Research Project

Capital Ideas: Financing Future Local Economic Development
3 July, 2007

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A new report from the New Local Government Network (NLGN) calls on councils to be given greater incentives to introduce long-term economic development projects, including new income streams and the right to retain rewards from sound investments.

Capital Ideas: Financing Future Local Economic Development outlines a number of recommendations on how local authorities can be given the tools to develop and improve capital investment in transport, housing and regeneration projects throughout their local area.

The report comes as the Government prepares to publish its Comprehensive Spending Review (CSR) in the autumn, which in part will look at the future of funding large scale infrastructure projects. The CSR will also report on the future of funding local government.

In particular, Capital Ideas argues that:

  • Local government should be incentivised to invest through retention of rewards that result from sound investment;

  • Local income streams should be increased and diversified to reward local authorities for economic creativity;

  • Future revenue increments for local benefit should be earmarked;

  • A Local Communities Capital Taskforce should be established to provide development consultancy across the local government family;

  • Public sector debt treatment should be re-evaluated, providing a mezzanine level public debt facility, which could allow a further three per cent latitude on the ‘sustainable investment ratio’ specifically dedicated for local and regional capital investment projects;

  • In the forthcoming Spending Review, PSA targets should be refined to recognise local economic development and investment responsibilities.

  • A Treasury led ‘Pioneer Local Hypothecation Programme’ should be established to gradually permit applicant local authorities and their investment vehicles certainty and produce more effective and efficient economic development solutions;

Author of the report Anthony Brand said that the report highlights “the increasingly vital role that local authorities should play in delivering the investment for community infrastructure”. In the report he argues that:

“Despite a massive increase in capital investment over the last decade, central government alone is not meeting the needs and expectations of its citizens.

Localities must be free to drive their own economic development at the time and in the way that is most appropriate for them. These decisions can only be made with local knowledge and an understanding of what works in that area.

If we want local authorities to build strong and prosperous communities then we need to revitalise local government’s role in delivering economic development. We need to lever in more investment and make every public pound go further.

Local authorities in growth areas must ensure that development is planned and directed more strategically in line with wider policy goals. In areas of market failure, where regeneration and economic development are more difficult, local authorities need to use all the levers available to them to attract private investment. New thinking and a new framework is needed so that local authorities can be a real catalyst for growth”.

Publication Date: 3 July 2007
ISBN: 1 903 447 62 3
Authored by: Anthony Brand