Select Committee on Transport, Local Government and the Regions Appendices to the Minutes of Evidence

Memorandum by Professor Gerry Stoker (LGB 37)


  We welcome the draft bill because it opens the door to many of the provisions that NLGN has suggested should be made available to councils in two publications Money Talks and Forerunner Councils (copies of these publications could be made available to the Committee if requested). The idea of draft legislation is to be applauded given the additional opportunity it provides to iron out any glitches in the provisions of the Bill. Second the content of the Bill begins to deliver on the agenda of giving local authorities more powers and freedoms. There are some issues to be raised about some detailed aspects of the Bill. However the key question is: does the Bill do enough to provide the capacity for councils to make a difference in their communities?

The scope and limitations of the Bill

The Bill contains a number of new provisions on local government finance that as a package represent a worthwhile step forward. Authorities will be free to borrow for capital investment without consent providing they can afford to service the debt. Councils will be given the freedom to establish Business Improvement Districts (BIDs) and as a result will, with the agreement of local businesses, fund projects and service improvements through an addition to the business rate. Councils will be given greater powers to charge for discretionary services.

A number of other measures are outlined that appear to create more constraints around the collection of business rates but a greater freedom of manoeuvre over council tax. The Bill would also seem to put the final nail in the coffin the campaign for the return of the business rate to local control by suggesting that revenue support grant and the National Non-Domestic Rates (NNDR) be merged into one single grant, confirming the position of NNDR as a centrally distributed tax.

Along with new freedoms come new responsibilities, a formula that the Government has used before in many settings. There will be new duties on councillors to take a role in budget monitoring and new responsibilities on councils to ensure that they budget for adequate reserves. Council tax revaluation will be established a fixed 10-year cycle to ensure that the tax burden is distributed on the basis of up-to-date property values.

The Bill contains many detailed provisions some of which have a non-finance flavour. They include provisions to clarify the right of councils to hold advisory polls. In addition there are proposals for more targeted freedoms and responsibilities and provisions to enable best value councils to trade. There is also proposal to provide statutory guidance to enforce good practice provisions of the transfer of staff.

Detailed considerations

There may be a number of detailed points to take up in respect of the Bill. Generally there is a concern that the Bill may become overly prescriptive and despite its intent undermine some of the new freedoms and capacity to experiment that should be at its heart. We should be careful to ensure that the regulations in respect of prudential borrowing do not present unnecessary bureaucratic hurdles. Similar concerns might be raised about the potential working of the power to determine minimum reserves and the requirements about financial monitoring. Again charging provisions and provisions around BIDs arrangements should be flexible enough to allow new and imaginative ways forward providing that there is support for the local council's action from relevant stakeholders.

Does the Bill go far enough?

The short answer is no but it is a good start. A local government finance system needs to balance out several concerns. It may want to allow scope for the equalisation of resources or the effective joining together of governmental action through shared or joint budgets. If it is to promote local democracy it needs to allow sufficient scope for local autonomy and local accountability.

In my opinion the crucial issue is not the balance of funding as such but the freedom that a council has to make a difference in its own community. Real autonomy comes from being able to make a difference on key outcomes in social cohesion, economic development, well-being, mobility and with respect to the delivery of a whole range of services. The debate about local government finance needs to less cast in constitutional terms and more cast in terms of whether communities will benefit from changes or not.

Moreover the autonomy or otherwise of local government is not something that can be simply read off from knowledge about the level of revenues that it raises itself. During the 1980s under the Thatcher Government as central grant was cut back the proportion of monies raised in English local government from local ratepayers (domestic and business) increased by over a third, so much so that by 1989-90 57 per cent of funding came from local taxation. Few take the view that the years were one long march forward for autonomous local government.

Finally we should be honest and recognise that the concerns of the public and key stakeholders about the distribution of funding rules out any large scale shift in the balance of central and local funding. The Bill proposes a new grant system but the fundamental logic of equalisation will remain. The gearing problem faced by councils should be understood and placed in this wider context. Gearing is to a large part a product of the commitment to equalisation that in turn is reflective of a commitment to equality of opportunity. If we do care that people in Devon and Durham get the same basic access to education, social services and health care then equalisation and substantial central funding are here to stay. We can chip away at the margins but it is difficult to imagine dismantling a system that has become a core part of our sense of shared citizenship.

So autonomy and accountability if it is to be delivered requires something other than a simple than a shift in the balance of funding. It means giving councils freedom and flexibility to operate at the margins over current and capital spending and the option of trading. It means them being held to account at the local level for the revenue raising and spending they are responsible for at the margin. It means holding them to account for trading freedoms.

Working at the margins makes a lot of sense because it is at the margins that most real budget decisions are made. The Bill makes a start by enabling some progress on these issues.

But it may be necessary to go further. An expanded raft of tax and charging options-commonplace in Europe and North America- could provide local councils increasing own source revenues, depending of course on their ability to persuade the public and particular groups of service users. The Bill is a step the in the best available policy direction given the complex mix of objectives around the local finance agenda. It is however a modest step that needs to built on and extended.

Professor Gerry Stoker

Professor of Political Science, University of Manchester and Chair of the New Local Government Network.

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