Flashback: from Layfield to Lyons

12 Apr 07

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. In this PF flashback, Jones and John Stewart consider the lessons of the review.

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

13 April 2007

Some 30 years after the influential but ignored Layfield report, Sir Michael Lyons has taken another long hard look at local government. Will his proposals meet the same fate? George Jones and John Stewart report

It is natural to look at the Lyons report through the perspective of the Layfield report, which covered similar ground more than 30 years ago. The Layfield committee, of which we were members, completed its task in under two years, whereas the Lyons Report has taken almost three, not because of any delay by Sir Michael Lyons, but because of extensions to his remit.

The Lyons review itself was a stage in the review of local government finance, that in turn followed the government's Balance of Funding Review. The whole process has taken almost five years – a product of procrastination by the government rather than lack of diligence by those undertaking the reviews.

The main impact of the Layfield report was not so much on the governments of the day, but on informed opinion. Lyons acknowledges this effect in his report, which opens with the choice Layfield posed between an approach based on local accountability and one based on central accountability. Lyons returns to this at the end of his report, quoting Layfield: 'I do believe that many of the decisions of government can and should be taken in different places, by people of diverse experience, associations, background and political persuasion.'

Circumstances have changed since Layfield. The council tax has replaced domestic rates by way of the poll tax. Capping has been introduced. Business rates have become a national tax.

Both Conservative and Labour governments centralised controls, and other forms of intervention have proliferated. Authorities have had to devote ever more attention to an endless flow of regulations, targets, performance measures, guidance, different inspectorates and requirements set out in the variety of specific grants. The requirements of central government have been more important than the requirements of its citizens.

The Lyons report is based on two main principles, which are similar to those of the Layfield committee. Lyons argues that the system of local government finance should follow the desired role and functions of local government. That finance should follow function was a principle guiding Layfield, hence the importance attached to the choice between local and central accountability.

Lyons elaborates a concept of the role of local government as 'place-shaping', to sustain the wellbeing of the local community, arguing that that role is needed in a complex and changing society. The report makes an authoritative case for local government in modern society, emphasising the contribution councils can make to the efficient allocation of resources, matching allocation to needs and preferences that vary from place to place.

Lyons also complains about the use of the phrase 'postcode lotteries' in debates on local government, as if it is bad that local people make different decisions on the best use of resources in their own local circumstances. He calls on central and local government to expose this empty argument.

The second principle underlying the Lyons report, as it did the Layfield report, is the importance of clear public accountability in supporting the role of local government. For Layfield, the main problem faced was confusion over where responsibility lay for decisions on local government finance. Lyons also sees this as a major problem because of lack of public understanding, complexity of funding and the poorly understood link between business and local services. Precepts, capping, detailed controls, and specific grants add to the confusion. Further problems of accountability underlie the complex patterns of community governance, with little public understanding of the variety of agencies and partnerships, and how, if at all, they can be held accountable.

The Lyons analysis is devastating. It shows the need for clear accountability, greater flexibility, better incentives for local government, overcoming unfairness and securing the benefits of a better allocation of resources. This requires change in both central and local government. Many of the current problems derive from the actions of central government, which have unanticipated and little-understood consequences on local authorities. The many requirements it has placed on local authorities, which it expects to be given priority, have created a culture of deference. Lyons argues that many local authorities have lost confidence as a result, and no longer see their role as representing local people. Yet confidence will be required for all authorities to play the 'place-shaping' role effectively.

Lyons' analysis shows the need for radical action, and the most radical action proposed in the report is for a constitutional settlement expressed in a contract between central government and local authorities. The operation of this contract would be subject to scrutiny by Parliament, and supported by independent advice on grants and on the costs of any obligation imposed on local authorities by central government.

The proposals on sources of funding are limited, at least in the foreseeable future, and can hardly be described as radical, given the scale of problems identified, although Lyons sees a local income tax and the return of the business rate as possibilities that could be examined by a future government.

Here is where the report departs from Layfield. Lyons does not attach the same importance to a change in the balance of funding as did Layfield, doubting whether this would solve the problem of external pressures overwhelming local choices about council tax. But the need for a greater source of local taxation is that it provides a basis for the local choices required for the 'place-shaping' role and the means for ensuring greater and clearer accountability for those choices, so that decisions on local expenditure are better matched with decisions on local taxation.

Layfield never put forward the case that a change in the balance of funding automatically ensured local accountability, but rather that a choice for local accountability had to be supported by a programme of measures, of which one was a change in the balance of funding. A constitutional settlement based on the 'place-shaping' role would give expression to the choice, but would require support by other measures, of which an extension of the powers of taxation is most important.

The firm proposals in the report are limited and sensible, but the government has already rejected some and neglected others, even before local authorities and the public generally have considered and discussed the report. In a statement issued on the same day as the report, local government minister Phil Woolas said the government was not going to consult on a tourist tax and had no plans to alter the banding structure. Nor was any urgency suggested for revaluation in the next Parliament, although Lyons saw this as necessary to maintain the effectiveness of council tax.

Most seriously, Woolas rejected out of hand Lyons' proposal that capping should be abandoned. The minister argued: 'The government does not consider that its powers to cap council tax increases necessarily need be seen as weakening the freedom and accountability of local government to its electorate. We only use capping powers to protect taxpayers from excessive increases and will continue to do so when increases are excessively high.'

But local people should decide whether increases are excessively high when judged against the use of the resources raised. In effect, the government is substituting accountability to the minister for accountability to local people, reinforcing all the tendencies criticised by Lyons and Layfield.

This immediate and hasty reaction does not augur well for the government's response to the fundamental changes proposed for central-local relations. The minister's statement makes no reference to them, even as matters to be considered. Nor were they dealt with in the October white paper, even though the need for a new constitutional settlement had been put forward in Lyons' May 2006 report, National prosperity, local choice and civic engagement.

There is one big difference between the Lyons and the Layfield reports. Layfield set out a radical programme for change in local government finance to assist choice on where the main accountability for decisions on local finance should lie. Lyons puts forward a developmental approach in which only limited changes are proposed for this Parliament and many issues are seen only as possibilities that could be considered in the longer term. Lyons believes time is needed to build up confidence in local government, and that a developmental approach would make this possible.

The danger is that little will happen. Little happened as a result of Layfield, and past experience of government procrastination and the minister's statement do not suggest the developmental approach will fare any better. Advocacy of a developmental approach is in direct contradiction to the radical analysis of the problems that require urgent action. The developmental approach suggests there is no urgency. If there were a prospect of success, there would be a case to be argued, but the immediate response suggests the opposite. The crucial test is the response to the proposal to abandon capping, and the answer is clear.

The most radical suggestion is the new constitutional settlement, which still needs a government response. It could provide the starting point for radical change, but our hopes are not high. The developmental approach does not appear to have got beyond the starting post. If that is right, it is a tragic response to an outstanding report, and a tragedy for local government.

George Jones is emeritus professor of government at the London School of Economics and John Stewart is emeritus professor of local government at the University of Birmingham


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