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Date of speech	15 May 2008
Location	New Connaught Rooms, London
Event summary	Institute for Public Policy Research (IPPR) Conference

It is a privilege to share a platform today with both Sir Michael Lyons and Sir Simon Milton. As we have heard again this morning, they both think and speak with great influence about local government.

I am in the same position as Sir Michael - first invited to this event when it was still billed as 'Lyons - one year on'. His report still serves as a very good policy reference point, both generally and for this conference on the central - local government specifically. It is the most authoritative and comprehensive review of local government we have seen.

In government Sir Michael's review is so well established that it is known simply by the single name 'Lyons'. Like Madonna or Kylie.

But the fact is, Lyons strongly reinforced the hand of those of us - inside and outside government - who wanted to pursue his central proposition, that:

"Central government needs to leave more room for local discretion and recognize the value of local choice".

Sir Michael and I shared an IPPR platform - in this very building - soon after his report was published.

Now you billed that conference last year as 'the start of a key phase in the relationship between central and local government'.

A year on. A lot has been done.

My thesis today is: What we have put in place together over the last year is a good base. The next year or two will determine how much further we can build on that base. And the onus lies just as much in your hands, as it does in mine; just as much with local government as it does with ministers.

We are well into the next phase that last year's conference signalled.

The central / local concordat has helped clarify respective roles and responsibilities.
The first ever three year finance settlement has given local government the flexibility to make longer-term plans and investments. Not just the rising £23.5 billion core grant I was able to give to English local authorities each year, but also:
- 61 specific grants from seven departments also confirmed for three years at the same time;
- 43 grants now paid in a single sum each month through the new Area Based Grant with no strings on how the money can be spent;
- Ring-fence restrictions on spending of an extra £5 billion removed over the next three years; and
- Local Area Agreements have changed the way priorities are set at the local level.

Some people didn't think that LAAs would work. They didn't think that Whitehall departments were capable of giving up control of local policy. We are proving them wrong.

Government reduced the frankly mind-boggling 1,000 or so performance indicators for some Councils to under 200 for all. And in nearly all 150 LAA areas, agreement has now been reached on the 35 priorities for an LAA with a 99 per cent match between central government and local partners.

The emerging picture of priorities is very revealing and encouraging. Local Authorities are tackling some of the most challenging and controversial issues. And across the country they're taking a consistent view of what is most important in our communities today.

Nearly five out of six LAAs are prioritising 16 to 18 year olds who are not in education, employment or training. Two in three want to tackle teenage pregnancy. Increasing affordable housing, lowering CO2 emissions per head and tackling obesity in primary school kids.

I chaired an LAA workshop yesterday, with five demonstration areas. One senior Council manager said:

"We're having a new type of conversation about local priorities and, with these other agencies, we're completely focussed on our 35 priorities".

A Police Chief Superintendent put it more bluntly, saying:

"LAAs have given our partnerships a kick up the backside… I've now got the Director of Children's Services chairing the youth crime taskforce and the PCT chairing the drugs and alcohol strategy, when before they just turned up to some of the meetings".

If we can make this LAA approach work over the next couple of years, why should we not see this as a potential way that the centre commission and funds local services - well beyond local government, with stronger shared services, pooled budgets, duties to co-operate, and cross-agency scrutiny?

We're also well into a new phase in the relationship between local government and residents.

As service users, people are demanding and expecting more. As citizens - and voters - they are too. They expect more information, consultation, say in decisions and ability to demand answers or action when things aren't right. They want to be able to call those making decision to account directly, and have others do so on their behalf.

The central question of our age in public services is: how do we answer this appetite for engagement in its different forms?

The latest citizenship survey told us in December that under a half of people feel well informed by their Council about the services in their area. Two in five feel they can influence decisions in their local area - but that means that the majority do not.

We have taken a tentative first step by legislating in the 2007 Local Government Act for a community call for action and a councillor call for action in relation to the services and responsibilities within local government.

But most people don't recognise institutional divides. So the obvious next step is to develop the community call for action, and especially the councillor call for action, beyond the boundaries of the local authority.

It is my long-held belief that local government is the point at which people can best connect with politics; that local democracy is central to strong communities; and that local involvement and trust in people is how we make public services respond to people's needs.

In our Department for Communities and Local Government we are looking to answer some of these aspirations shortly in our white paper - then legislation - on community empowerment.

When people ask:

How can I get involved in my community?
Where can I get information on this local concern I have?
What's my way of having a say on this issue?
Why have these decisions been taken, who's made them, and how can I challenge them?

… the White Paper aims to provide the answers.

On the economy, Sir Michael wanted a greater local authority role - essential, he argued, for effective place-shaping and leadership.

It reinforced the work I was leading in the Treasury at the time on local and regional economic policy. It helped me prepare and launch the Sub National Review of Economic Development and Regeneration (SNR) in July.

This was not a conventional central government prescription for 'every town'. But principles to support the progressive evolution and devolution of new powers and freedoms for regions, cities and local authorities.

Since last summer, you can see a range of areas of government in which this progressive reform is taking place, in line with the SNR:

In 14 - 19 year old skills funding;
City strategies on employment;
The new Working Neighbourhoods Fund;
Train to Gain brokers moved to business link;
Multi Area Agreements;
The new transport bill;
Consultation on a new economic development duty for Councils and streamlined new regional arrangements; and
Powers for local authorities to introduce new planning levies and business rates supplements.

But public funding - at central and local level - is limited. And we sometimes forget how important private finance is in meeting many of the challenges we face in public policy. From housing to regeneration. From transport to innovation and skills.

You only have to look at the growth in PPPs, the success of many PFI schemes, or the leverage that some urban developments can achieve to appreciate how much potential there is here.

So we have to make private capital work harder. But when private capital is more cautious in the backwash of the global credit crunch, we have to work harder to create the opportunities - or frame the deal - for private investment.

We have to push for more improvements and innovation, especially in contributions of equity and grant funding, and around prudential borrowing and better use of public assets.

I think there is a real desire in many local councils to experiment with these alternative funding tools, which as most of you know are now commonplace in the US. This is an area I want to explore in more depth, with both local government and the private sector.

It seems to me important that local areas should keep some of the increases in tax revenue that may come from growth. I looked to model this three years ago with the £1 billion Local Authority Business Growth Incentive 2007 (LABGI) scheme. We trialled LABGI as a proxy for increments of retained business rate revenue, paid to local councils as a grant.

Now the challenge is to look at designing such recognition of pro-growth policies and progress into the tax system.

This seems to me fairer all round that simply saying 'it's your money, spend it as you choose', which would remove essential redistribution of resources to recognize need and would devastate the services and strength of local councils across the country.

Just remember, the four local authorities with the richest business base will alone contribute one eighth of the £20 billion or so collected this year in non-domestic rates. Business rates in Westminster and the City of London alone together total more than any one of four entire regions - the North East, East Midlands, South West and Yorkshire and Humber. When you take the top four local authorities together, the total is also higher than for the West Midlands, East of England and North West regions.

I talked about the case for a range of funding tools for local government when I spoke at a large conference earlier this week. The first question from the audience was from a council chief executive in a growth area who said,

"we'd want that… It would help raise revenue and fund the infrastructure we need".

I checked yesterday. That council doesn't appear to trade commercially, hasn't borrowed in the three years of the new prudential system and has seen its charging income drop by a quarter over the last four years.

This council is not alone. Research tells us that:

Councils generate £1 billion a year through their powers to trade… but only a quarter of the minority that use these powers aim to make a surplus;
Nine out of ten LSPs are aware of the wellbeing power but fewer than one in 12 are using it;
Only one in five councils are using charging to the full potential. Not just to cover costs but to shape their area - reducing congestion, improving levels of health and exercise, encouraging the use of local shops;
Half of councils don't even have a clear policy on charging to guide their decisions on how to use their powers; and
Even with the significant new freedom we introduced from the Treasury in 2004 with the new prudential borrowing regime, only 60 per cent of local authorities have used it since.

It's worth recalling that Joseph Chamberlain's new era of civic pride - often quoted as the golden age of local government - was built on making surpluses and taking advantage of long-term loans at favourable rates.

So, to end, I come back again to Sir Michael's report - I promise for the last time today - because he said:

"Local government needs to strengthen its own confidence and capability, engage more effectively with local people, and make best use of existing powers."

Surely the message to local government is clear.

By all means make the case for more power, more freedom, more innovation.

But also make use of those you already have.

This surely must be at the heart of the new central - local government relationship.