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Fragile: handle with care, by Peter Hetherington

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29 April 2005

Whatever the election outcome, the fate of the deputy prime minister's department hangs in the balance. Peter Hetherington predicts some delicate times ahead for the office running Whitehall-town hall relations

At the end of another hectic campaigning day, the deputy prime minister emerges smiling from his smart white battle bus, boldly labelled the 'Prescott Express', to prepare for a long radio interview. 'I'm standing in for Tony,' he volunteers. He has traipsed through housing estates in Leeds, had cups of tea with council tenants, chatted with all and sundry and – most importantly – viewed one of his emerging millennium communities in the old pit village of Allerton Bywater.

For a politician approaching 67 and supposedly in the twilight of a political career, Prescott is surprisingly upbeat, berating 'opportunistic' Tories for opposing his house-building targets in the Southeast and then indulging in a little self-congratulation. After challenging the building industry to provide a house for £60,000, he's just viewed a version of this cut-price home at Allerton. 'It looks pretty good,' he enthuses.

Slowly, insists Prescott, the pieces of his Sustainable Communities jigsaw are fitting into place, with townships emerging from Ashford in Kent, around Milton Keynes, and along the 40-mile Thames Gateway corridor east of London.

Extra cash, too, should be forthcoming, as councils and government agencies reach agreements with developers for extra money up front – a 'roof tax' by any other name – to fund new schools, roads, health centres and other community facilities. But there's still more work to do and plenty of challenges ahead.

So would he want to continue in his present job? 'Yes, but it's not entirely in my hands, is it?'

For some months, the fate of Prescott – indeed the future of the Office of the Deputy Prime Minister (ODPM) in its present form – has been the issue that dare not speak its name.

Assuming Labour were to win a record third term, would he stay, perhaps in a redefined role in a reconfigured department, or would he become a deputy prime minister without a department? And if he were to remain – on what terms and for how long?

Once again, assuming a Labour win, much would depend on Tony Blair's remaining tenure in Downing Street. A handover to Gordon Brown – say mid-term, or before – would inevitably precipitate a re-shuffle and a deputy leadership contest. Time, then, for Prescott – frequently cast as peacemaker between Blair and Brown, while edging ideologically towards the latter – to bow out, perhaps?

While it's clear he wishes to complete unfinished business on the housing and communities front, exactly where the local government element of his current departmental brief would fit into any post-election carve-up is unclear.

On the one hand, some insiders point to a likely split between local government and housing, with a footloose David Blunkett returning to the Cabinet to oversee councils and neighbourhoods. The former home secretary has certainly been making a pitch for a new, wider role, overseeing local governance. This would allow Prescott to keep some of his pet projects.

'My take is that if John wants a job, one will be there for him,' says a senior official regularly in contact with ministers. 'But the soft information is that there's a job for David Blunkett and I'm picking up that he's certainly keen on a brief which takes in local governance.'

But the ODPM has detractors around Whitehall, not least in Downing Street where it's seen as detached from the wider New Labour agenda for reforming public services and being too matey with local government. 'Number 10 would love to bring us into the fold,' jokes one key adviser.

Prescott may have served Tony Blair far more loyally than some New Labour modernisers over eight years, but the prime minister has certainly been made aware that fresh blood is needed to beef up the local government brief. That's because reforms, falling short of full-scale reorganisation but leading towards a wholesale unitary system of local government, are being mooted to achieve economies of scale and meet the multi-billion pound savings being demanded by the Treasury to meet Sir Peter Gershon's efficiency targets.

More importantly, a big ministerial hitter would be needed to drive through a re-modelled council tax regime and ride the inevitable storm after property revaluation – the first since 1991 – in 2007.

'In policy terms, this isn't the most attractive area, but matters can't be allowed to drift,' says a senior council official who regularly meets ministers. 'Action is needed sooner rather than later, because alarm bells will start ringing after the election.'

Nick Raynsford, the current local government minister, whose steady hand and mastery of detail has bailed out Prescott on numerous occasions at the Commons dispatch box and in the media, has made it known that he would like to move on after eight years at the ODPM and its predecessor departments.

But in a parting shot from the department he warned that some 'very interesting and hard decisions' on local government finance – ie, how to reform the council tax and, maybe, supplement it with other forms of taxation – will have to be taken quickly.

A new local government minister, then, would have to prepare the ground for the government's response to a report on council tax reform due in December from Sir Michael Lyons, the former chief executive of Birmingham City Council. It is here where opinion sharply divides over how this should be handled by Whitehall. Some, including senior figures in local government itself, make the case for a more radical re-structuring of Prescott's empire, with responsibility for town and county halls passing to the Treasury, thus severing the long departmental link with housing and planning.

'Increasingly, such a framework makes sense,' said one senior official with close Whitehall links. 'Frankly, the chancellor decides the level of funding for local government [in England] anyway – it passes from the Treasury nominally to the ODPM and then directly to councils – so why not do the logical thing?'

Others, doubtless Lyons included, maintain that the current mix of ODPM responsibilities is about right. But it's inevitable that Lyons' report will open up a much wider debate beyond the financing of town and county halls to the structure of local government and the services it provides (the ODPM, as it happens, is currently preparing a report on service delivery).

Officially, Lyons is charged with 'making recommendations for the reform of the council tax, taking into account revaluation in 2007'.

He also has to assess the case for a local income tax – the Liberal Democrats' chosen alternative to the council tax – and returning business rates directly to authorities. But, revealingly, Lyons says: 'I have a clear responsibility to fit my conclusions into wider developments in local government.'

Labour's manifesto points to initiatives on two fronts: first, to stimulate neighbourhood and community governance below town and county halls, with a drive for more parish councils – notably in London, where they are not allowed – and, secondly, to push for more directly elected, US-style mayors in England (only 11 have been elected so far). Raynsford says councils in the big provincial cities, which have so far spurned the mayoral idea, have to be persuaded to drop their opposition.

But exactly what measures a third-term Labour government would deploy to force more mayoral referendums is not clear, although the idea of imposing local polls is clearly proving attractive to some ministers. Raynsford insists there is no 'hidden agenda', while hinting that further reformist ideas could be on the table.

Intriguingly, he raises the prospect of 'different bodies to deliver joined-up services' – strengthened public service boards, perhaps, embracing councillors and other local stakeholders – over areas such as health, transport and policing.

If such radical ideas are being tossed around within the ODPM and, maybe, between Downing Street and other departments, it seems clear to many that a new political broom will be needed in a remodelled department of local government, or governance – important distinction, that – to sweep them through.

While a closet admirer of Prescott's style and political longevity, Ed Davey, the LibDems' local government spokesman, thinks the deputy prime minister's department in its present form is ill-equipped to tackle a radical new agenda. 'Its reputation is poor, and it's got no clout,' he says.

But in the frenzy of election campaigning, the LibDems have had problems of their own. Defending plans for a local income tax to replace the council tax has not been easy for them. Charles Kennedy's famously bleary-eyed and botched manifesto launch finally alerted many that – surprise, surprise – there would be losers as well as winners under such a tax.

'So what's new?' asks a mildly irritated Davey, lamenting that the Westminster village has belatedly woken up to the fine print of the LibDem plans. Suddenly the media started doing a few simple sums, courtesy of a helpful LibDem website, and discovered that modestly-paid public sector workers would be hit. Asked how a couple of young teachers, perhaps earning jointly not much over £40,000, might fare, Davey responded: 'You will pay a little bit more if you are lucky enough – and I say that advisedly – to have a (joint) income above £45,000. '

He accepts that while 50% of householders will be better off and 25% 'largely unaffected', a further quarter will be 'losers'.

That has provided fertile ground for Conservatives to exploit, with shadow ministers claiming the LibDems had been finally 'exposed' over local taxation. Davey says that the Conservatives, while calling for the 2007 revaluation to be abandoned, are effectively in denial because the price of supporting the council tax in some form – a Tory tax, after all – assuredly means re-assessing the value of properties sooner, rather than later. But LibDems have a populist cop-out. Davey says they won't need to revalue because, by 2007/08, a local income tax will have conveniently kicked in.

Conservative plans midway through the campaign to delay council tax revaluation in 2007 caught Labour on the hop. Nick Raynsford's initial response only added to the confusion. Initially, he suggested that no new bands were being considered to supplement the current eight, throwing Lyons' review into confusion.

Later, the minister indicated that, rather than rule out more bands, they were merely determined to avoid the Welsh revaluation model. This led to 740,000 properties staying in the same band, 100,000 dropping into a lower category – and 450,000 households paying more, often in better-off areas around Cardiff.

While not poking fun at the LibDems, Caroline Spelman, the Conservative shadow for local government, has John Prescott in her sights. She says she's found considerable support around the country for abolishing the Office of the Deputy Prime Minister. 'We don't think there's a need to flatter someone with a department named after them,' she says.

Defending a string of counties (and one elected mayoralty, in North Tyneside) in council elections also on May 5, the Tories' local campaign theme centres on 'handing power back to the people'.

Spelman says this would be achieved fairly quickly by an incoming Tory government with a new local government and housing Bill. Its first aim would be to scrap the regional apparatus created by Prescott – non-elected assemblies in eight regions, plus emerging planning and housing boards – and return powers to town and county halls. Government offices in the regions, created by John Major's government in the early 1990s, would either be slimmed down or abolished.

A second aim will be to put council house and housing association sales higher up the agenda, with a new drive to continue the Thatcher revolution by selling off publicly owned properties with higher discounts.

But Spelman insists that the philosophy towards local government will change dramatically. Centrally imposed targets will go, along with an 'army of inspectors who've proved to be burdensome and stultifying'. National minimum standards, across a variety of services, will be introduced instead. 'We want to create diversity and you have to be grown up about that,' insists Spelman. 'If you allow diversity and innovation you will drive up standards, with the stronger authorities showing the way for the weaker ones… at present the level of inspection is disproportionate to the risk.'

As it happens, a third-term Labour government would be committed to a slimmed-down performance management framework involving a remodelled Comprehensive Performance Assessment (CPA) regime.

But increasingly, the focus would shift from the short-termism of a Blair government to the priorities of a Brown administration. The chancellor may have extolled the virtues of 'decentralisation' in England. But there's a world of difference between, say, ceding a little responsibility to regional development agencies, underpinned by strict Whitehall targets, and devolving more power to local government.

In the same way that the Treasury has evolved into a broad economic and domestic government department under Brown, insiders expect he would want a strengthened policy framework around Downing Street, with the Cabinet Office perhaps becoming an Office of the Prime Minister.

That means a stronger centre, with all sorts of implications for those long-trailed 'greater freedoms and flexibilities' in local government. Brown would probably not want a deputy prime minister, preferring to let a new chancellor – and fellow Scot Alastair Darling is the favourite – stand in for him at Question Time. Prescott would not be offended. By the time of the succession, he would probably want to bow out anyway – if he hadn't already departed. What happens next is the intriguing question no one can answer.

But with the status quo no longer an option, by the time of the next general election the local government/governance landscape could look very different.

Peter Hetherington is regional affairs editor of the Guardian

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