Jonathan Carr-West is the Chief Executive of the Local Government Information Unit (LGiU).
Local government finance reform is one of the perennial bug bears of British political life. Since the poll tax, successive governments have failed to grasp this nettle. At LGiU we have, every year for the last five years, conducted a survey of local government finance in partnership with The Municipal Journal. Every year, the same message comes through: the system is broken. Council leaders and finance chiefs of all parties and from councils of all types, believe that local government finance is not fit for purpose.
And the Government agrees. Thus we have the most ambitious plans for local government finance reform in a generation: the revenue support grant phased out by 2020; councils to keep 100 per cent of business rates; universal business rates abolished; removal of the council tax freeze grant; and upper tier authorities able to pose an additional two per cent council tax precept to fund adult social care.
Of course with radicalism comes uncertainty and there still remain questions about how all this will work, particularly around what distribution mechanism, if any, will succeed the current system of tariffs and top ups. It hasn’t all been plain sailing so far. Changes to the needs formula applied in December’s provisional funding settlement led to an unprecedented backlash by Conservative County and District leaders who felt the Government was giving with one hand and taking with another and who felt confirmed in their suspicions that the Government’s growth policy is dominated by cities.
There were the anticipated reductions in the Government grant, but business rates were not devolved as expected. For many councils, higher tariffs left them millions short in their calculations and some were looking at a Kafkaesque world of negative RSG before the Government back-tracked and tried to smooth things over with additional funding.
Despite these uncertainties, our survey this year does give us a valuable insight into the future of local government finance in a time of change. One certainty in that future, is that we will all see our council tax bills go up. Nine out of ten councils told us that they planned to raise council tax, the majority by a fraction under the two per cent referendum trigger. Virtually all upper tier authorities plan to use the two per cent social care precept: though three quarters of them agree with the LGA that this will be insufficient to close the funding gap.
Many councillors, especially Conservatives, may resent the burden of raising taxes being passed from central to local government. Especially given the Chancellor’s weekend warning of further cuts to come in the Budget.
Looking further ahead, we see that councils and government share the same ambitions.
Six out of ten councils are confident that they can meet the Government’s aspiration for councils to be financially independent by 2020. But, and it’s a big but, four out of ten do not think this is feasible and even the 60 per cent that do, are not confident they can achieve it with the fiscal powers currently available from the Government. Seven out of ten councils felt that the devolution package currently on offer from government wouldn’t, in and of itself, provide a meaningful redistribution of funding and spending power from central government to local government. They called for increased powers over charging and trading, freedom to undertake council tax rebanding, and the ability to raise specific local taxes.
So the clear message that comes through for the Chancellor is this: if you’re going to be radical, be radical; if you’re going to devolve, devolve. Either we trust local government to manage its own finances, or we don’t, but without more fiscal devolution the whole enterprise is at risk. As George Osborne looks ahead, not just to next month’s budget but to his legacy and to larger prizes, it’s time to be bold and to go all in.