Should councils get statutory powers over economic development?

Nigel Wilcock, executive director of the IED argues for more statutory powers for councils when it comes to economic development.

Since 2018, eight English local authorities have issued Section 114 notices which indicate that the council’s forecast income is insufficient to meet its forecast expenditure for the next year, as the sector’s coffers reach breaking point.

More worrying, but not surprising, is almost one in five council leaders and chief executives in England surveyed by the Local Government Association (LGA) last year think that it is very or fairly likely that their chief finance officer will need to issue such a notice this year or next due to a lack of funding to keep key services running. The magnitude of this issue, most notably at Birmingham City Council, has made front-page news.

In fact, four councils in the past 12 months have declared themselves in effect bankrupt, while more have signalled drastic spending cuts as they attempt to avoid potential insolvency.

Now, this is attracting political attention at the highest level, including through the Levelling Up, Housing and Communities Committee report on financial distress in local authorities, published in February. In this report, the cross-party committee said that ministers must urgently inject £4 billion into English town hall budgets to head off an “out of control” financial crisis that threatens to drag well-run councils into bankruptcy and put local services at risk.

For now, following the initial Local Government Financial Settlement, councils in England have been handed an extra £600 million in funding to tackle the worsening financial crises, with £500 million available for social care, alongside a further £100 million in other funding guarantees and grants.

Taking into account this new funding, levelling up secretary Michael Gove reported that the top-up in the financial package for English councils meant an overall increase in their budgets of up to £4.5 billion next year.

Whilst the LGA has said that it will “continue to work with government to achieve a sustainable long-term funding settlement and updated distribution mechanisms, as well as legislative reform where needed, so that local government can play its full part in delivering inclusive prosperity and growth through investment to support people, places, and the planet”, we need to think bigger about our collective approach to council income-generation activity. This, in turn, links directly to the biggest issue facing this country.

Sustainable economic growth

Sustainable economic growth is urgently required to help deliver the funding for government to tackle significant areas of under-investment. With an aging population, this will require significant improvements in productivity but at present, the UK economy is flatlining and the high inflation of 2022 and 2023 has impacted on living standards and consumer expenditure. Serious questions are now being asked about current approaches to stimulating growth.

The nationally-led approach to stimulating growth has under-delivered for decades, and the National Audit Office found that since 1975, successive governments have introduced more than 55 separate policies targeting economic growth in England, with £18 billion being spent between 2011 and 2020 alone.

Put simply, this is not working, and it is time to enable effective action to drive economic growth that is locally led. With the Government transferring Local Enterprise Partnerships (LEPs) to local government, the pivotal economic role of councils for realising the country’s growth ambitions has been articulated.

This is why the Institute of Economic Development (IED) has recently launched its Grow Local, Grow National manifesto for change calling for councils to be given statutory powers over economic development so they can help create high-quality jobs, attract investment into local areas, and turbocharge the UK plc. 

Giving local authorities a legal duty over economic development would create a clear accountability structure, which in turn would make it simpler and more attractive to UK and international firms and financial institutions to invest in places. It would also enable the development of local strategic economic development plans that respond to the views of local businesses, as well as the wider community. Enhanced local focus on tackling stagnant growth and inequalities, in particular through resources invested in regeneration and boosting residents’ skills, would be facilitated and council staff upskilled with the tools and knowledge to help drive real economic growth.

With the right level of resources, councils can stimulate growth across the country, addressing the social, regional and financial inequalities that exist between places, delivering the productivity our economy so desperately needs.

Economic development’s role in understanding the drivers of growth and the needs of communities is clear, but the detailed work required to create positive change requires local understanding.

Without recognition as a statutory function, the importance of economic development can be under-prioritised as difficult funding decisions are made, although in the medium term a solid economic development strategy can create the foundations on which local areas can improve financial performance. A strong economic development function can also ensure government priorities in areas such as levelling up are developed more effectively at the local level.

The IED believes that it is only through this approach that national policies can be consistently implemented at a local level – and that economic development can make a difference to residents of areas at the local level. Alongside this overarching call to action are a series of recommendations (read our full manifesto for the detailed asks) sitting within six supporting pillars which we deem critical for success.

1. Devolution

As increasing local devolution moves up the political agenda, it will be essential for local authorities to have in place the models to ensure that local evidence can be gained, effective policies developed and implementation delivered.

2. Funding and pipeline stability

Underpinning all economic development and associated projects is a requirement for a more stable and long-term funding landscape.

3. Net zero

The IED fully supports the mission of the Blueprint Coalition’s Manifesto for Local Climate Action, a core part to this being recognition of the need for a place-based approach to tackle climate change and move towards net zero.

4. Business development, trade and inward investment Growing our businesses, attracting investment into our local areas and supporting exports is a fundamental part of any locality’s economic development remit, helping to increase pay, employment and productivity.

5. Labour market and skills activation

A statutory economic development function would be involved in assessing local skills, key sectors and provide skills intelligence for local skills providers, employers and the workforce. Skills development, workforce assessment and the development of clear pathways into work would be a key element of the economic strategy.

6. Workforce and CPD

Legal duty for economic development remit would need to be underpinned by an experienced and stable workforce. Under-investment in economic development and funding settlements for local authorities has meant important economic development skills have been lost to the profession and there is a need to rebuild them.

It is no surprise that both the government and opposition parties have made growing the economy a key focus for the forthcoming general election.

With a stagnating economy, and as increasing local devolution moves up the political agenda, it is essential for local areas to have in place the economic development models to ensure local evidence can be gained, effective policies developed and implementation delivered.

This is the core role of any economic development function and it seems unthinkable that despite moves towards devolution, economic development is not one of those areas deemed as a statutory responsibility of each local authority.

Statutory powers for councils

Councils could deliver so much more if they were given statutory powers, with their unique understanding of local economies, to better ensure policies are adapted to local conditions and make the most of the strengths of local places.

Having discussed our manifesto with key decision-makers, and with more Westminster meetings held or scheduled, we welcome further engagement with all parties to improve decisions on economic and industrial strategy development, leveraging the unique experience the economic development profession has of delivery.

We call on all parties to recognise the critically important role that economic development practitioners have in delivering levelling up and place-based economic transformation. 

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