A budget for city localism

A radical extension of localism?

The 'Earn Back Model' announced in the budget sees Greater Manchester earn national tax income from Treasury on economic growth that it generates.  This is a radical extension of localism because it it the first step in putting revenue from national taxes (such as income tax or corporation tax) directly into the hands of local areas.  Previous steps towards localism have been about devolving control of taxes which have a local character (such as business property tax).

Greater Manchester's deal sees it expecting to earn around £30m per annum through this source - roughly the same as its budget for smaller local transport capital schemes.  By gearing up against this, Greater Manchester can put substantial new resources into infrastructure which would otherwise have to wait for years.  This is a massive step for how we think about tax increment financing and really starts to make local growth incentives look significant enough to make a difference.

Big benefits for cities

This, and a lot more besides, has been negotiated behind the scenes over recent months and achieved through the City Deals Initiative.  City Minister, Greg Clark, said "We've said to each City "Make us an offer.  Tell us how you can drive growth in ways that have not been tried before..."".  Alongside this the Chancellor has promised to "make up to £150m available [...] for larger scale projects in core cities to be financed through Tax Increment Financing" as well as announced budgets for superconnected cities.  The freedoms and income potential that Manchester has won through the Earn Back Deal could be useful elsewhere and other cities are discussing similar models with government.

What about the rest?

So the big localism changes continue to start in the go-ahead cities.  This is no surprise as city economies and populations tend to be more dynamic and change more easily embraced.  But it doesn't stop at cities.  Many non-urban areas also have growth potential that is restricted through lack of infrastructure.  While the City Deals Inititiative is the current vehicle, it is easy to see how pressure from the shires could see similar schemes extended across the country.  In the meantime, growth generating cities will continue to hollow out parts of the rest of the economy.  Worse, by rewarding growth with cash for those that have jumped at the opportunities, the exchequer will have less left over for the rest.  If Greater Manchester's new infrastructure diverts some businesses from other areas, Greater Manchester will take Treasury tax income that would have gone elsewhere.  In this game, first mover advantages are important.

So the budget signals the further rapid expansion of devolution and is led once again by the go-ahead cities.  But they don't have a monopoly on economic growth or good ideas.  The sooner more widespread localism takes off, the less chance there is that some will get left behind.