Give councils tax control in ‘decade of devolution’

17 Feb 15

Groups of local authorities should be given complete control over council tax, including the value of bands and the timing of revaluations, the Independent Commission on Local Government Finance has recommended.

Manchester city centre

The high-level commission, which was formed by CIPFA and the Local Government Association, said there should be a decade of devolution to equip councils with the funding and fiscal powers needed for an era of lower resourcing and rising demand.

Under the proposalsin today’s Financing English Devolution report, all councils would be given full control of council tax discount schemes, currently set nationally, and would retain all business rates.

Further powers would be given initially to what the report calls ‘pioneer areas’, most likely combined authorities, which would be responsible for the number and value of council tax bands. This would include control over when properties are revalued, which has not happened since the current system was introduced in 1993.

These pioneers would also take responsibility for distribution of government funding within their area, after a national settlement from a new independent body.

Pioneer areas

The commission calls for devolution to sub-national entities such as combined authorities of councils that meet governance criteria and accept a long-term settlement that includes taking responsibility for managing grant distribution. These areas would need to prove they have:

 

  • A well-articulated business case setting out how better outcomes will be achieved.
  • An effective economic footprint.
  • Robust and visible leadership.
  • Mature governance arrangements.
  • Sound risk management.
  • Strong relationships across the full range of local public services.

 

'The core of the commission’s proposition is devolution of powers, funding and ultimately taxes to sub- national entities that are ready for that step,’ the report stated. ‘As individual areas succeed to take charge of their own destiny others will grow in confidence to follow and self-sufficiency in our sense can be achieved over a 10-year period of reforms.’

Tony Travers, a member of the commission and professor in the Department of Government at the London School of Economics, told Public Finance that without reform, local government faced resources ‘simply draining away’ in the next parliament.

He added: ‘The idea of becoming self sufficient would in the short term create a far more stable environment. Even if the government did a deal with local government that accepted that local resources would decline more than they have up to now, a settlement in which local authorities knew they would be able to rely on their own resources would allow them to plan.’

Approval of pioneer areas would be, he said, the realistic way through which Whitehall might agree to a large increase in local powers.

‘They need to be able to convince national government that they are capable and that the arrangements would be accountable,’ he said.

Fellow commissioner and National Institute of Economic and Social Research director Jonathan Portes said the need for reform is urgent due to the ‘obvious tension’ of increasing powers for the Scottish Parliament recommended by the Smith Commission, as well as the pressures on public spending.

The current funding system means councils are restricted in how they can spend money or deliver services, Portes added. ‘That is even worse in a time of declining public expenditure because of the strong incentives on central government to cut local government but not to take responsibility. This is obviously what has happened in this parliament but might happen in the next parliament under any government.’

Portes said that ‘radical change’ on council tax is vital as it represents the only way to have a sustainable tax base for local government. The powers being initially offered to all authorities represent a bare minimum of what is needed, he told PF. ‘The degree of autonomy that we propose in the very short term for all areas is a sufficient start, but I want to see us quite quickly moving to what we’re proposing for pioneer areas, which is giving them control over rates and bands.

‘My view is that should be quite light touch and the presumption should be, if you have sensible governance arrangements that should be enough. Central government should not insist that every ‘i’ is dotted and ‘t’ is crossed before doing anything.’

Travers added that once some pioneer areas had extra powers, it would become more difficult to resist them applying to all places.

‘If Greater Manchester [which has agreed two devolution pacts with government since 2010] keeps saying that it will have more power and resources – and as long as they’re given them – I think others would take the risk.

‘The logic for equalisation in sub- national areas is that in most areas you have got better off and less-well off places. Why couldn’t the wider area have its own redistribution mechanism rather than having it imposed from the centre?’

Setting out the recommendations, commission chair Darra Singh said that local government and the services it provides were ‘on a cliff-edge’.

‘Councils’ success at implementing cuts over the past few years has shielded people from the stark reality that the services they use can’t carry as they are for much longer.

‘The urgent need for reform is going to be one of the biggest and most important challenges facing the next government. Without it, many of the key services which have been part of everyday life for generations may not be there much longer.’

The path set out by the commission ‘is the only way to save public services in an era of reduced public spending and rising demand’, he warned.

‘It is clear that if we want local services to survive and support a thriving national economy, a radical devolution of powers, funding and taxes to local areas is urgently needed.’

CIPFA chief executive Rob Whiteman welcomed the report, saying it ‘establishes a clear direction of travel that the government has the capacity to implement’.

He added: ‘CIPFA asked the commission to recommend pragmatic solutions, which wouldn’t increase government spending, but would allow financial sustainability for public services.

‘Although the commission has done a good job in outlining realistic recommendations, CIPFA believes there is room to go even further.

'The debate around devolution has provided local authorities with a unique opportunity to create a new financial model that allows those delivering local public services to respond creatively even when facing long term financial constraints.'

Key Recommendations

  • Independent review of the functions and sustainability of local government to be undertaken ahead of the next spending review to assess whether councils are appropriately funded to meet statutory duties, particularly for social care.
  • Independent body formed to advise Whitehall on local government funding needs and allocations to local authorities and sub-national areas.

For all authorities

  • Abolition of the referendum cap on council tax increases.
  • Full control of council tax discounts.
  • 100% retention of business rates and consultation on localisation of business rate relief.
  • Adoption of multi-year budgets to enable effective financial planning for local authorities and other public sector services

For pioneer areas

  • Phased introduction of place-based budgets for areas ‘willing and able’ to take on this reform.
  • Power to determine the number and value of council tax bands and when properties are revalued.
  • Creation of local public accounts committees to scrutinise value for money in all public services.

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