Labour leader Ed Miliband will today set out bold plans to revolutionise local government by stripping Whitehall departments of £30bn and handing the cash to local authorities and economic agencies.
Mr Miliband will reveal that councils under a Labour government will be allowed to keep any future sums they raise from local business taxes, effectively rewarding authorities if they succeed in encouraging economic growth and attracting employers.
The plans were drawn up by Labour peer Lord Adonis, who previously led the North East Independent Economic Review, which was commissioned by the North East Local Enterprise Partnership.
He said: “On education, infrastructure, regional growth, productivity and living standards, the UK lags much of Europe and North America. Having once been the world’s dynamo of new products, ideas and processes, British firms struggle to grow, find the skilled workers they require, and export.”
Proposals include stripping Whitehall departments of £30bn currently spent on housing, transport, business support, employment and adult skills, and distributing the money over five years to councils and local enterprise partnerships, the economic development agencies set up by the Government which are led by councillors and business leaders.
The £6bn-a-year fund would replace the Government’s local growth fund, worth £2bn a year, which is due to begin distributing money next year.
Councils will also be allowed to keep any extra cash they collect in business rates as a result of economic growth.
They currently receive £22bn a year from businesses nationwide but most of this is simply handed over to the Treasury.
Each authority’s current contribution to the Treasury will remain as it is, adjusted each year for inflation, but councils which collect higher sums in the future - suggesting new firms have been founded or moved in to the areas - will keep the difference.
Lord Adonis said the measure would encourage councils to support businesses but it is also likely to be controversial because it means authorities where economic growth is slower will have less money to spend.
The new tax-raising power will only apply to combined authorities, such as the new North East combined authority serving County Durham, Gateshead, Newcastle, North Tyneside, Northumberland, South Tyneside and Sunderland. Councils which are not part of a combined authority will be encouraged to create one.
And England’s 39 Local Enterprise Partnerships will be reduced in number.
While these ideas are now Labour policy and will be included in the party’s next election manifesto, Labour is still considering whether to adopt other policies recommended by Lord Adonis, which include establishing at least 100 new University Technical Colleges, which focus on technical and scientific skills.
Lord Adonis also backs the idea of “city region” or conurbation mayors for combined authorities, but only once the authorities are up and running successfully.
A draft version of Lord Adonis’ report, published in April, was criticised by some North East MPs.
But Lord Adonis insisted: “The generality of North East MPs supported it as did all of the council leaders, who I worked with closely.”
He said he backed calls from Newcastle MP Nick Brown to bring back the post of Minister for the North East, which was scrapped by the Coalition.