Andrew Carter (Director of Policy and Research, Centre for Cities) outlines his thoughts on changes to local government finance
Over the last week I’ve participated in several rich and insightful sessions discussing the Local Government Resource Review – and I’ve enjoyed them! They’ve involved brilliant individuals from central and local government, academia and business, all trying to grapple with the many issues that reform of an already incredibly complex, and in some cases contradictory, system throws up.
My overriding reflection from these discussions is that as we get into the detail we’re in danger of forgetting the purpose of reforming the local government finance system. What’s it all for? Is it about deficit reduction? Is it about localism? Is it about growth? Is it about public services? Is it about local authority autonomy and self-sufficiency? The answer seems to be yes to all of them! That’s a heavy load for any reform to carry and one that risks sinking the whole reform programme.
More specifically, I’ve come away from these discussions with five reflections and concerns:
Firstly, the system lacks transparency and clarity. If the growth incentive is to work in the way the Government intends – which is to help expand the business rate base and therefore to create more growth in the economy – then authorities and in particular councillors have to be able to understand how the incentive system will work. When Tony Travers declares he’s having trouble working it out then we should all worry!
Secondly, surely it is only in England that we could introduce a growth-based incentive that will be of most benefit to places that are least well placed to grow – i.e. those that are classed as ‘top up’ authorities will receive money from Government to make up the shortfall in their budgets caused by having either a small or weakly performing business base.
Thirdly, the advice given by Government to ‘tariff’ places (those that pay more into the system than they get back) to ‘pool’ with a top-up authority so that combined they become a top-up pool and therefore qualify for extra money via the redistribution element of the system has not been fully worked through. Taken to its extreme this could mean that Westminster pools with Birmingham purely for financial reasons.
Fourthly, we need to be clear about the nature of development that any incentive is likely to encourage. Most developments that take place don’t require massive amounts of ‘enabling’ investment (new rail-lines or large-scale improvements to roads or land remediation, etc). They do require a planning committee that’s deciding whether to permit a development to say yes rather than no and to do it slightly more quickly that they currently do. This is where a growth incentive will have most impact– affecting the decisions and behaviours at the margins. The developments which require huge amounts of enabling investment, whilst very exciting and great to talk about, are a relatively small proportion of the overall development decisions that planning authorities face up and down the country.
Finally, there seems to be an assumption that income from business rates will be (or should be) used to fund economic related activity – this is unlikely to happen in practice. In an environment where local government funding is declining and will continue to do so at least until 2017, it’s more likely that income generated from business rates will be used to fund services of one type or another.
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