18 May 2007
The Lyons report suggested a number of ways forward for local government finance. From abolishing capping to localising the business rate, councils must be prepared to seize the initiative – and the agenda
In a perfect world the Lyons Inquiry would have delivered a carefully crafted agenda of proposals which we could all rally around. In the real world, despite all of Sir Michael Lyons' efforts, we seem to be a very long way from reaching a consensus about necessary changes to the whole area of council finances.
So what can be done to create a momentum for progress? And where in particular can local government focus its energies to try to achieve movement?
I think we have to start with capping. For me this is the Rubicon that we have to persuade government to cross. We have to win the argument that talk of localism and devolution — favourite sound bites of all the parties — is no more than hollow rhetoric if the budgets of democratically elected local authorities are effectively set in Whitehall.
Of course, government (and taxpayers) will fear the prospect of runaway local tax increases if council budgets are left completely to local discretion. So, pragmatically, we may need to consider whether some other regulatory influences can be brought to bear to ease their concerns.
For example, could local government as a whole regulate itself to maintain tax increases at an acceptable level? It would be a difficult challenge, but surely not impossible. And it would be infinitely more attractive than the dead hand of capping from the centre.
Next, we clearly do need to make changes to the council tax to ensure its continued fitness for purpose. Lyons has outlined very sensible proposals here. They include increasing the number of tax bands, improving and simplifying council tax benefits and ensuring regular revaluations.
In many ways this should come under the heading 'routine maintenance'. But it is made difficult because it offers irresistible 'free hits' for the political parties in Opposition. So here we need to get to work on building a consensus across the parties, initially within local government and ultimately within the parliamentary parties.
Lyons talks about securing 'a constitutional settlement' and this is part of that agenda. We have to win the argument that a sound system of local government funding is far too important to allow opportunistic political point scoring to get in the way.
An improved council tax would be a significant step forward but let's not kid ourselves that there is scope to increase its yield.
On the contrary, we know that the only means of raising significant new revenues locally would be to establish one or more new local taxes or, more realistically, to 'localise' an existing national tax.
The most obvious candidates for localisation are the business rate and income tax. Both are genuine, viable, practical runners. But, for me, the business rate is far more attractive, not least because it offers the opportunity to create a really effective accountability relationship between local authorities and their business communities.
But how can local government win the confidence of business to support such a reform? Without its support there is little prospect that government will have the stomach for the battle.
Again, this points to the need for a campaign. Local government needs to connect with business leaders and to understand their concerns. It needs to find selling points that will appeal to business people and, if necessary, to develop and advocate controls to address explicitly some of their fears.
Lyons' 'placeshaping' proposals are potentially key in this discussion. If councils are to take a stronger local leadership role it becomes increasingly important for business to be able to sit at the table and to exercise influence.
A clearer local funding connection would provide added legitimacy for precisely the kind of close, collaborative relationship that 'placeshaping' implies.
Finally, local government should scan for the innovations that it can lead and make happen, with or without government support.
For example, Lyons suggests the creation of an independent commission to oversee the financial relationships between central and local government. Ideally, this would be put in place by government in consultation with local authorities. But if government is reluctant to act, what is to stop local government from seizing the initiative and establishing a commission?
At the very least it would send powerful signals about councils' determination to make positive changes. It would also speak volumes for their self-confidence and readiness to lead boldly rather than wait passively for reforms which government seems unable to deliver.
Steve Freer is chief executive of CIPFA
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