By David Williams
7 February 2011
Councils in three of England’s biggest cities have linked up to propose an alternative to the current ‘broken’ local government finance system, with the aim of increasing self-sufficiency.
Westminster, Manchester and Birmingham city councils have set up a City Finance Commission to examine the issue, bringing together representatives of the three authorities and local government experts.
The commission, whose members include academic Tony Travers and CIPFA chief executive Steve Freer, met for the first time in London on Friday. Its conclusions will be submitted to the government’s eagerly awaited local government finance review, expected to begin later this year.
Giving evidence to the first session, Mike More, chief executive of Westminster City Council, called for more autonomy for economically important areas, including the ability to keep a higher proportion of locally raised business rates.
‘The current system, it seems to us, is broken,’ he said. ‘The pendulum is swinging from the central to the local – we’ve moved from a system of centralised control to a system with much less of that.
‘We’ve also moved from a system, relatively speaking, of free money, and lots of “initiative” money, to no money.’
More said that cuts to the council’s annual budget would lead to ‘a degradation in the quality of the business environment’.
He added: ‘A number of chief executives of other London boroughs would openly say that Westminster is more important to their economic prosperity than the development activity in their own boroughs.’
He said councillors have a ‘latent tendency’ to favour residents’ concerns over the views of the local business community. He also proposed a tax on tourism.
TaxIncrement Financing powers, which would allow councils to invest by borrowing against future increases in business rate revenue, would not be enough to pay for major infrastructure projects in London, More added.
Tony Travers told Public Finance: ‘There is an interesting question of what financial system might emerge from the review looking at local government funding.
‘Given the radicalism of which this government is capable, councils have to be absolutely clear that the local government resource review could have implications for years to come.
‘It boils down to a gamble – how much councils are willing to risk going into a system where there’s a more incentive-driven basis to the local government finance system.’
Travers said the government appeared to be contemplating a move away from a social democratic system, in which business rates are redistributed nationally, to one based on more economic competition between areas.
‘In the new world, councils will become much more susceptible to change in their local economies… that raises big questions for the areas that fall behind.’
