Tuesday, 20 February 2007

The REAL Crisis in Local Government

I have a friend who works in a senior position in the Finance department of one of the Home Counties. It is a Conservative-controlled authority though has been, until recently, fairly non-political in outlook. He has worked for the County for over twenty years. I met him at the weekend. I have never known him so angry or in despair at what is going on in his authority at the moment.

Last week, the County Council passed the 2007/08 Budget allowing for a rise of 4.4% in its Council Tax precept (residents pay both a County and a District/Borough Council Tax precept adding up to the one figure). This followed an initial officer proposal for a 4.9% rise. My friend tells me the change is entirely political in nature and the shortfall will mean potentially damaging cuts in services. I was told that the County Councillors had been asked by Conservative Party HQ to push for a lower tax rise in order to provide the Conservatives with some "good publicity" in the run-up to the May local elections. Unfortunately, my friend suggests, the "publicity" from closed libraries, youth centres and adult education centres may not be exactly what the Tories are looking for.

What has angered my friend is that the Members of the County Council have callously disregarded officer recommendations and warnings on the state of the Council's finances and have put the political objectives of the Conservative Party before the services local people need.

Now, of course, the crisis in local Government goes far beyond one authority. The centralisation of powers started by Margaret Thatcher and continued by both John Major and Tony Blair has done untold damage to the democratic health of the nation. On top of that, the very funding of local Government itself has remained an unresolved and festering problem.

The abolition of the "Poll Tax" in 1991 and its replacement by the Council Tax was the most obvious political result of the toppling of Margaret Thatcher the previous November. However, the Council Tax was a political expediency rather than a thought through method of finance. In effect, local authorities and residents were subsidised by Government so that for every pound spent by a local Council, roughly 72p came from central Government and only 28p from local sources. Houses were "valued" by a series of bands reflecting the property values at that time and there was a commitment to a five-year revaluation which has occurred for non-domestic premises.

Sixteen years on and the Blair Government has, if anything, made matters worse. Terrified, one imagines, of the political backlash, revaluation of domestic properties in England remains off the agenda. On the other hand, the funding of local authorities, under the control of John Prescott and now David Miliband, has been used to systematically re-distribute funds from south to north. This has led to the Daily Mail and other anti-Labour papers claiming the "Sovietisation" of parts of Britain as large numbers of the workforce in the north are directly or indirectly employed by the public sector (and supposedly inclined to vote Labour).

My friend's authority has suffered years of low levels of central Government funding and, unable and probably unwilling to raise Council Tax, has repeatedly cut staff costs (though not consultancy costs) to the bone. The fact, however, is that my friend's authority employs only 35 approved social workers instead of the required 70 because it simply cannot attract qualified staff on the wages it is able to pay.

The irony is that while there are pockets of deprivation in his county, there are also areas of enormous wealth with house prices well into seven figures. Unfortunately, the lack of a revaluation means the rise in house prices over the last sixteen years has not been taken into account. IF the top band for Council Tax is still set at £320k, then a house of that value pays the same Council Tax as a house of £1 million which is grossly unfair.

Apart from a comprehensive revaluation of property, there also needs to be a re-structuring of the tax bands themselves taking into account regional variations in value. I'm aware that rising property prices do not always equate to rising personal incomes but we have to start somewhere. If then we make the median value for property at say £200k we could say that a house value £1 million would pay five times the Council Tax base for that area.

Let's say the base itself is £1k per year for the median house, that means the £1 million house in that area pays £5k per year in Council Tax and of course the house valued at £100k pays only £500 per year.

Now, this isn't fair...the current system isn't fair. Local Income Tax (LIT) isn't fair either. There is no fair system of local Government finance because the country isn't homogenous. Newham (where I live) isn't the same as Kensington & Chelsea. The needs are different, the potential amounts of money which can be raised are different. It''s time politicians of all parties stopped seeking some holy grail of a fair funding system of local Government and accepted the fact of inequality and the need for redistribution.

The one thing which I think needs to be done is to take the funding decisions out of the hand of politicians. A wholly independent Local Government Finance Commission would have the remit of looking at every local authority and making a balanced assessment of present and future needs based on submissions from the authorities themselves. Clearly, wealthier areas should raise more from within their own populations while poorer areas will need more assistance from central Government. The inequalities already exist, the current system accentuates them while we should be seeking to mitigate them.

As always, I welcome any opinions.

5 comments:

Andy Cooke said...

stodge,

It comes down to the emasculation of local government in this country. This has caused two factors:

- The council has responsibility without authority - it is accountable without having the power that should go with it.

- Local elections are seen as a popularity contest for the Parties, rather than as elections for the local government. This leads to the situations in your post.

My personal preference is for each Local Authority to be told "go raise your income". They can use property taxation, business taxation, local income taxes, consumption taxes, flat fees - whatever they want. A basic (very basic) grant from central government to cover all central government mandated expenses (police, fire, schools etc) which may be augmented as the local authority chooses. They are accountable to their electors directly, so why should "one size fits all" be imposed?.

Benedict White said...

Firstly if you want comments, turn off moderation and allow all posters. Unless your blog becomes very popular there won't be a problem.

Secondly you have hit the nail on the head, the problem is ever increasingly stingy government grants to the south east which already pays more of every other form of tax, it seems New Labour want then to pay more council tax as well.

You make some interesting points about the need for more bands. Fair enough. There is a need for some redistribution, but part of the problem is that even in the shires there are the poor and the deprived and the way this government is carving up the pie, they don't get a look in.

Innocent Abroad said...

The problem with Andy Cooke's financial remedy is that each Council's tax base bears no relationship (or possibly an inverse relationship) to local needs. Nor can I imagine any government being content that a given service should be delivered free in one county, but charged for in the next. They won't want to see the Scottish student grants brouhaha repeated ad nauseam - at least, if that's in the next Tory manifesto I'll be very surprised.

The basic use of local Councils is to act as whipping boys, and to get MPs off the hook. No Minister wants to take responsibility for traffic management (congestion charges and parking wardens) or child protection - so they have local Councils as scapegoats.

If the London Olympics are a success, Ministers will take the credit. If they're a shambles, the London Mayoralty will be entirely at fault. And every PPC in London, irrespective of Party, thinks that's the way God wants it to be.

Despite the very generous allowances, compared to a generation ago, no Party can find enough good candidates for all its safe Council seats, let alone the marginals. And virtually all Councils' senior and middle managers are victims of the Peter Principle, i.e. over-promoted.

One thing Council leaders can do is follow the example of Hackney Mayor Jules Pipe, who a few years ago told ministers he was going to put down a motion declaring himself and the Council in default of their statutory responsibilities unless they coughed up some more dosh. Ministers caved in.

And the A.L.G. could create an élite management cadre, comparable to the Civil Service fast stream, which it could employ itself and send out on placement to local Councils who had identified management weaknesses. But it won't. Councillors would sooner have the trappings of power - in truth, a petty brief authority - than do what it takes to deliver services.

And an incoming government, irrespective of colour, could look at the Canadian system, whereby increased satisfaction with local services, as measured by opinion polls, is rewarded with increased grants. But it won't - their friends might lose out...

Andy Cooke said...

Innocent,

Then we need to define exactly what are the "local needs".
If education, fire and police are covered by government grant, what's left?

I'm not a local government expert, so I'm just guessing ...
-Council Housing
-Libraries
-Sports Centres
-Road Maintenance
-Rubbish Collection and recycling

... what have I missed?

We could set up a system where council housing funding is given as a function of claimants (as it is outside of local government control how many claimants there are - no responsibility without power)

- Road maintenance - a council could claim extra grant if it has an unusually large number of roads to maintain.

What else?
I'd imagine that in the poorer Local Authorities, the Council housing of claimants is one of the biggest calls upon their funds.

An independent Local Authority Finance Commission, as stodge suggests, would help in this matter (although I hesitate to recommend a new quango ...), but the raising of money should be up to the Local Authority.

As to the differences from one to the other - that's democracy. It's not comparable to the Scottish grants issue, as every LA is on the same foundation - simply voting out the current council will change matters. Scotland is on a different basis to England, as it has a Parliament with powers that are absent in English councils. If anything, discrepancies should raise turnout and involvement in local democracy.

loadofoldstodge said...

First, thank you everyone for your constructive and interesting comments. Let me emphasise I'm NOT trying to be party-political or partisan-political. I want to encourage some thinking and debate on all sides.

Currently, as we know, local Government is taking more and more school-related spending away from local authorities and this has had serious implications on capital funding and school maintenance.

As for the Police, most Police Authorities are now independent organisations though many use Councils for property maintenance and back office functions.

Though the recent White Paper on the structure of local Government was devoid of much in the way of original thinking, it has encouraged Counties and Districts/Boroughs to look at some different options eg: sharing of accommodation, tendering for single waste contracts and a common back-office. These could, if implemented properly, make notable savings.

That said, the central issue of a proper funding solution remains. I completely agree with Benedict that there is real poverty in the shires and especially when it comes to the provision of affordable housing.

As to my suggestion of a Local Authority Finance Commission, Andy, I would take powers from the Audit Commission and DCLOG to staff this new organisation. Its remit would be to provide an equitable and impartial re-distribution of funds to local authorities.