A model for greater financial autonomy

Author: Alex Thomson, Localis (in The Local Government Chronicle)   |  

Challenging times demand radical responses – and for the local government finance system inaction is no longer an option.
The funding tug-of-war between central and local government has been won by Whitehall for too long. The result is a system of local government finance in England that is opaque, highly centralised and riven with perverse incentives.

Localis is adamant that councils should raise and control a much larger proportion of the money they spend directly from their locality. Our long-term vision is for all councils to be entirely self-funded from a basket of locally derived income streams with minimal adjustments to take account of inequality of need. This will create a fair and transparent system for all local authorities, freeing them to be the engines of innovation and growth they ought to be, and enabling the local electorate to once again hold councillors to account for their tax-and-spend decisions.

So how to achieve this change? The ‘big-bang’ approach, as advocated by Simon Jenkins in his seminal Localis report ‘Big Bang Localism’, is certainly the most attractive way to achieve long-term systemic reform and deal with the multitude of issues and competing requirements in one go. But, as the Lyons Report made clear four years ago, such large-scale structural reform is not a trivial task. Any fundamental reform of the system will involve a significant period of consultation even before the legislative process could begin, to say nothing of the complex implementational questions about process and long term sustainability that will need resolving. Getting it right won’t be quick.

However, the parlous state of the national economy means there is a pressing need for more immediate measures that will provide councils with a real incentive to boost economic growth at the local level. In our report ‘The Rate Escape’ we show how an implementable but radical reform to allow local authorities to retain business rates at the local level will create significant new incentives that will help drive the economy forward, as well as providing a platform for a full-scale localist shift in the near future.

And the good news is that we are pushing at an open door. A survey of more than 200 English council leaders and chief executives, completed as part of our research, shows that 99.5% of councils want more financial autonomy, and 96% want more control over their locally collected business rates – with equal enthusiasm from both northern and southern councils. The vast majority of councils is straining to throw off centrally imposed constraints and once again be given the freedom to innovate and drive local economic growth. Our report proposes a model that will allow them to do just that.