Posted by Peter O’Brien, 7th October 2015

There were two key announcements in Chancellor George Osborne’s speech to the Conservative Party conference, in Manchester, on Monday (5th October), which captured the attention of the national press and media. The first, heavily trailed in advance, was the establishment of an independent infrastructure commission, to be chaired by Lord Andrew Adonis, which will advise the government on how to plan, invest in and deliver ‘strategic’ infrastructure projects.

The creation of a new infrastructure commission could, in theory, enable governments to adopt and implement a long-term, strategic perspective on infrastructure. The commission will be beneficial if it offers innovative advice and guidance on how public and private sectors can individually and together invest in viable schemes. In addition, the commission will receive plaudits if it offers solutions on how individual infrastructure assets and systems can be better integrated across sectors, and how infrastructure can be valued more holistically, and for its economic, social and environmental contributions, moving beyond narrow financial calculations.

Adonis brings three elements to his new role. First, he has a well-known interest in a range of infrastructure issues. Second, Adonis led on Labour’s recent review of cities and devolution policy, and was the chief architect of the North East Independent Economic Review. Third, he has been a vocal commentator, and sometimes critic, on the distinct demands and pressures facing London and its existing infrastructure. As head of the new commission, he will be in a position to impart his own expertise and analysis, which should include a recognition of the important, and yet currently under-utilised, role of local authorities in planning, funding, financing and managing infrastructure provision within the National Infrastructure Plan. This would chime with a key recommendation of the iBUILD 2015 Manifesto, which called for greater devolution of infrastructure responsibility to cities and city regions.

The creation of the new infrastructure commission is also a tacit acknowledgement that the current lack of strategic planning across functional economic geographies in England is making infrastructure planning, investment and delivery of projects, in areas such as housing and transport, difficult – especially in the London ‘mega city-region’ and adjacent home counties. At face value, the creation of the commission represents the latest effort to ‘de-politicise’ infrastructure. However, it also represents a political move by Osborne who will be acutely aware that, in the run-up to David Cameron leaving No.10 in 2020, the commission could provide valuable cover for an incoming Conservative Party Leader and potential Prime Minister.

The second announcement was Osborne’s decision to allow councils in England to retain all the revenue from business rates – an estimated £26 billion. In addition, local authorities will be able to reduce business rates, whilst cities and city regions with elected mayors will have extra powers to add a premium (at a maximum of 2p in the pound) to local business rates to fund new infrastructure projects.

While the fine details are still to be fleshed out, the proposal does represent a fundamental change in local government funding, but the move towards wholesale localisation of business rates raises five important issues for consideration at this stage. First, local government will only have the power to reduce business rates, thus this will favour those authorities that are net contributors, of which many are located in London and the south east of England. This has the potential to exacerbate existing spatial inequalities if there ensues a race to bottom as councils engage in aggressive tax cutting.

Second, the premium on business rates to pay for infrastructure is an initiative that the London Mayor and London Boroughs managed to convince London business to back as part of the overall Crossrail funding package. London First, the business lobbying organisation, was a key broker in swinging business behind the plans for Crossrail. In future, representative business bodies in other regions and cities will need to play a similar role. At the same time, HM Treasury’s insistence that LEP business board members will be able to veto an elected city region mayor’s proposals to introduce a business rate supplement poses fundamental questions about the government’s stated rationale for elected mayors, which could undermine the mandate of the mayor, and the democratic will of local electorates.

Third, greater fiscal autonomy in the form of business rates may have many town hall finance officers breaking out in a cold sweat. The business rate system is creaking, and many local authorities have found it difficult to predict, with accuracy, future revenues. Furthermore, the multitude of appeals within the business rate system has provided additional complications. It is understandable why Osborne has chosen business rates as the tax to decentralise, but the proposed changes come with baggage.

Fourth, Osborne has made a bold political manoeuvre, but it is being taken forward with limited evidence to date of ‘what works’ in the different business rate retention schemes within England. For example, do we have a real, in-depth understanding of how the Greater Manchester 100% business rate retention pilot has functioned thus far? Or that of London’s partial retention scheme? And can we say, with genuine confidence, that there are effective monitoring and evaluation processes in place from such ‘experiments’ that can inform new policy in this area?

Finally, the ability to raise and retain local revenues is only one feature of fiscal autonomy. Devolved territories and cities will remain hamstrung from planning and making long-term infrastructure investments as long as they lack the powers to undertake direct borrowing of substantial amounts of capital. Until such flexibilities are forthcoming, the Chancellor’s fiscal decentralisation proposals risk being seen as more illusion than reality.