Councils are being told to scale back ambitious growth plans after it emerged that a government pot of cash for economic growth, transport and housing projects is ‘massively’ oversubscribed, LGC can reveal.
The local growth fund – a key feature of Lord Heseltine’s review of economic policy – is at least three times oversubscribed, the Department for Business, Innovation & Skills confirmed to LGC.
Councils are being told to rein in plans as Whitehall officials decide how best to distribute the £2bn a year fund from 2015 until 2020.
One council leader, who did not wish to be named, said: “It’s massively oversubscribed and we’ve been told, ‘Be prepared to limit your ambitions.’”
When the local growth fund was unveiled last year, many complained it offered only a fraction of the £70bn over four years recommended by Lord Heseltine.
Despite the huge demand, the West Yorkshire Combined Authority has bid for £100m and hopes the fund can be used to get its stalling infrastructure programme back on track.
The WYCA’s growth plans, which include infrastructure improvements worth £1.6bn and aim to create 22,000 jobs, were reported by LGC in April 2012.
However, the scheme has hit difficulty because one of its key components, a programme of major improvements to transport infrastructure, was reliant on income raised by increasing transport levies. Such a move has become impractical because changes to council tax rules mean levy increases could trigger council tax referendums.
The combined authority was previously promised £18m a year – money now channelled through the local growth fund. However, it is now bidding for an extra £10m annually for a decade in order to compensate in part for the lack of transport levy.
The WYCA has proposed funding its plans through a payment-by-results scheme in addition to the local growth fund money. Under this model, councils would be repaid by Whitehall if they could prove the economic benefits of their investments.
But sources close to the discussions have told LGC that although there is some support in the Cabinet Office, the idea has met scepticism from the Treasury.
LGC understands both Danny Alexander, Liberal Democrat chief secretary to the Treasury, and Greg Clark, Conservative cities minister, have agreed to meet leading WYCA leaders in the next six weeks to address concerns.
Peter Box (Lab), leader of Wakefield MDC and chair of the combined authority, has called for a meeting with the chancellor. Cllr Box said he hoped George Osborne would “find a way to break through the current stalemate”.
One WYCA member said the hold-up caused by the council tax changes had been “very frustrating”.
“Two years ago we didn’t go to the government with a begging bowl but instead we said: ‘No more of this, no more cap in hand. Give us the freedom to improve our economies and shape our region’,” the source said. “Yet two years later we still have civil servants hanging on.”
They added that long-term funding was essential. “If you say to businesses it all depends on what funding we get next year, and then again the following year, then that’s no way to bring confidence back to business and growth in the north.”
A Treasury spokesman said: “We are assessing the growth deal submissions received from various local enterprise partnerships and no decisions have been taken yet. It would be inappropriate to comment before these have concluded.”
A BIS spokesman said: “The local growth fund is being run on a competitive basis to ensure the highest quality bids are successful.”
Meanwhile, it has emerged that strict rules have left the West Midlands as the only metropolitan area without a combined authority.
Under government regulations, only adjacent authorities with similar powers may join and not, for example, individual districts or parts of counties.
Solihull MBC leader Ken Meeson (Con) told LGC he would be reluctant to join a combined authority because he believed Solihull had a different economic base from the rest of the region. Without Solihull’s involvement, Birmingham and Coventry could not form a combined authority because they are not adjacent.