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New ‘Off Balance Sheet’ Funding under the Localism Act 2011

The Localism Act is a wide ranging piece of legistlation that represents a huge shift in power from central Whitehall to local governments, communities and individuals. The new measures include new freedoms and flexibilities for local government, new rights and powers for communities and individuals, reform to make the planning system more democratic and more effective, and reforms to ensure that decisions about housing are taken locally.

The new ADZ schemes will give local authorites a tremendous capability to unlock private sector funding for major infrastructre schemes such as those recommended in the ‘Mini Stern Review Economics of Low Carbon Cities’ Report by Professor Andy Gouldson.

This wide ranging legistlation runs to approximately 500 pages under four headings

  • new freedoms and flexibilites for local governments
  • new rights and powers for communities and individuals
  • reform to make the planning system more democractic and more effective
  • reform to ensure that decisions about housing are taken locally.

The majority of powers are anticipated to come into effect by April 2012. New measures include:

General power of competence.

Local authorities powers and responsibilites are defined by legislation. Someimes councils are wary of doing somethin new, even if they think is a good idea because they are worried about the possibility of being challenged in the courts. This act turns the assumption upside down.

Instead of being able to act only where the law says they can, local authorites are now free to do anthing, provided they do not break other laws. [section 1]. The Act gives the Secretary of State the power to remove unnecessary restrictions and limitations where there is a good case to do so. Similar powers have also been given to other entites such as the Fire and Rescure and Transport Authorities.

Abolition of the Standards Board and clarification of ‘predetermination’.

The Standards Board for England that regulates the behaviour of councillors and receives complaints is abolished. Instead, local authorities will draw up their own codes and it will become a criminal offence for councillors to deliberately withhold or misrepresent a financial interest. The old rule that councillors should come to council decisions, especially on planning matters, with an ‘open mind’ have been swept away by section 25.

The Localism Act makes it clear that it is proper for councillors to play an active part in local discussions and they should not be liable to legal challeng as a result.

Empowering cities and other local areas.

The Localism Act enables Ministers to transfer public function to local authorities in order to improve local accountability or promote economic growth. New powers were included in the Act at the request of the Core Cites Group who commissioned a report by PWC ‘Unlocking City Growth, Interim Finding on New Funding Mechanisms 2008’. 

The report concluded that the Core Cities ( Birmingham, Bristol, Leeds, Liverpool, Manchester, Newcastle, Nottingham and Sheffield) are still underperforming relative to London and most cities in the South, due do underinvestment in city wide infrastructure.

PWC proposed a Community Infrastructre Levy [CIL] , A Business Rate Suppliment [BRS] allowing a 2p suppliment on the business rate and the radical idea of an Accelerated Development Zone [ADZ], based on the American Tax Increment Financing scheme that allows local authorities retain the local tax revenues for develoment by securitisation of those revenues.

These new ideas, together with the Regional Infrastructure Funds [RIF] undertaking ‘banker roles’ providing upfront finance or finance raising guarantees, effectively unlock private sector finance for massive infrastructure projects, taking the funding ‘off’ the Treasury ‘balance sheet’ in a similar method to PFI funding that fell into disfavour during the last decade. 

Speaking at the Liberal Democrat Conference on 20th September 2010 the Deputy Prime Minister, Nick Clegg announed that the Coalition Government would allow TIF in order to finance infrastructure projects – ie borowing against future income streams   see the House of Commons Library Standard Note SN/PC/05797 dated 16.12.11.

Clegg said’

TIF will operate within a carefully designed framework of rules, which the Governmnet will work closely with Local Authorities to design. More information on how TIF will opearate will be set out alongside the Spending Review.

It is clear that the ADZ model has been adopted, allowing cities to ‘participate in the growth dividend’, by retaing local tax revenues. The key question however is who will underwrite the risk of these new financial instruments? it seems from ‘Local Growth, realising evey place’s potential ‘ white paper, October 2010, the TIF will be introduced through a ‘bid based process, helping to minimise risks to both local and central government by working together to understand the risks involved and develop a shared approach to implementation’.

Community Rights

New Community rights will ensure that community organisations have a fair chance to bid to take over land and buildings that are important to them. It is hoped that local community and voluntary bodies will be able to take over the village shop, the local pub, community centre or library, to be nominated for inclusion on a list of assets to be maintained by the local authority.  

There is also a power to pause a sale for up to six months, in order to raise capital and bid to purchase the asset before it goes on the open market.Neighbourhood planning – ‘clearer, more democratic and effective’In order to allow localcommunities influence over decisions, Parish and town councils or neighbourhood forums will lead the creation of neighbourhood plans, supported by the local planning authority. which will be independently examined and put to a referendum of local people for approval.


The Localism Act act cures ‘fundamental flaws’ in the previous social housing system. It was felt that the rules were too rigidly set by central government so that councils found it hard to adapt and meet local needs. 

The Act gives Local Authorites greater freedom to set their own policies about who should qualifiy to go on the waiting list and allows more flexible arrangements for for people who move to other social rented homes.

Councils will now be able to retain the rents they recover and use them locally to maintain their social housing. A new National home swap scheme is also introduced to increase social mobility.


Originally posted 2012-02-06 00:00:00.

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