14 June 2002
Proposals to introduce a system of prudential borrowing are a 'welcome first step', but will not by themselves create a real choice between direct council borrowing and other capital finance options such as the PFI. Instead, as a matter of urgency, authorities must be given 'the freedom and responsibility to make forward financial plans in the same way as any other organisation'.
The call was made by the Commission on Local Governance in a report due to be published on June 13, just one day after ministers published the draft Local Government Bill.
Local Government Information Unit director Dennis Reed, whose organisation launched the commission, told Public Finance that the government's proposed reforms would not deliver genuine financial autonomy for councils.
'Even under the proposed prudential system, there will still be government credits given for PFI projects, so authorities will still be encouraged down the private sector route,' Reed said. 'These credit approvals need to be scrapped.'
The CLG, whose members included representatives from public sector unions, councils and the academic and business worlds, also recommends a drastic shift in the balance of funding between central and local government.
Councils raise around 25% of their income locally, while the rest comes through general and ring-fenced grants from Whitehall.
CLG members have concluded that this must change in order to re-establish the link between local spending on services and local accountability.
They will call on ministers to: return business rates to local control; give authorities the power to introduce a tourist tax; introduce more council tax bands to reflect the difference in property values; and consider the introduction of a local income tax.
Reed added that if this package of measures were adopted by the government, the split between locally and centrally raised funds would be roughly even. 'This issue is absolutely vital to the future of local government, and in our view the current balance of funding is untenable,' he said. 'It is time to stop shilly-shallying around and have a serious debate about whether we want a local tier of government in this country.'
PFjun2002
