Bring in Local Investment Zones to boost growth

Cllr Philippa Roe, the leader of Westminster City Council, argues that the introduction of Local Investment Zones would allow all Conservative councils to play a role in creating the conditions for thriving local businesses while contributing to the Coalition’s growth plans.

The Local Government Finance Bill has its Second Reading in the House of Lords today and while it sounds like something that only the geekiest of local politicians should be interested in, it is one of the most important pieces of legislation that parliamentarians will scrutinise in this Parliament.

The Bill was hailed as the legislation that would ‘free councils from dependence upon central Government’. Local government finance is notoriously difficult to reform and so the Coalition must be applauded for tackling this thorny subject but experience tells us that major reform is a once in a generation opportunity. Getting it wrong could be costly.

Unfortunately, the Bill as it stands, due to the recalcitrance of the civil service, is unlikely to support the Government’s localism and growth agendas in any meaningful way, and may even set back the drive for growth.

These issues were first publicised in the Centre for Cities’ excellent publication Urban Outliers. The report made clear that reducing what local government can do to promote growth down to its simple planning functions, as the Bill does presently, will severely disadvantage those of us who serve in urban authorities where room for new floorspace is severely restricted.

Recent research by the London Chamber of Commerce found that planning was actually only the fifth most important priority for local government in a survey of London’s businesses. Instead, they prioritised safe, clean streets, an attractive public realm and a working infrastructure.

These are the priorities that, time and time again, up and down the country, make Conservative authorities popular not only with their electorate but with local business communities. The vast majority of firms are not looking to expand their premises but are looking for an attractive commercial environment in which to do business and to which they can attract customers.

That is why it is extremely disappointing that the Local Government Finance Bill will fail to reward councils that invest in the existing commercial environment or those that support struggling local high streets. There already exists a market-led metric for determining the success of such investments: business rate valuations. The market reacts to improvements in the local landscape and facilities in the form of rental price increases.

As the Bill stands, however, there will be disproportionate rewards for granting permissions for large new supermarkets on the edge of towns but not for targeted investment to bolster existing community businesses. This also, of course, runs contrary to the government’s work with Mary Portas to rejuvenate our high-streets.

To strike the right balance and promote investment that supports local growth, the Tri-borough authorities (Westminster, Hammersmith, K&C) have put forward a proposal for a Local Investment Zone (LIZ). LIZs would allow councils and partner organisations to benefit from the increase in business rate revenue in a defined locality that results from increases in rateable values after targeted investments in public realm, community safety or commercial infrastructure made by the host council. This would provide a small source of income for those authorities to invest in their communities but, importantly, would incentivise those councils that the Bill presently fails to do who do not have the ability to benefit from new physical growth.

The idea was inspired by our experience with the redevelopment of the Harrow Road area in Westminster between 2006 and 2009. Our investment in the area during this period saw new CCTV, improvements in shop security, the installation of new paving, more seating and better lighting and saw huge improvements in what is one of the most deprived wards not just in London but in the country.

Despite a declining economy, retail unit occupancy rates increased from 76% to 89%, there was an 80% reduction in drug-related crimes and prostitution and resident and business satisfaction levels have improved almost immeasurably. Our investment was reflected in a 47% increase in local rateable values but frustratingly under the new system we will not benefit in any way from this or similar investments in the city. Creating a LIZ would be a ‘win’ all round for both central and local government, for local communities and for local businesses.

A fundamental rethink of what entrepreneurs value in a local authority is required to ensure that this chance to overhaul the relationship between councils and business and give local government a real stake in their economies does not slip by.

The best Conservative councils are willing and keen to play a role in creating the conditions for local growth and contributing to the government’s attempts at getting the economy moving. Ministers must not let this opportunity pass but should look to introduce Local Investment Zones and use the Local Government Finance Bill as the vehicle to do so.