Brexit

A global Britain needs more local government not less

Achieving sustainability by 2020 and planning for the long term

“Think globally, act locally” reflects the opportunities and challenges now facing “global Britain” in a post-Brexit world.

The Brexit white paper articulates a vision of this global Britain as open and outward-looking, “forging ambitious free trade relationships across the world”.

However, this more global Britain will depend on the inclusion of every part of the nation. To meet new demand generated from trade with partners from India, Singapore and South Korea local communities will have to adapt fast – creating a business-ready environment, dealing with new funding pressures and nurturing a diverse home-grown workforce.

The question now is, does local government have the legal, financial and economic resources for local action? And more importantly, come 2020, will the sector achieve the financial sustainability needed to meet the challenges ahead?

The funding challenge

Direct EU funding uncertainty

Beyond 2020, there is little certainty regarding the future of European Structural and Investment Funds (ESIFs). While the Chancellor has provided guarantees to those projects signed before the Autumn Statement 2016, it is still unclear if there is to be a replacement scheme beyond 2020 and what the outcomes of projects agreed after the 2016 Autumn Statement will be.

Business rates

One hundred percent business rates retention represents the biggest local government finance shake-up since the community charge was introduced in Scotland in 1989; and in England and Wales in 1990. Local authorities face the challenge of creating local economic growth and boosting productivity in order to generate the income required to ensure on-going service provision.

However, a funding arrangement predominately based on business rates exposes local authorities to greater funding risk. Rates revenue is driven by changes in rateable values, which are in turn dependent on economic performance. This makes councils vulnerable to wider macroeconomic fluctuations as individual authorities cannot, on their own, control wider economic forces.

Brexit is likely to magnify the macroeconomic effects outside of local authority control. Although the 2016 economic slowdown did not occur as some forecasters predicted, the Office for Budget Responsibility now expects the economy to be 1.9% smaller by the mid-2020s.

Considering the enormity of the challenge, there has been surprisingly little parliamentary time dedicated to the issue. We believe this is short-sighted and urge local government to use every opportunity to emphasise that Brexit and local issues are inextricably linked; and that it is in everyone’s interest to understand this.

The skills challenge

Adult social care

The continued uncertainty around the status of EU workers in the UK has the potential to exacerbate the recruitment pressures felt within the adult social care system and of course the NHS.

There is clear evidence from all parts that unsocial working hours and low pay do not make social care an attractive career for many UK citizens, even in areas of low job growth and low skills. While EU nationals represent only 7% of the social care workforce, reduced EU migration will have the effect of narrowing the already limited recruitment pool available to the sector.

The ‘Moved to Care’ report estimates that if the government delivers on its commitment to reduce overall levels of net migration, there will be a social care workforce gap of more than 750,000 people by 2037. Even in a high-migration scenario, the Moved to Care report predicts that care sector would still face a workforce shortage of 350,000.

Therefore, local government and social care providers need to find a strong voice in shaping an immigration system which addresses these workforce pressures.

What can be done?

Leverage mayoral elections

While government has reiterated its commitment to pursuing devolution, it does not make the crucial link between handing the powers repatriated from Brussels to the sub-national level. The Brexit white paper relies on several qualifications. It reaffirms its commitment to devolution “where there is economic rationale to do so”; and it guarantees EU funding after the Autumn Statement“subject to value for money and domestic strategic priorities”.

Greater clarity regarding domestic priorities would provide the sector with the commitment needed to continue with their bold devolution plans.

The mayoral elections in Manchester, Liverpool, Birmingham, Bristol, Cambridge/ Peterborough and Tees Valley in May 2017 offer an opportunity to direct the government’s attention to the local level as the natural centre of accountability.

Further devolution could help to strengthen local communities and could provide much- needed social cohesion post-Brexit.

A regional approach to immigration

Another radical suggestion championed by the All Party Parliamentary Group on Social Integration is a regionally-led approach to immigration; and the devolution of responsibility for immigration policy to the UK’s regions and new metropolitan areas. This proposal has the potential to address the regional variations in reliance on migrant workers within the adult social care system.

In a recent Grant Thornton pulse check among 80 public finance professionals in the South East, regional immigration controls ranked fourth in the preferred list of powers to be devolved locally post-Brexit – after Housing & Public Assets, Healthcare, and Business Support. It seems that the sector favours a different form of devolution focussed on health and social care as opposed to local control over immigration and the labour market.

Greater spending and financing powers

Expanding devolved authorities’ capacity also means greater spending and financing powers. Providing greater fiscal autonomy is more necessary than ever if local government is to be the key sector, along with business, to grow the economy in a changing and uncertain landscape. In our view, business rates reform should be accompanied by a more comprehensive fiscal devolution plan.

Local government leaders have a unique opportunity to convince the government of the importance of local government issues at the Brexit negotiating table. Ultimately, it is up to local authorities to shape the post-Brexit agenda as a more “global Britain” will need local solutions.

To read more on the necessary steps local government must undertake to manage financial risk in a post-Brexit Britain please click on the Grant Thornton December 2016 Briefing: Brexit: local government – transitioning successfully.

This blog was written by Ivana Dimitrova, Local Government Advisory Consultant

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