Friday, 24 September 2010

Local Government Faces A New Reality…

A couple of developments which seem to have passed without much comment generally but which will have a huge impact on the future of local Government and local services need some analysis.

First is the Coalition Government’s decision NOT to proceed with a revaluation of properties for Council Tax. This is a cowardly and disappointing move and undermines those who have praised Communities Secretary Eric Pickles on blogs like politicalbetting and elsewhere. The Council Tax is at its core a property-based tax and was established in a panic by the Major Government in the spring of 1991 as their solution to the widely-derided Poll Tax, opposition to which had done much to fuel the fire which ultimately burned Mrs Thatcher.

The “solution” was a property tax, supported by a £140 grant to each Council from the Government. It meant that for every £1 spent by local Government, 80p would come from central Government and 20p from the rates. Properties were valued and banded with the median “D” band set at £160,000 and the eight bands arranged in blocks of £20k around the median.

The plan was for revaluations every five years and this would have been fine had the median moved with house price inflation. In other words, if your property goes up 10% in value and the national price rise is 5% you risk moving up a band but that’s fair enough as your capital has increased in value. Successive Governments have feared the political impact of a revaluation in England which would probably see houses in London and the South East rise through the bands while other parts of the country see bands stay the same or even fall but that’s reasonable given the appreciation in capital.

The other aspect is that rising house prices would allow Councils to raise a greater proportion of their income locally and be less reliant on central Government. Under the gerrymandered funding formulae of John Prescott, the Home Counties were progressively denied central Government funds leaving them now raising 60p of every £1 they spend locally and using central Government funding for the other 40p.

Other Authorities, notably urban Labour councils, are conversely almost wholly reliant on central Government grant and when these funds are withdrawn, they will feel the worst of the pain and that’s where the jobs will be lost and the most services cut.

Had successive Governments set up an independent revaluation process based on national house price inflation and applied this across England, things would be very different and Council Tax would be a very different beast. As it is, it is a tax frozen in time bearing very little relationship to the current property world and not allowing Councils to become less reliant on central Government largesse.

The second main development is the announcement by Suffolk County Council of a plan to outsource most if not all the Council’s activities. Now, we’ve heard this kind of language from other Authorities but they’ve always backed away from such a radical action.

The problem is there are those on the Conservative side who believe passionately that private enterprise can run public services better than local Councils. Now, I will gladly admit I don’t really care who provides the services but as they are public services paid for by residents and as such there has to be accountability if the service isn’t being delivered properly.

My experience of observing private companies running public services doesn’t fill me with confidence. The main problem is the contract under which the service is outsourced. In many instances, the Council acts from a position of naïveté and the private contractor runs rings around the local authority making it almost impossible for the Council to sack them or penalise them.

Another example is the naïveté from the private side. The Contractor thinks they can take the work, do it more efficiently and make a profit but they underestimate the amount of work the Council generates and they finish up either making a loss or having to go cap-in-hand to the Council for more money. The latter happened frequently in the dark days of Compulsory Competitive Tendering (CCT) when Councils had to accept the lowest offer for any work package.

More recently, I’ve seen instances of where Councils, believing they can achieve an economy of scale, have moved away from using a network of local Contractors for maintenance work, to a single national provider. In theory, a good idea but in practice the national Contractor, because they have a monopoly, start to overcharge for things like feasibility studies and basic repairs and the Council finishes up spending more than they would have by using local Contractors.

The secret of successful outsourcing is for the Council to operate a robust and expert client regimen and this may not be as cheap as the average Council would like or hope. I can only hope Suffolk, if they decide to go down the outsourcing route, look at each activity separately. The temptation will be to package a host of activities and offer them to a group like Capita but that is also fraught with risk and is far from being the cost-saver the Council might hope.

My final observation is that you can’t outsource a problem and expect it to go away. If there are problems with the service, externalising the service merely gives the problem to someone else. Robust client management and Member involvement is essential if accountability and service viability are to be maintained.

I wouldn’t say outsourcing is NEVER the answer but it’s not a panacea. Done properly and managed well, it’s an effective way of delivering public services in partnership and may allow several neighbouring authorities to co-ordinate and manage a common activity but it can go wrong with inadequate Contract preparation and inadequate Contract management. At best, the Contractor can run rings round the Council, at worst public funds can be needlessly squandered.

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