1984 and All That
Originally Published in the MJ – 30/04/2024
Forty years for the passing of the Rates Act 1984, how relevant are the provisions designed to give central government control over the governance of local taxation and expenditure, asks Jonathan Werran
Among the many anniversaries we are celebrating this year, the fortieth year of the passing of the Rates Act 1984 might well have slipped beneath the national as well as local radar.
In the terms of Hugo Young’s contemporaneous history of Thatcherism, ‘One of us’, or indeed for today’s Popular Conservatives, 1984 was not one of Orwellian ‘Big Brother’ permanent war and domestic tyranny, but possibly the apogee of bold supply side reforms and success in taking the fight to the enemies of free market progress. It was a period of unalloyed Thatcherite ascendancy and legacy defining actions. From taking on the National Union of Mineworkers in the ‘Battle of Orgreave’ and elsewhere in breaking the miner’s strike, to the irresistible advance of the privatisation programme through the listing of British Telecommunications and transfer from government ownership, the year was epochal.
In local government, the battle continued to be waged against recalcitrant socialist town halls. The legislative frame had been set in part in the first Thatcher government through the passing of the Local Government Finance and Planning Act 1980 and the Local Government Finance Act 1982. These acts gave central government the power to fix spending limits for individual councils and remove central grants – which made up around 60% of an authority’s income – for continued financial overspend. Punishment was real. Several councils ploughed on with their ongoing service programmes and raised domestic and commercial rates, and in return saw their general grant cut. By 1983, Ken Livingstone’s Greater London Council (GLC) saw all its central funding removed.
Passed on 26th June 1984, The Rates Act gave central government the power to set caps for any increase in rates that councils could levy. And as a sanction, council leaders who acted ultra vires or beyond their powers could be prosecuted, banned from office for up to ten years and fined.
Coming into effect on 1 April 1985, the Rates Act compelled 31 councils – 30 of which were Labour controlled – to set budgets in line with government tax and expenditure limits. Only ‘Red’ Ted Knight’s Lambeth and Militant Tendency run Liverpool refused to back down. In consequence Ted Knight was prosecuted, fined and banned from office for ten years. And the rest is history, surely? Well not quite.
The 1984 Rates Reform Act also engendered the working concept of the golden triangle of chief executive/monitoring officer/chief finance officer. This established the principle that they, in the exercise of their leadership responsibilities, should own and champion good governance and effective financial management in local government.
In joint work Localis undertook with the Centre for Governance and Scrutiny in 2022, the obvious point was noted that good governance is important in ensuring good decision making and leadership in local authorities. The CIPFA Financial Management Code makes clear that responsibility for sound financial management is not the preserve of the chief finance officer, rather it is the responsibility of all those in senior leadership roles, both officers and members. There are very clear lessons from recent financial failures is that in reality they were governance failures, where transparency, scrutiny, challenge and open and honest conversations were missing. There are clear lessons for those authorities, not yet in a severe financial position that if they have poor governance a downward spiral into financial meltdown is inevitable.
And in their follow up study into lessons from recent Public Interest Reports, and their December 2023 preventing local government failure report: ‘How can further local authority failures be prevented?’ Grant Thornton has noted a growing trend for their issue as both a concern and reminder that things can go wrong anywhere – with potentially significant risks, including government intervention. Their findings highlighted that not a small number of councils have failed to exercise appropriate governance with public money, exercise appropriate governance or have the capability to manage risk in the short or long term or remove optimism bias in medium-term plans.
So, if the dominant themes for financial failure to date are those of poor leadership, culture and governance and a lack of understanding or practice of oversight, do the governance tools in the wheelhouse still fit the needs of today’s world? Significantly, as this year we mark four decades Rates Act 1984 and its provisions, it would be good to ask if this legacy is still fit for purpose and worth adapting to modern times.
Let us consider the many changes to the role and corporate running of a local government sector that has undergone successive radical transformations, a political economy that has also moved on dramatically, and a technologically driven age of AI wonder far removed from the eight-bit ZX Spectrum era, there is a prima facie case for necessary reform and renewal.
In this context, does the very ‘golden triangle’ model remain valid given the changes to local government corporate structure? And fundamentally, how in the current economic and political context of local public finances might we better guarantee that strong corporate governance and effective scrutiny supports a culture of transparency and openness? And one that will help deliver financial sustainability over the lifetime of the next parliament in the medium-term? We shouldn’t have to wait another 40 years to work this out.
Jonathan Werran is chief executive, Localis