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Whitehall won't pay for LEPs, councils will

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The government’s decision to transfer £400m of New Homes Bonus, about 35% of the total, to local enterprise partnerships is a serious blow to both councils and the Department for Communities & Local Government.

The government’s decision to transfer £400m of New Homes Bonus, about 35% of the total, to local enterprise partnerships is a serious blow to both councils and the Department for Communities & Local Government.

From local authorities’ point of view, it is hard to see the reallocation of resources as anything other than an additional cut to their funding. For DCLG, it will mean weakening the incentives for councils to give planning permissions.

Most of the money committed to LEPs has been taken from resources that would otherwise have been available to local government. It is a measure of the power of Whitehall departments that they have been able to defend almost all of their own directly spent resources and ensure that councils bear the brunt of paying for LEPs.

But it is the damage inflicted to Eric Pickles’ New Homes Bonus that is most problematic. The logic of the NHB is that it would give councils an incentive to drive up the number of new homes built. It was to achieve this by giving the local planning authority a payment for each new home delivered. As the result of the LEP reform, the council that gives planning permission will not be able to guarantee that it can use all of the resources generated locally: the local LEP may decide to spend the money outside the area where housing is built.

The original incentive was pretty weak. It is now minimal. The next stage of LEP evolution, presumably, will be to raid councils’ yield from the growth in their non-domestic rate base. Indeed, once Whitehall gets used to transferring local government resources to LEPs, it is likely that slabs of central grant will also be shifted across.

It is a pity that the (relative) simplicity of the New Homes Bonus has been lost in the cause of expediency and the need to create a pot of funding for LEPs. In effect, LEPs will precept on local government. Perhaps councils should suggest to the chancellor that a proportion of the growth in the national tax yield be made available to boost the regional growth fund. Though it is doubtful that such a policy would be particularly attractive to central government.

Tony Travers, director, Greater London Group, London School of Economics

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