Sort out the finances to secure real growth says Idea Birmingham

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The Chancellor’s latest announcements transferring all business rate revenues back to Councils masks a number of vital issues for the West Midlands Combined Authority (WMCA) area.

Currently the WMCA Shadow Board is proposing three new Commissions to tackle Land, Productivity, and Mental Health & Public Services – how is all of this to be funded?

The new devo deals appear to be further shifting responsibilities to local government without compensating reallocation of resources, on top of already swingeing cuts to local government implemented in the last Parliament and planned for this one. In view of the potentially dramatic impact of these proposals, IDEA Birmingham is proposing setting up a Fiscal Commission as part of their proposal for the Midlands Engine for Growth Manifesto.

London established a Finance Commission in 2012 to examine the real funding requirements for effective City government and how to achieve both public and private sector financing.  The Commission report “Raising the Capital” published in May 2013 provides a template the WMCA should actively pursue.  For London it provided the core platform for its ongoing negotiations with Whitehall.  Given the per capita level of funding London achieves it seems a strategy that should not be dismissed out-of-hand.  In addition, it should be utilised by the Midlands collectively and as a whole in discussion with Whitehall, rather than solely by the WMCA.

“We seem to be ignoring the fundamental issue of how we are going to finance everything. Before we get involved with our proposed three new Commissions in the West Midlands we need to find out how and where money is going to come from,” said Beverley Nielsen.

“We think the business community along with other public sector partners need to step up to the plate here as the government is throwing down the gauntlet to the regions and asking for real leadership, vision and engagement.

“While the WMCA is a bold initiative that addresses many of our problems, for too long we have allowed our lack of cohesion, our lack of partnership working and our lack of serious evidence base, to prevent us from presenting a strong case around our needs for resource, finance and investment, in turn undermining our ability to successfully lobby for what we have required to drive forward competitiveness,” she said.

It is expected that Mr Osborne will also announce the re-organisation of local authority pension funds into six “British Wealth Funds”, each with forecast assets of up to £30 billion, with these funds providing the capacity to both attract other funding as well as to invest in their own right in priority infrastructure projects.  The aggregation of local authority pension funds in itself raises concerns over risk mitigation and the future integrity of these pension pots.

“The region needs to work up agreed budgetary proposals and financing plans, with strategic economic opportunities for growth. With 30% of all UK cars made in the West Midlands and 3% of world aerospace output, with our region contributing 45% of UK exports to China, and with our exports having increased by 110% since 2009, the linkages and connectivity between companies making up the supply chains in these two sectors alone represent a vital asset base for our region and require long term plans to ensure our competitiveness over the coming decade. Finding ways of financing essential infrastructure – physical and digital — and gaining agreement amongst partners to these plans will be essential,” said Ms Nielsen.

“The Productivity Commission is again another useful initiative and improving output performance is essential if we are to increase general prosperity.

“Competitiveness is a key issue for the West Midlands, and the establishment of the Productivity Commission will provide a key focus of how to drive forward the real expansion of the regional economy.  Although the WMCA Shadow Board states that our region has an output gap of some £16bn and output per resident population in WMCA area stated as being £20, 137, we have calculated separately that output per worker in the WMCA area is actually closer to £45,000.  Are we really talking about a productivity gap or a failure to sustain growth?  Is this really a productivity gap?

“Anecdotal evidence would suggest that rather than suffering an output gap, the region is suffering from an over-utilisation of capacity, most notably but not solely in connectivity and transport infrastructure.  To improve the output and productivity potential of the region, we need to secure and realise much greater public and private investment in transport, connectivity, skills education and the social fabric,” concluded Ms Nielsen.