Pragmatic ideas that could add to the ‘mosaic of change’
Author: Sir Michael Lyons, Local Government Chronicle |
After debate stretching at least 35 years, it can only be the most optimistic who are confident that we are at last ready to seriously address the nagging issues of how we fund local services; incentivise good government and clarify just which set of elected representatives is responsible for what.
Having said that, the current signs might be promising. The local government minister, Greg Clark, promises the “new constitutional settlement” between central and local government that I called for at the end of my Inquiry in 2007 and there is serious discussion about a power of general competence for local authorities, tax increment funding and the general case that councils should enjoy greater freedom to raise more of their own revenue.
It is against this background that Localis publishes its thoughtful report The Rate Escape and introduces the suggestion that councils should be able to buy their way out of the formula grant on a negotiated basis for an initial period of between three and five years, and should then benefit from the net difference from the business rates they are able to collect over the same period.
After briefly reviewing the history of the debate, the case for reform and the competing options, the authors focus on the importance of the NNDR – the business rate, and establish seven tests against which possible reforms might be judged. Their emphasis on ensuring an adequate incentive effect and leaving real scope for councils to enjoy a higher degree of self determination are amongst the most important, but the reflection of the fact that any change to the system must be of benefit to all parties, including the Treasury, reflects a pragmatic approach that I particularly welcome.
This paper begins from a very similar starting point to my own work; recognising that whilst there are strong cases for improved local accountability and better tailoring of local services and expenditures to local preferences, the most pressing case for reform is the need to break down an emerging dependency culture and to provide real incentives for councils to play their potentially important role in economic growth and diversity. An argument which is likely to appeal to the current government as it draws together a growth strategy to underpin the ambition to reshape the national economy and reduce its dependence on public expenditure.
A second strength of the Localis approach is, for me, the care they have taken to try to identify some way into the Gordian knot which frustrates so much of this debate. Over a number of years of increasing centralisation we have created a system of local government funding which, in part, harmonises resource availability between different communities; protects councils from wide swings in income (which have marked the US system over recent years) and offers comfort to tax payers (domestic and business) that they will be protected by government oversight.
Although many can see the downsides of this constipated system with its notable lack of incentives for promoting real economic growth and poor alignment with the aspirations of local people, they are understandably discouraged by the political risks of change. My own conclusions underlined the importance of a “mosaic of changes” undertaken across the lives of more than one government to build public confidence and to create the space for more radical change. The proposals revealed here are designed to emphasise the local choice to opt out and leave the remaining system unchanged for those who choose not to, thereby minimising opposition to the experiment.
Of course, that could not continue forever and it is perhaps the dynamic aspects of this approach that most need further thought and debate. Could any but the most favoured localities expect to achieve adequate growth over the next five years to justify the opt out? How long could current equalisation arrangements continue if the fastest growing areas systematically opt out?
Nonetheless, these ideas deserve careful thought and debate and may well offer another part of the mosaic I was hoping for.
This is an edited version of Sir Michael Lyons’ foreward to the Localis report