Local government finance review is doomed, claim experts

14 May 10
Reforming local government finance could be too difficult, despite the promise of a review from the new coalition government, experts have warned
By Jaimie Kaffash

14 May 2010

Reforming local government finance could be too difficult, despite the promise of a review from the new coalition government, experts have warned.

The Conservative-Liberal Democrat agreement states: ‘The parties will promote the radical devolution of power and greater financial autonomy to local government and community groups. This will include a full review of local government finance.’

But commentators said similar reviews in the past had failed to result in any changes, and there was nothing to suggest this one would be any different.

Nick Raynsford, the former local government minister whose review of council finance in 2004 was largely ignored by that the previous government, told Public Finance that there is little political will to carry through reform. ‘If the government were serious about reforming local government finance, they would not have called another review.

‘My view is that the dominant interest of the new government will be the one that George Osborne spelt out in the run up to the election – that is a freeze on the council tax. Which is giving local authorities no discretion on spending matters. I’m afraid the rhetoric of localism is very hollow.’

Recommendations in a review by Sir Michael Lyons, published three years ago, included changing council tax banding to improve fairness, improving incentives for councils to promote economic prosperity and the possible introduction of a local income tax.

Tony Travers, director of the Greater London Group at the London School of Economics, said that the previous government’s response to the review was ‘truly pitiful’.
‘I’m not sure we really need another review of local government finance considering the last one was completed only in March 2007,’ he told PF. ‘It is a positive step that the coalition government looks at the issue at all, but that is where it ends. What we need is decisions, not more reviews.’

Lyons is thought to be sympathetic to the problems facing central government and the barriers to reforming local government finance. Whitehall will be held to account for any increases in council tax, a source close to Lyons said, which leads to blanket control from the centre. But the source welcomed the fact that the coalition has set off with an explicitly reforming approach.

Travers agreed that it would be very difficult to reform the system. He claimed politicians were ‘still spooked by the poll tax’ and reform lacked political will. He added that LibDem support for reform already appeared to be wavering. The party had previously committed to replacing council tax with a local income tax but in its election manifesto only made provisions to pilot it.

James Hulme, head of communications at the New Local Government Network, told PF there was no need for yet another review of local government finance.

‘I don’t think we need another Lyons review, an inquiry that takes two years to report. We can use a lot of the very good and relevant bits in Lyons and perhaps freshen up some of the proposals. But I really hope that any inquiry doesn’t drag on,’ he said.

Hulme added that while the NLGN was in favour of wholesale changes to council tax, ‘realistically, there is little appetite for getting rid of it’.

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