, Prosperous People: A Core Cities Prospectus for Growth (Core Cities, 2013) http://www.corecities.com/sites/default/files/images/publications/Competitive%20Cities,%20Prosperous%20People_%20Final%20Draft.pdf
• No Cities, No Civilisation (2013) (an essay for Core Cities by Prof. Michael Parkinson) http://www.corecities.com/sites/default/files/images/publications/77651%20Core%20Cities%20M%20Parkinson%20Essay_WEB.pdf
• Raising the Capital: the report of the London Finance Commission (2013) http://www.london.gov.uk/sites/default/files/Raising%20the%20capital_0.pdf
• The Metropolitan Revolution: How Cities and Metros Are Fixing Our Broken Politics and Fragile Economy (Bruce Katz and Jennifer Bradley, 2013), Brookings Institution Press.

36. As a result of some of the first city deal, Sheffield and Sheffield City Region have been able to demonstrate the progress that cities can make with greater devolved power:

• Skills Made Easy – with a small amount of national skills funding we are delivering a local skills model which is demand-led with businesses able to access the training provision and apprentices they need. 
• Sheffield City Region Investment Fund (SCRIF) – we have established a City Region infrastructure fund, governed by the Combined Authority which is underpinned by a single assessment framework which enables SCR to prioritise infrastructure investment based on impact on GVA and jobs.  With the 10 years of transport major schemes funding secured through the city deal, this approach ensures that decisions on major infrastructure development in SCR are taken locally, aren’t delayed by Whitehall bureaucracy and are focused on the schemes which support economic growth.  The initial prioritised scheme list is available here: http://www.sheffieldcityregion.org.uk/wp-content/uploads/2013/08/SCRIF-Scheme-List-Page-to-Link.pdf
• Local transport – in addition to the major scheme funding certainty, SCR and Sheffield secured a number of additional transport powers and responsibilities including local contract management of the £58m tram-train project and the establishment of the Sheffield Bus Partnership with devolved control over the Bus Service Operator Grant (BSOG).  The Bus Partnership has already led to an increase in bus patronage, an improvement in punctuality and reliability of services and a reduction in complaints from passengers.

The impact on areas not included in any new devolution arrangements, including those on cities’ borders and those affected by resulting changes to national financial equalisation and distributive arrangements

37. Core Cities have set out proposals which are intended to increase economic growth, deliver better value for money and improve outcomes.  Hence, the proposals are of net benefit to the UK if the Core Cities are given the necessary freedoms and control of resources to lead their economies, make local decisions and reform services.
38. Core Cities have urged Government to implement the findings of the London Finance Commission which recommends that immobile taxation (eg. property taxes) be devolved to London and the Core Cities.  The robust approach taken by the LFC suggests that the recommended changes must be financially neutral for the state, with the finance devolved to cities offset by an equivalent reduction in direct state funding.
39. There is a significant issue which is raised by this question – that of the zero-sum basis on which economic performance and modelling is viewed in the UK by institutions and the predominance of displacement in considerations about local economic growth.  The challenge for the country is to grow the economy with a strong, world-leading capital city and maximise the contribution of the key UK cities, sharing the responsibility for the country’s economic success.  This is not zero-sum, it is for the long-term economic strength of the UK where growth is balanced more equally and cohesively, and places across the country are better able to thrive.

Whether reform of the existing system (for example, re-banding council tax, revaluing business rates, Community Budgets, Government grants, formulas and taxes such as stamp duty) would be a precursor to, or run along with, large-scale constitutional change.

40. What is needed is a mix of realism and radicalism.  Some things could feasibly be devolved quickly without encompassing major institutional disruption – for example, the devolution of property taxes.  However, the inherent complexity institutions and networks of agencies, Departments and associated budgets ensures that it is only realistic to set out a plan for a steady and habitual evolution towards single place budgets and integrated services focused on local outcomes.  This route needs a clear roadmap and Core Cities have offered to work with Government on this.  As an international example of this, Japan instigated a clear programme of fiscal devolution and a report on this has been produced for Core Cities by the Japan Local Government Centre[16].
41. However, the UK is significantly behind other nations in the extent of decentralised control and after numerous ‘false dawns’, delay now risks the issue being kicked into the long grass – something which will jeopardise the long term success of the UK economy and the sustainability of public services.  We need to begin now by introducing greater co-design, dual accountability and place-focused policy making as a matter of routine and ambitious local areas need to move forward to establish the necessary local governance arrangements to hasten decentralisation.
42. Further, constitutional reform could be a positive, strengthening step for the UK.  The Political and Constitutional Affairs Committee’s recent work on codifying the role of local government within state is an example of how the role of local government and the relationship with central government could be better defined in the UK[17].

The details of devolution

43. In Core Cities Growth Prospectus[18] and the accompanying summary paper of ‘Increasing investment’[19] into cities, we have set out three specific areas of fiscal reform which need to take place in order to enable cities to reform public services and create the necessary conditions for private investment. 

• Reform through certainty: aligning public budgets across places to create place budgets for integrated services; longer term budget arrangements for cities linked to the length of parliaments.
• Investing and reinvesting in growth at scale: devolved control over taxation (property taxes); ability to set some small local taxes
• Local financial flexibility: greater financial flexibility to innovate with all funds that are available; a more comprehensive single investment pot at city region level; lifting the HRA cap to invest in housing.

What taxes might be devolved—for example council tax, stamp duty and business rates

44. Core Cities have supported the findings of the London Finance Commission which recommends that immobile taxation be devolved to London and the Core Cities. 
45. Studies by the OECD demonstrate that in the UK (see Appendix 1), cities only control around 5% of the taxes raised in their area with 95% going back to Government[20].  A proportion of this money is then spent in cities but it is often money over which the city has no say over.  The devolution of local property taxation would provide cities with greater financial freedom and flexibility to invest in local growth and local public services and provide cities with greater certainty over revenues than the present granting system and enable longer-term investment.  Control over local property taxes would also ensure that cities are better able to retain and reinvest when with the successful delivery of public service reform or growth is supported.
46. Further, we believe that cities should be enabled to use Tax Increment Financing (TIF) within the limits of the Prudential Code.  Cities would be able to decide through local democratic leadership on the projects which are most vital to economic growth and again, use the projected uplift in revenues to invest for the longer term and provide greater confidence for private investors.

What changes should be made to “devolved” authorities’ borrowing powers

47. As stated above, ‘devolved authorities’ should refer to cities and city regions depending on the specifics.
48. From April 2014, it is intended that the SCR Authority will be the Accountable Body for Sheffield City Region Investment Fund (SCRIF). The CA will provide the single Accountable Body through which binding decisions can be made at a geography that mirrors the LEP. The CA will also be responsible for any borrowing that underpins SCRIF – as borrowing may be required to re-profile any devolved funds and raise or re-profile local contributions to the programme.  There is a technical barrier to the SCR Authority being able undertake this role as CAs do not have the power to borrow for non-transport purposes.  This inability of CAs to borrow undermines the economic potential and impact of city region investment funds because the SCR, and other Combined Authorities, cannot generate the local revenue to invest in growth. We have urged Government to address this issue as it risks leaving those city regions that have done the hard work and established robust governance arrangements with little resource to invest in growth.
49. For cities and local government, there are already a number of borrowing powers available which can support cities to invest in growth.  However, the real problem that cities face is that the disproportionate cuts faced by local authorities ensures that while borrowing mechanisms are available, they lack the revenue resources to pay back loans.  Fiscal devolution will provide more capacity to invest in growth but at present, cities and city regions are hamstrung.

The scope for areas to introduce new taxes and funding methods such as bonds and crowd-sourcing, fees and charges

50. Considering the statements above, there is considerable scope to empower cities and city regions with new financing mechanisms and freedoms which would support investment in infrastructure, unlock growth, create jobs and deliver savings to the public purse through service reform.  However, this is undermined by a disproportionately reducing local authority resources and Government unwillingness to enable borrowing to invest in growth. 
51. Cities have a strong track record of delivering efficiency and prudently managing using public funds to advance local wellbeing.  The practices and standards in place are robust and locally accountable which should provide Government with the necessary assurance that cities are well-placed to manage a broader range of fiscal resources.  With greater control over the quantum of locally generated resource (ie. Stamp Duty, Business Rates, Council Tax), we have the capacity to better utilise public funds to drive up service efficiency, reduce fragmentation between services and create the physical and social conditions to attract private investment and global business to cities.
52. We are keen to explore new, locally established small taxes.  We are absolutely clear that this does not mean giving cities free reign to tax people as they please, but there are some specific models which work well in other major global cities which the Core Cities could use to support growth.  Such mechanisms would generate resources from those who stand to benefit from what Core Cities offer, so they would be making a contribution to the city’s maintenance and improvement. Sheffield City Council has a strong relationship with local businesses that together recognise the need to invest in the city’s growth.  This was recently exemplified by 82% of businesses in the Lower Don Valley area of the city voting in favour of a Business Improvement District (BID) which will see businesses contribute £1.4m over five years to a £8.1m flood defence project.  More sustainable, local funding sources would be developed in partnership with local businesses through defined projects and programmes, akin to BIDs, and reinvested to increase the competitiveness of cities like Sheffield.

The extent to which high-performing areas would be expected to redistribute their proceeds of growth via the Treasury

53. As suggested in Para. 37-39, we have based assumptions on neutral offsetting between the quantum of devolved financial control and current grant.  However, our ambitious plans could mean that the Core Cities are financially self-sufficient by 2028, thus costing UKPLC less and contributing ore through more successful business, higher employment (and thus income tax) and lower cost of public services.

Appendix 1: OECD analysis of control of tax revenues at local level

1. Spain is constitutionally a non-federal country with a highly decentralised political structure.

(Source: OECD, Revenue Statistics taxes by level of government, http://www.oecd.org/ctp/tax-policy/revenue-statistics-levels-of-government.htm)