30 November 2007
A report this month showed that councils are still dragging their feet when it comes to trading and charging. Even the government is getting exasperated at their refusal to make the most of their powers
Local authorities need to be 'more commercial' in their outlook and not look to the government for handouts, local government minister John Healey said at a conference this month. He suggested that one way they might do this was by getting more involved in charging and trading, that is, exploiting their powers to sell their services.
His comments might be due to frustration at councils' failure to make much use of the important new powers they were given in 2003 to raise money through charging and trading. This is one of the findings from Local authority trading: research report, commissioned by the Department for Communities and Local Government and published earlier this month by the Institute of Local Government Studies.
In the light of the tight financial settlement under the Comprehensive Spending Review, this finding should be surprising, not only to local government ministers, but also to finance directors across local government.
The government has set out its stall clearly. Its response to the Lyons Inquiry into local government has been that there will be no radical reform of the funding system. Therefore, while most funding (approximately 60%) is likely to continue to come directly from government (in the form of grants and redistributed business rates), the rest will have to be generated locally.
Currently, the remaining 40% is split into two funding streams, council tax and local charges (rents, investments, trading and the like). With the threat of 'capping' of large council tax rises, Healey was indicating that it is the second of those streams that will increasingly have to bear the impact of rising costs and rising citizen expectations over the next few years.
The research report notes that the overall level of trading within local government has declined since 2000/2001 despite the new legal powers. As ever, of course, there is a mixed picture across the country as a whole, with some authorities generating significant funding from charging activity. However, this seems to be focused in traditional areas, such as social services, parking, transport and education, with only small pockets of innovative use of the new powers.
So why aren't local authorities focusing heavily on these powers and generating badly needed income outside the central grant/council tax regimes?
If we go back more than ten years when the (now repealed) Compulsory Competitive Tendering regime was in force, the reasons were clear. Local government was able to point to an oppressive central government, unclear law and narrow and somewhat negative advice from the Audit Commission.
But things have changed significantly since then. The Local Government Act 2003 gave very clear legal powers to local authorities and the DCLG's guidance is extremely positive. The Audit Commission has also visibly softened its stance and reported on the use of charging as a policy instrument.
Nevertheless, local authorities cannot be encouraged to be bold and see charging and trading as a mainstream way of providing their functions.
This has to change. There can be no doubt whatsoever that the government now approves of raising money locally. Why shouldn't it? It fits very well with the 'modernisation agenda' and, in particular, with community activity and leadership at local level. If local people want a better service and a local authority wants to do something different, what better way could there be than funding this directly from at least some of those users best able to meet the charges?
Councils seem to regard the charging and trading powers as a bolt-on, an extra that they can use if they want to, instead of as a way of delivering, innovating and governing. Those that grasp this opportunity have the chance to achieve a great deal more for their communities than those that do not.
How much longer can it be before the inspection regime comments on the efficacy of an authority's charging regime in the performance of its statutory duties?
Stephen Cirell is head of local government and Professor John Bennett is a consultant solicitor with Eversheds. They are authors of Charging and trading in local government, published by Sweet and Maxwell
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