Finance review will give councils more control, says Neill

19 Jan 11
Local government minister Bob Neill has pledged to hand over more spending power to councils following criticism that the Localism Bill fails to loosen the purse strings from Whitehall.
By Lucy Phillips – exclusive

20 January 2011

Local government minister Bob Neill has pledged to hand over more spending power to councils following criticism that the Localism Bill fails to loosen Whitehall's grip on the purse strings.

Neill said the objective of the local government resources review, for which the terms of reference will be published imminently, was to ‘give local councils more control of their resources and move to a position where they are less dependent on grants from central government’.

He told Public Finance it was wrong that councils in England relied on central government for about 83% of their funding. The six-month review would seek to address this. 

Commentators have warned that the finance review is unlikely to lead to many more powers for local government since any major changes would have needed to be considered before or alongside the Localism Bill, which had its second reading in the Commons on Monday. Instead, it was likely to focus on small areas already trailed by the government, such as the re-localisation of business rates and new powers for tax increment financing.   

Ed Cox, director of the IPPR North think-tank, who branded the Localism Bill ‘lipstick localism' because of its cosmetic devolution of financial powers from central to local government, said: ‘My assumption is that [the finance review] will just be a mechanism to enable certain ideas that are already doing the rounds... I doubt it will lead to legislation but just bring in a few more schemes to free up local government finance, not ultimately altering the balance between local and central government spending.’     

There are also reports of a rift between Local Government Secretary Eric Pickles and Deputy Prime Minister Nick Clegg over the extent to which the finance review should examine the devolution of powers.   

Clegg is alleged to have written to Pickles calling for a much more wide-ranging inquiry than currently planned, looking at complete reform of the formula grant, the introduction of new local taxes and charges and an overhaul of current restraints on local government. But Pickles is understood to want to limit the review to the few areas already mooted.

Neill denied both there was any falling out between Pickles and Clegg and that it would have made more sense to carried out a finance review ahead of, or alongside, the Localism Bill.

‘Very often, the local government funding settlement doesn’t require primary legislation on the topics which are considered in the Bill,’ he said.

The resources review will begin with a short consultation and then a review panel will be set up before proposals are published in July. It is unclear whether there will be an independent chair.  

Neill said: ‘We’re keeping the format of the review flexible until we’ve seen the consultation. We are not going to do another long academic review. What we actually need to do is look at the evidence that’s there, update it, and actually take some decisions, so it doesn’t have to be some independent academic chairman or something like that.’

He added that they were moving quickly because ‘no politicians have ever had the guts to take the decisions and bite the bullet’ despite a stream of previous reviews on the subject.

Meanwhile shadow local government secretary Carline Flint revealed to PF that she would be taking her ‘own soundings’ about the future of local government finance over the next six months because of the way the budget cuts in the December finance settlement hit deprived areas the hardest.

She also raised concern about the possibility of councils retaining their income from business rates. ‘We know there isn’t a balanced private sector economy around the country so localisation could end up with some areas having so much money they don’t know what to do with it whereas other areas that don’t have access to that kind of income stream could be left in a very difficult state,’ she said. 

Flint did not think that a six-month review would ‘do the area justice’.  

 

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