Council finance: learning the lessons of Layfield and Lyons

26 Jun 14

CIPFA will be hosting an event at its Mansell Street offices on 3 November to mark 40 years since the publication of the Layfield report into local government finance, including contributions from Sir Michael Lyons, Professor Tony Travers and Professor George Jones OBE, an original member of the Layfield committee and contributor to the Layfield report. This PF flashback considers the fate of the Layfield and Lyons reviews.

If you wish to attend the event on 3 November from 5:30pm-8pm, contact Emma.Page at [email protected]

By Richard Johnstone | 27 June 2014

The latest in a series of reviews into council finance is being chaired by Darra Singh. But can he avoid the fate of his predecessors and persuade politicians to support change?

 The latest in a series of reviews into council finance is being chaired by Darra Singh. But can he avoid the fate of his predecessors and persuade politicians to support change?


With last month’s Queen’s Speech having set out the government’s final legislative plan before the general election, focus is fast moving to the next parliament, with political parties and policy groups devising plans for implementation from 2015.

One area being examined in depth is the future of local government. With all three main parties likely to propose devolving more powers to town halls or increasing local control of public services, CIPFA and the Local Government Association have launched an independent commission on council finance to recommend reforms and better ways to fund services.

The make-up of the nine-strong commission was announced on June 2, with Darra Singh, partner in the government and public sector team at EY, confirmed as chair.

Singh told Public Finance that the key spending areas the commission would examine are: investment in infrastructure and housing; integration of health and social care; a welfare benefits system that promotes work and protects the vulnerable; and support for families and young people through early intervention.

‘Our terms of reference are really pretty clear,’ he says. ‘First of all, to have a look at the current local government finance system, and seek evidence of where the strengths and weaknesses are. ‘And then we have to look at what recommendations we could come up with to reform the finance system to make sure that we actually get better public service and encourage economic growth.’

Jonathan Portes, director of the National Institute of Economic and Social Research, is a fellow commission member. He says there are a number of ‘pretty obvious’ flaws in the current local government finance system for the commission to examine.

‘Councils have limited control over revenue, and what control they do have is constrained by council tax capping and various other mechanisms that central government uses,’ he tells PF.

‘Council tax itself is poorly designed in a number of respects, and it’s quite regressive. The business rates system also doesn’t appear to give the incentive you would want on councils to promote local economic development. So there’s all sorts of things wrong with the current system.’

A key conundrum the commission faces will be how to balance the need for financial freedom to stimulate growth with maintaining support for those areas at risk of being left behind, he adds.

Recent changes introduced by the coalition government, such as the part-localisation of business rate growth, have been criticised by some councils for emphasising economic development over local need.

Although Portes says this tension is inevitable, he feels the current balance can be improved: ‘We have two things that everyone agrees that we want to do, but there are trade-offs. There’s no point pretending that you can have a perfect system that does each of these perfectly, but I think it is important to get evidence and good ideas as to how you address these trade-offs as best you can.’

The challenge is exacerbated by the fact councils face funding reductions, explains Portes, with the share of council funding spent on statutory services going up.

The commission’s focus will be on ‘real-life problems’ of providing services as budgets are being cut, Singh says.

‘We’re thinking about practical solutions in terms of reform, recommendations that will help local areas respond to the real-life challenges that they’re facing.’

The practical tests the commission will judge its recommendations against include integration of services such as health and social care, where increasing demand represents one of the biggest service priorities for councils. LGA projections find that some authorities will spend as much as 40% of their budgets on care by 2020.

Anita Charlesworth, a member of the commission and chief economist at the Health Foundation think-tank, says it will take the practical approach of identifying what local government needs to do to deliver on such integration.

There are already many people looking at how to implement specific integration initiatives, such as the government’s plan to pool £3.8bn of health and social care spending through the Better Care Fund.

Instead, the commission should focus on how finance can help incentivise reform across a range of services, she says.

‘Pretty much everybody in local government recognises that the current [finance] system is unsustainable, and that creates a real challenge in terms of getting people to think long term and to plan and take risks. However, the principle of pooling parts of funding – which is well established in parts of local government – is a good one to build on.’

Finance is one tool to effect that change, and it really needs to be aligned with other functions, she says. ‘That’s the benefit of having the LGA and CIPFA working together. It brings expertise on finance, but it starts with the purpose of what are we really trying to achieve here for local people.’

The commission intends to report early next year, and Singh says it will be aware of previous reports on local government reform that – from Layfield to Lyons, as examples – have often had problems with getting politicians to implement them.

Although he acknowledges this is ‘not a greenfield site’, with the commission able to draw upon previous examinations, a new review is needed to reflect the present funding environment.

‘It’s all about context,’ he tells PF. ‘There’s been really important and impressive work that’s been done by a load of different commissions, but the last commission that looked at local government finance on a national level was the Lyons review [published in March 2007], and we’re in a very different context now.

‘So, this is actually of its time – and it’s a positive step setting up the commission because we’re looking at local government finance on a national level in that context of very constrained current and future public investment.’

George Jones, emeritus professor of government at the London School of Economics and a member of the Layfield commission that published its report in 1976, says his lesson from previous examinations is that the commission must be an ardent champion of its proposed reforms to get political support.

‘It’s no good the commission just producing its report and going away,’ he says. ‘It needs to remain active promoting it for some time to come. It will have to keep making its case, countering criticisms, correcting errors and misinformation, and ensuring its message is widely disseminated.’

For his part, Singh insists the commission will not produce recommendations that stand very little chance of being implemented.

‘Our terms of reference are very much geared to looking at the practical challenges faced by local areas and then looking at the practical solutions,’ he adds.

‘If we can demonstrate that the recommendations we make can help national government better deliver local priorities working with local government and local public service providers, then I think that will improve how receptive people are.’



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