A new commission has been set up to push for a reformed funding system which allows city councils to benefit from their efforts to boost their local economies. Sir Stuart Lipton, its chairman reports on progress

The current system of city local government finance is unsustainable. It fails to encourage growth and stifles ingenuity in our major cities.

For this reason, Birmingham, Manchester and Westminster, on behalf of Central London Forward, have come together to launch an independent City Finance Commission.

This commission has enlisted a group of independent leading experts to sit on the review, which is being chaired by myself, and will meet for a number of sessions. We will be hearing from expert witnesses and inviting written evidence from a range of stakeholders.

The first meeting of the City Local Government Finance Commission was held this month in Westminster, and with the central government resources review imminent, time is of the essence for local authorities to take the lead in developing proposals for the reform of local government finance.

The Government has indicated that it is ready to be creative with the reform of local government finance, and with everything on the table, the commission is ready to be ambitious.

The first meeting of the commission was a huge success. All commissioners showed their ambition for the inquiry, and with the collection of experts we have, I am confident we will come up with a number of workable solutions for inclusion in the central government resources review.

For too long, cities have been reliant on central government handouts without being given the freedom to innovate and generate growth. The recommendations of the commission hope to change this.

If the UK’s cities are to play a stronger role in promoting economic growth, they must be in a position to be genuine local leaders and receive the financial benefits from the investment they make in supporting the local economy. 

The current system does not recognise the contribution that local government plays in supporting growth or allow local authorities to share the benefits of growth, and I am hopeful the commission will be able to put in place recommendations to change this perverse system.

The first meeting of the commission saw members agree that a focus on economic growth underpins any recommendations for financial freedoms and economic self-sufficiency.

The economic prosperity of our major cities impacts on the country’s ability to grow out of the recession, and this will only come from giving cities the freedom to flex, grow and flourish. The commission will consider how best to build a financially-secure tax base in our cities, without leaving any suburb behind.

Any system proposed needs to work for the whole local government sector, while also acknowledging that a one-size-fits-all system has failed to encourage growth. It is this difficult balancing act which the commission will seek to address.

The commission will also look to develop new governance proposals designed to rebuild the broken link between businesses and local councils. 

With local residents electing councillors, the link between local businesses and local authorities is strained. The commission will consider what mechanisms could foster better relations with business, and ensure appropriate representation of business within new governance structures. 

The commission will also be developing proposals that can improve accountability between the public and private sector. Where relationships between local businesses and local councils work well, real improvements can be made.

Improvements to the public realm and transport deliver a regeneration dividend, attracting investment, bringing growth and securing jobs. 

The public realm improvements and hugely-successful diagonal pedestrian crossing at London’s Oxford Circus was made possible through public and private sector partnership, including the local business improvement district delivering this shared vision – outlined in an action plan agreed by both public sector and commercial stakeholders.

This type of approach is one which the commission will learn from and seek to emulate within a wider system of public and private accountability.  For growth to happen, we need to have a healthy labour market, and the tools to tackle deprivation, unemployment, skills gaps and inequality. Local authorities are the key to achieving this, which makes the reform of local government finance all the more critical.

It is up to cities to grasp the bull by the horns, recognise the appetite of central government and come up with solutions to the problem of the stagnant system of local government finance.

The commission will sit for a further four hearings, and will report its recommendations in early April. Interested parties can also submit written evidence to the commission by e-mailing cityfinancecommission@westminster.gov.uk.

Sir Stuart Lipton is chairman of the City Finance Commission.