29 November 2010
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In the age of austerity the Government has set out an agenda based on localism for the real estate and planning sectors. By Simon Ricketts and Matthew Mainstone
On 20 October Chancellor of the Exchequer George Osborne presented the Government’s Comprehensive Spending Review (CSR), the primary aim of which is to reduce the UK budget deficit over the next five years to ensure economic stability. The CSR also sets out the Government’s plans for spending on capital projects such as Crossrail and the potential London to Scotland rail link High Speed Two.
As a result of the CSR it is estimated that approximately 490,000 public sector jobs will be lost, while departmental budgets are likely to be cut by an average of 19 per cent over a four-year period. The implications of the CSR for the property sector are wide-reaching, particularly in the areas of planning, housing and regeneration.
The Department for Communities and Local Government’s (DCLG) budget is to be reduced by 33 per cent in the next five years, significantly more than the average, and local authority expenditure will inevitably be extremely hard-hit. Ringfencing of most local government revenue grants will end in 2012 and local authorities will have increased control over expenditure on services.
Tough decisions will have to be made by local authorities as to which services should be prioritised. Areas such as planning and conservation may not always be as high on the agenda as services that are perceived to be essential, or the delivery of which may secure more votes at the next local elections.
How this sits with the Government’s localism agenda is likely to be a big issue, as the moving of power and decisions on housing, for example, to a local level will require increased planning resources at that level. The result may well be that development is frustrated due to a lack of resources and strong, well-organised communities resisting development in their areas.
The ’Big’ idea
The CSR reinforces the Conservative Party’s principle of the ’Big Society’, which is effectively defined as a society where everyone plays their part. It reasserts the Government’s objective (to be enshrined in the forthcoming Localism Bill) of moving power to a local level so that individuals and communities have a greater role in the way services are delivered.
The principle that lies behind this is the Government’s belief that individuals and communities understand the priorities in terms of service provision better than central government and, therefore, that they are better placed to determine what the available money should be spent on. The Government says it will consult on the proposed reforms and how services can be better delivered, and intends to publish a white paper on the proposed changes early next year.
This Government has been extremely critical of the low level of housebuilding under previous Labour administrations, citing in particular the delivery of 118,000 homes in 2009, the lowest number in peacetime since the mid-1920s. In this regard the CSR reiterates the Government’s intention to increase the national housing supply by attempting to make the planning system more efficient and ’pro-development’.
The new homes bonus is identified as a means of achieving this aim by giving local authorities incentives to ensure that more housing is constructed in their areas and more empty properties are brought back into use. It works by match funding, equal to the national average for a council tax band, being provided in respect of each new home and existing property that is brought back into use for each of the subsequent six years.
A consultation paper was published on 12 November seeking views on the Government’s proposals.
The Regional Growth Fund (RGF) is referred to in the CSR. This is to be extended to three years instead of two and increased to £1.4bn. In the Budget, the Government announced that it would set up the RGF to be directed to projects that have significant potential for private sector economic growth and employment.
Bids for funding by both the private sector and PPPs are to be made, with the results of the first round being announced before the end of the 2010-11 financial year. The first round of bidding is now underway and closes in January 2011.
The objectives of the RGF, as set out in the white paper on local growth, ’Local Growth; Realising Every Place’s Potential’, published on 28 October, are to encourage private enterprise by providing support for projects with potential for economic growth to create additional private sector employment and to help those areas that are dependent on the public sector to make the transition to sustainable private sector-led growth and prosperity.
While local authorities will be obliged to work with communities in their areas to ascertain how the fund will be used, whether it will act as an incentive to stimulate development in all cases is another matter. The Nimbys may continue to have a strong voice for a while yet.
Local enterprise partnerships (LEPs), the first 24 of which were announced in the white paper on local growth, will be able to submit bids for the RGF. It is still not clear exactly what functions LEPs will have. Whether they will be able to assist in the Government’s aims of providing the “vision, knowledge and strategic leadership” to boost economic growth in priority areas, such as transport infrastructure, is uncertain. It will depend on the extent to which the public and private sectors participate and cooperate and whether they will be able to obtain the required funding, notably from the RGF. No specific funding has been set aside for LEPs by the Government.
The report on the CSR also explains that new powers will be created for the implementation of tax increment financing (TIF). TIF is aimed at helping to deliver economic and private sector growth, primarily through the delivery of infrastructure that is required to encourage the establishment of businesses in that area.
TIF would enable local authorities to borrow against anticipated increases in revenue from business rates that will result from the establishment of more businesses once the necessary infrastructure, such as transport schemes, has been provided. The money borrowed will help pay for such infrastructure.
With other sources of funding currently in short supply it is hoped that TIF will, particularly in the early stages of the economic recovery, assist economic growth y targeting specific areas where infrastructure is clearly required to act as a catalyst for regeneration.
The powers to implement TIF are detailed in the white paper. This explains that TIF is likely to proceed on a bid basis and the aim is that initial projects will be studied so that the lessons learnt can be used to determine how the power should be applied in the future.
The DCLG’s business plan for 2011-15 was published on 7 November. It provides timescales for introducing the Government commitments outlined above as well as other pledges. A TIF bill will be introduced in July 2011 and proposals to implement local retention of business rates and TIF will be introduced in April 2012. The Localism Bill will be introduced in December 2010, with secondary legislation being passed in April 2012. LEPs are to be established in April 2012 and the systems and funds to deliver the RGF will be put in place by April 2011.
So is this a recovery package or some rather complicated rearranging of the deckchairs? Nobody yet knows; but in the meantime, real estate and planning lawyers will have to keep up with the pace and scale of the changes that are underway.
Simon Ricketts is a partner and head of the planning and environment group and Matthew Mainstone is a senior associate at SJ Berwin