Radical change needs radical reforms
Author: Alex Thomson, Local Government Chronicle |
As a thinktank dedicated to the principles of localism and decentralisation, Localis has welcomed many of the government’s policies to decentralise power.
Before the election, few people thought that the government would go as far as it has on health, local government inspection, planning and housing. David Cameron fought the election under the banner of the Big Society and, whatever people might think about this agenda, it has undoubtedly provided a strong vision for the reversal of our over-centralised state.
Plans for departmental structural reform and decentralisation cut right across Whitehall, making it potentially the most radical shake-up of the government for many years. But there is still a lot of work to be done.
Localis has long argued that local government finance is a key part of this. As yet, the coalition’s plans for any reform are unclear. What is clear is that there is no appetite for re-opening old cans of worms on council tax, for example.
Reversing the balance
The more important question is how to design a system whereby the balance of funding between central and local government is reversed in favour of local government, bringing it more in line with our European neighbours.
Without addressing this problem, the commitment to decentralisation will only go so far, undoubtedly inhibiting the Big Society. So what can be done?
The first, apparently obvious answer, is to create more local taxes. But while it might be ultimately desirable to have more local taxes, the adverse political and economic impact makes it unrealistic in the short term. Other options could include the removal of council tax capping and government ring-fencing, or the introduction of incentive-based systems such as tax increment financing.
But while these are all sensible avenues to pursue, on their own, they simply do not go far enough. One solution that we believe will begin to address this fundamental imbalance is the partial re-localisation of business rates. These are collected locally by councils, then sent to central government before being reallocated to councils in ‘formula grant’, according to a fiendishly complicated distribution model called the four block model.
Incentive to grow local
But is this necessary? Why can’t councils be allowed to buy their way out of this bureaucratic merry-go-round? Shouldn’t local government finally be given a clear, direct incentive to grow local economies, and hence grow the national economy?
Returning greater control of business rates to councils would be a crucial first step in creating a more autonomous system of local government finance.
Localis has therefore teamed up with Ernst & Young to test this radical but simple solution to the problems caused by the current balance of funding, and creating genuine local financial autonomy.
In the coming months we want to speak to as many councils as possible about these issues before publishing our report early next year.