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Councils need a financial system that incentivises self-determination

Martin Reeves
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I have been thinking a lot recently about the implications of Brexit clashing with continued public sector austerity, devolution and combined authorities.

Gaining full control of our financial futures has to be the answer to this clash. Having a well-stocked toolbox to hand, from which we can choose the tool that gets the job done, will be the defining characteristic of the next decade.

I do not wish to get into a deep, technical exposition of how, in the light of the consultation on business rates, pooling and retention, this might be achieved. It’s difficult to synthesise all of the possible scenarios but that must not cloud the fact that business rates reform is only one of the tools in the box. More importantly, if I do get into the detail, it will expose me to the far more authoritative positioning of the Chartered Institute of Public Finance & Accountancy, The Institute for Fiscal Studies, Centre for Cities and many others. I do, however, know enough about this stuff to say that has to be a different way. This is a frenetic environment, which means we have the opportunity to create a more holistic, coherent approach to finance, funding, economic growth and public service reform - and yes, across truly devolved places.

The breakneck speed at which the West Midlands has created the largest combined authority in the country, with an initial devolution deal secured and the first of many £36.5m tranches of gain share already in our coffers, means we now have to think very seriously about what devolution, rather than decentralisation, really means. Are we really going to be able to de-risk an £8bn investment programme to deliver infrastructure for growth, including ambitious plans to create half a million jobs and double output in 15 years, with the current or even planned changes to the system of financing public services? Definitely not!

On top of this, the West Midlands Combined Authority faces an annual deficit of roughly £4bn between income and expenditure on our public services. In my last column I demanded a carriage to bring service reform, the ‘Cinderella’ among our current local government trends, to the ball. But in order to establish the right level of investment to radically transform public services, we need innovative, flexible but above all local financial solutions for the medium- to long-term. Gone are the days of bouncing from one next budget round to the next.

I have started to talk about the ‘West Midlands Exchequer’. This is an entirely reimagined ecosystem; a bolder world in which not only do we argue for more freedoms to borrow and to use existing sources of funding in a more levered way, but in which we think with our colleagues from the Treasury in a different way. We will need all policy instruments, even those considered and rejected previously, to be on the table to reset a sustainable path to deliver our ambitions though a truly devolved settlement.

Controversially, perhaps we need to think about this fiscal devolution, independence and autonomy not as a zero-sum game either with central government or, more importantly, with other local and combined authority areas, but rather as a co-design and mature collaboration. Coventry is unique with its own wonderful mix of assets, opportunities and challenges; ditto the West Midlands. But surely we can lead a new settlement that means we can produce a compelling case with the government, which shows that creating our own independence does not necessarily drive a coach and horses through the Treasury’s fiscal rules?

As we put flesh on the bones of an emergent UK industrial strategy, it is a leadership necessity to celebrate the distinctiveness of our individual places but to do so whilst acknowledging a common, shared agenda, when it makes sense, with our friends in London and the Northern Powerhouse. We must create a financial system with the right balance of incentives that frames a self-determination to lead and to be held to account in our places.

Can we do it? Yes, we can, simply because the acceptance of the status quo, or a thinly veiled, adjusted version of it, is not going to cut it.

Martin Reeves, chief executive, Coventry City Council and West Midlands Combined Authority

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