Lyons in the round, by Joseph McHugh

4 May 06
Local government is finally getting the attention it deserves, with its white paper and inquiry both due this year. But will anything change? Public Finance invited Sir Michael Lyons and a round table of experts to discuss the issues. Joseph McHugh reports

05 May 2006

Local government is finally getting the attention it deserves, with its white paper and  inquiry both due this year. But will anything change? Public Finance invited Sir Michael Lyons and a round table of experts to discuss the issues. Joseph McHugh reports


Tony Travers (chair), director, Greater London Group, London School of Economics

Sir Michael Lyons, chair, Inquiry into Local Government

Neil Bentley, director, public services directorate, CBI

Sally Burlington, head, Inquiry into Local Government secretariat

Sir Sandy Bruce-Lockhart, chair, Local Government Association

Steve Bundred, chief executive, Audit Commission

Ed Cox, senior policy officer, Local Government Information Unit

Lucy de Groot, executive director, Improvement and Development Agency

Steve Freer, chief executive, CIPFA

Sir Simon Jenkins, Guardian columnist, author of Big Bang localism

George Jones, emeritus professor of government, London School of Economics

Neil Kinghan, director general, local and regional government group, Office of the Deputy Prime Minister 

Eric Pickles, MP, Conservative shadow local government minister

Nick Raynsford, MP, former local government minister

Peter Rogers, chief executive, Westminster City Council

Alison Seabeck, MP, chair, Parliamentary all-party group on local government

Andrew Stunell, MP, Liberal Democrat shadow ODPM spokesman

Chris Wilson, executive director, Public Private Partnerships Programme

Sarah Wood, director of policy, Local Government Association

Thirty years after Sir Frank Layfield conducted his inquiry, local government has once again moved to the centre of the political stage. Protests over high council tax bills, plummeting turnouts in local elections and widespread confusion among the public about what local authorities actually do have combined to make the case for change. And this time it seems the government might just be listening.

In 2004, it appointed Sir Michael Lyons to lead an inquiry looking at local government finance, in particular the balance of funding, where almost 80% of town hall finance comes directly from the Treasury's coffers.

Last year, following ministers' politically motivated decision to scrap the property revaluation exercise in England, Lyons' remit was widened to include the role and functions of local government. His recommendations are expected to provide answers about which services authorities should deliver, which powers should be devolved from central government and, most importantly, how they should be funded.

Lyons, who will set out his latest thinking in a consultation paper on May 8, agreed to debate these issues in an open forum. So Public Finance, in association with Deloitte, convened a round table of experts on April 25 to grill the man who is drawing up a blueprint for councils in the twenty-first century.

Lyons will deliver his eagerly awaited conclusions at the end of this year, and they are guaranteed to provoke heated debate across the sector. But some already fear that his opportunity for radicalism is disappearing.

The Office of the Deputy Prime Minister intends to publish a white paper on local government reform in early summer, six months before Lyons reports. While some think the paper could herald a major structural reform of local government, others are worried that it will serve merely to close off Lyons' options in advance.

PF's round table brought together distinguished local government officials, politicians and policy experts to assess the likely success of the reform agenda. The event was chaired by Professor Tony Travers, director of the Greater London Group at the London School of Economics.

Participants included Neil Kinghan, director general of the local and regional government group at the ODPM; Sarah Wood, the outgoing director of policy at the Local Government Association; and Sir Simon Jenkins,  journalist and author of Big Bang localism, a book calling for a radical devolution of power from Whitehall to town hall.

Other attendees included Sir Sandy Bruce-Lockhart, chair of the LGA; Steve Bundred, chief executive of the Audit Commission; Lucy de Groot, executive director of the Improvement and Development Agency; Steve Freer, CIPFA chief executive; and former local government minister Nick Raynsford.

Lyons used his opening presentation to set out the issues he is currently grappling with – and left no one in any doubt about the scale of the task in hand. 'There is no golden solution to the question of what we want local government to do or how it should be funded,' he said. 

'You can't sort out what you want local government to do, unless you sort out what its relationship with central government should be and what kind of country you're trying to shape.'

Lyons said that the UK had become one of the most centrally governed countries in the developed world and this needed to change. He suggested that opinion was now reaching a 'tipping point' that should give those in favour of decentralisation some confidence that the government would act.

He then posed a series of questions that he will be addressing in the next phase of his inquiry. These included whether more local choice would mean greater local variation in services and, if so, whether that was acceptable; and whether greater clarity in the relationship between central and local government would require 'explicit constitutional changes'.

Lyons also asked whether financial flexibility was more important than the link between local taxation and local decision-making. He gave an insight into his own thinking when he commented: 'The worst outcome would be if local government were asked to levy additional taxes with no greater flexibility about how they're spent.'

But it soon became clear that many participants had another worry: that the government's rhetoric on reforming and reviving local government will amount to nothing. Suspicions have been raised by ministers' decision to publish the white paper on the role and functions of councils six months before Lyons is due to report. The fear is that there will be minor changes on councils' role and functions, but no movement on what many regard as the fundamental issue of finance.

Westminster City Council chief executive Peter Rogers voiced the views of many when he warned that the worst outcome of all would be for the white paper to be used to introduce a measure of change, but with no follow-through on meaningful finance reform.

'If you give big promises on localism without providing the mechanism for funding it along the way, you'll create real mayhem in the system,' he said.

'Given the legislative timescale that's been outlined, I fear what we're likely to end up with is a big promise about what's coming, in the trailer, but then they won't follow through with the film.'

Neil Kinghan, who is overseeing the ODPM's work on the white paper, sought to allay those suspicions. But he did admit that the document would have little, 'if anything at all', to say about finance and would instead encapsulate 'two big themes' – double devolution and performance management. The former is the brainchild of David Miliband, communities and local government minister, who defines it as a transfer of power from Whitehall to the town hall, and through the town hall to the neighbourhood level.

Kinghan said the department recognised that the current system was too centralised and top-down in approach, and so the white paper would bring forward proposals to correct that bias. He also sought to persuade sceptics that double devolution is not merely camouflage for another attempt by ministers to sideline local authorities.

'It's not about going round local government, it's about working through local government,' he said. 'It means a stronger role for local authorities as the convener of local services.'

According to Kinghan, the government wants a regime that defines the key national objectives authorities will be expected to meet, while allowing greater freedom for them to respond to local priorities.

'We are seeking to develop a framework that does focus on a smaller number of national priorities in a way that works for central and local government, that sends the right signals rather than confusing signals, and is hard-edged rather than hard work, which is what we think some of the system is at the moment.'

But some remained unconvinced. Eric Pickles, the Conservatives' shadow local government minister, said the white paper should be delayed until after the Lyons Inquiry had reported, and then used to signal the way forward. 'We should have Michael Lyons' report and we should make a conscious decision whether to accept or reject it,' he said. 'This is a once-in-a-generation opportunity to get local government reform right and I don't want to see it squandered away in the white paper.'

Meanwhile George Jones, emeritus professor of government at the LSE, questioned whether other Whitehall departments that dealt with local authorities had any real commitment to greater devolution.

'There are other ministers with their own empires who have no understanding of or desire to support local government. The big spending departments – education, the Home Office, health, and transport – have been and remain major obstacles to greater decentralisation.

'How do you overcome the resistance within Whitehall of those departments who don't like local government?' he challenged Kinghan.

Others went further. Sir Sandy Bruce-Lockhart, chair of the Local Government Association, reiterated his concern that the white paper would prove to be a damp squib. He warned that if the government did not 'ride the tide of localism', the opportunity for 'radicalism' would be lost and there would not be another for many years to come.

He demanded a visible sign of a commitment across the whole of government to localism. 'Don't let's have a half-hearted white paper. Let's get the prime minister's signature on the document and take this opportunity for radicalism,' Bruce-Lockhart urged. 

Steve Bundred, chief executive of the Audit Commission, highlighted what critics regard as the principal flaw in the localism argument – that it will inevitably lead to a 'postcode lottery' of service provision.

'We've now accepted through the creation of the devolved bodies that we can have different rules applying in Edinburgh and Newcastle for what local government can do and how it should be structured. But we've not yet reached a point where we would accept differences between Newcastle and Bristol. How do we make the whole system fit for purpose?' he asked.

But Simon Jenkins criticised the apparent timidity of policy-makers in the UK. He called for a radical devolution of power that would give local authorities control of all the major services in their areas. He also rejected the claim that full-blooded localism would leave some people at the mercy of bad services because of where they happened to live. He insisted it was a red herring that could easily be dealt with by giving councils real autonomy over their activities.

'There seems to be a consensus here around something that we can't achieve. But everything we're discussing as if it's rocket science is being done elsewhere,' he insisted. 'You just don't hear about the postcode lottery in Sweden or Germany. It's only talked about here because it is the natural corollary of over-centralisation.'

Andrew Stunell, the Liberal Democrats' shadow ODPM spokesman, called for authorities to be given complete freedom from central control – even if that means accepting the postcode lottery and allowing things sometimes to go wrong. 'There are lots of opportunities to carry out the government's agenda; but will there be the freedom not to carry out the government's agenda?' he asked. 'A lot of what the government wants is about more conformity rather than about more improvement. Local government needs the freedom to make mistakes.'

The focus of the discussion then shifted to how councils operating with greater autonomy could take a local leadership role and act as advocates for their residents.

Lucy de Groot, executive director of the Improvement and Development Agency, argued that for this to happen, the white paper would need to address the relationship between councils and other local services.

'Other services are so crucial to the wellbeing of a place, so the white paper has got to talk about the powers and expectations on other services in how they engage with local government,' she said. 'It needs to have something very specific about what that means in relation to transport, skills, housing and so on. Unless that is specific and up front, then all the talk in recent years around sustainable communities and so forth will start to look ephemeral.'

Authorities' community leadership role also requires a clear understanding of what residents regard as important, a need sharpened by Miliband's double devolution prescription. This prompted a discussion about how councils consult their residents, and which structures should be set up to facilitate that dialogue.

Chris Sullivan, a partner in the local and regional government practice at Deloitte, pointed to possible tension between authorities' desire to empower residents and their legitimate control over strategic planning and spending issues.

The promotion of one could come at the expense of the other, he suggested. 'We have a set of competing priorities. Which of these do we want to focus on, because everything else flows from that decision?' 

Neil Bentley, director of public services at the business lobby group the CBI, also sounded a note of caution. He warned that the current debate around ways of boosting neighbourhood empowerment, with new structures that encourage residents to become more active, could prove to be a distraction.

'Where is the great demand from citizens for everyone to band together and join a neighbourhood council? It's putting the cart before the horse – if you put the structure in place and then ask people to engage, there's a risk you're just putting in place another moribund structure.'

He argued that the real task for councils was to talk to residents on their own terms, to ensure services were personalised and responsive to local needs.

Ed Cox, senior policy officer at the Local Government Information Unit think-tank, developed the argument. He said that the problem lay, not in the structures themselves, but in their lowly status as mere talking shops. This, he said, was the reason for residents' disdain, rather than apathy or a lack of interest in local politics.

'The key reason that people won't get involved in the community structures that already exist is that they know it won't achieve very much. We have a situation where the [council's] neighbourhood plan sits on a shelf and has no impact. People are aware that decisions are made at the national level.'

Nowhere is Cox's point illustrated more graphically than in local government finance, which dominated the final phase of the debate.

There was broad agreement that meaningful reform of the current regime must, in the interests of accountability and transparency, entail a decisive shift away from a centralised grant-based system towards a local funding regime.

Sarah Wood argued that such a move was the essential bedrock for any attempt to revitalise the local government sector. She said raising more revenue locally would help kill the dependency culture among councils that had been the inevitable outcome of a centralised finance system, and reignite the ambition of members and officers.

It would also stop the distortion of behaviour caused by ring-fenced funding, which meant that areas not regarded as priorities by the government ended up as Cinderella services. 'Everything comes back to pounds, shillings and pence. I don't believe you can divorce finance from the issues in the way that the government has.'

Wood also insisted that financial autonomy was the starting point of greater accountability and argued that this should be achieved by handing councils a number of revenue-raising methods. 'If you get the financial reform right, you will get a postcode choice rather than a postcode lottery,' she added.

But Steve Freer, CIPFA's chief executive, advocated the virtues of simplicity in any new funding regime, to improve the public's grasp of it. 'If we ended up with local government funded by a multiplicity of taxes it would be even more difficult to achieve strong accountability. We need to sharpen the public's understanding of who is responsible for what and, as an extension of that, how it's paid for.'

There were also calls for a finance regime that would acknowledge the differences between small district authorities with few resources and large urban councils.

Chris Wilson, executive director of the Public Private Partnerships Programme, said the latter should be given the freedom to undertake major infrastructure projects. 'I would argue for a differentiated approach, for example for cities like Manchester, which can't build the transport infrastructure it needs. There should be greater flexibility for cities that have the means to manage and finance their own projects,' he said.

The apparent consensus on the need for a clear link between the revenue raised and the services provided by a council was broken by Sally Burlington, the head of the Lyons Inquiry secretariat.

She suggested that if the emphasis was on raising and spending money in a particular area, then the government's ability to equalise resources fairly across different authorities could suffer.

'We often make an unstated assumption that there should be a link between what you pay and what you get in services. But, when you put that into a system with greater equalisation than in most other countries in Europe, it becomes quite difficult. To what extent do you want to heighten accountability at the expense of equalisation?' she pondered.

Nick Raynsford seized the challenge, claiming the Balance of Funding review, which he chaired while in office, had demonstrated that the two could successfully be reconciled.

He went on to say that councils could not be held properly accountable as long as there remained 'complete confusion about who is funding what and how far money is raised locally. I think we have to move significantly on the balance of funding if local government is to be seen to be genuinely accountable and if local politicians are to take responsibility for their decisions and are to be made answerable for them.'

There was widespread agreement around the table that finance reform is the crucial underpinning to the overall reform agenda – but equal recognition that it is one of the most complex issues to be tackled.

Alison Seabeck, Labour MP and chair of the parliamentary all-party committee on local government, argued that the solution lay in putting party political considerations to one side and agreeing a common approach. 'We need a cross-party consensus on finance and there are beginning to be some elements of that. The next government does not want to spend five or ten years dealing with local government finance again.

'We all agree that income tax is a good way of raising national revenue, so surely we can find a funding system for local government that we can all live with.'

The argument has an irrefutable logic and is one that Lyons has put forward himself. We will find out whether it really is possible in the weeks and months after he reports in December.

The answer is likely to determine whether Lyons can succeed where Layfield failed.


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