05 May 2006
The past four decades have produced major technological, medical and engineering advances – but have failed dismally to reform local government finance. Sarah Wood says this time there must be change
Reform of local government finance would be a very small step for mankind, but it seems to be a giant leap for the government.
Of course, there are lots of hurdles in the way but there is an urgent need to find a fairer system that will improve local accountability, encourage more transparent decision-making and, as a result, bolster local democracy. If we leave things as they are, the current restrictions on local choice will continue, along with citizens' rising distrust and dissatisfaction with local politics and politicians.
There are three major problems with the current finance system. First, accountability is distorted and local people cannot see any clear connection between what they pay in local taxes and the local spending decisions that are taken. This point has come up time and again in surveys of public attitudes.
Second, the council tax has a defined base that does not grow or fall in line with the economy, and the annual tax-raising ritual simply muddies the water even further as to who pays for what.
Finally, the tax is not fair among local taxpayers. The burden falls particularly heavily on those with low fixed incomes, such as pensioners and single-parent families. It is surely wrong that approximately 45% of children living in poverty do so in households that receive no council tax benefit.
These three major issues have been compounded in recent years with the government's return to the use of crude universal capping.
Although the tax is transparent in its impact, the fiendishly complex formula that underpins its allocation across England has long been subject to the joke that three people in the land understand the tax and, of those, one is mad, one is dead and the other one is currently reviewing it.
It can also be argued that the current fiscal regime has an adverse impact on local authorities' behaviour and services. Combined with the Comprehensive Performance Assessment, it has:
placed more emphasis on national targets and put the focus on the government rather than the customer. In fact, in a real sense the government has become the customer
- dampened the ambition and sapped the energy of officers and members – it is like constantly sitting exams
- distorted behaviour either to focus on particular service areas or to attract specific funds
- squeezed services that are not in favour and therefore not subject to a targets regime, such as transport and local services
- instilled a dependency culture, as evidenced in the lack of use of the wellbeing powers, which have tremendous potential
- led to rows about how to divide a now very small pot of money. The revenue support grant is just £3.4bn in 2006/07
- provided no fiscal incentives for businesses to engage with their local authorities, despite the best efforts of the frankly unfathomable Local Authority Business Growth Incentive scheme
- exacerbated the lack of interest in local government shown by citizens at the very time it is most needed – never has social cohesion been more important to this country than now and local government is the vehicle for achieving it
- shifted the constitutional balance as local government becomes more and more an agency of central government
You might not agree with all or any of these effects, but there is no doubt that we have become very good at living with capping and passing the CPA test.
Sir Michael Lyons has been commissioned by the government to review the role, function and financing of local government, but it is interesting that the summer white paper will look at legislation only on role and function.
Is there a deliberate danger of a dislocation between role, function and finance? The real fear is that the end result will be lots of warm words in the white paper but little change in the finance regime.
If so, then the current restrictions placed on meaningful local choice and decision-making will continue. So, too, will the confusion over what the council tax actually buys, in terms of services, and over individuals' and communities' expectations of public services where accountability is not clear.
In turn, this will increase the frustration felt by many people at their inability to influence decisions that affect their lives, exacerbating the erosion of trust in politicians and growing dissatisfaction with the political process in general.
No change or little real change must not be an option at the end of this process. We as a sector and our stakeholders should be promoting the case for change to the Lyons Inquiry and central government .
They should be urged to take bold steps – perhaps a local income tax backed with a range of local taxes to suit individual authorities' circumstances. Some return of business rates to local control, with safeguards to meet the business community's concerns, would also be valuable. The timescale should be one that allows for radical reform but in the context of a managed transition.
Finance reform, with substantially more funding raised locally, is vital to improve accountability and bolster local democracy. Councillors will have a new, clearly defined role and will be accountable for their decisions.
Citizens will enjoy a postcode choice rather than a postcode lottery, as the ability to vary services and standards at the local level widens. Judgements about priorities and value for money will be better informed and what the local tax take can buy in services will be much clearer. This in turn gives a reason and purpose for citizens and stakeholders to engage with their local authority.
So is finance reform the key element in the general local government reform agenda? No, it is not – but it is the key to unlocking the aspirations for local engagement, choice and community that the government is keen to achieve.
This is because finance reform is not an end in itself, rather it will aid outcomes, such as being able to respond to the distinctive needs and aspirations of an area and having a local resource that is responsive to local circumstances.
It will also help to harness the energies and focus of all sectors of the community and reignite the ambition and innovation of local authority members and officers. And, of course, it will deliver greater value for money.
I qualified as an accountant in the year of the Layfield Report. I am retiring some 30-odd years later in the year of the Lyons Report. Both reports, in their time, were awaited with anticipation and hope. Lyons, like Layfield, will, I am sure, be a well written and well argued document.
In my working career of 40 years, we have managed to put a man on the moon; build the channel tunnel; bring North Sea oil and gas ashore; and make enormous strides in medical science. And yet we appear unable to reform local government finance.
Perhaps what is different about these four examples of progress is that in each of them there was vision, a willingness to do it, and the funding to make it happen.
We as a sector and the government have an amazing opportunity if together we are brave enough to seize the day. We need to make it happen and not leave it all to the Lyons Inquiry.
Sarah Wood is the outgoing director of policy at the Local Government Association
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