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Local money for local spending

Alex Thomson, the Chief Executive of Localis says councils should be able to keep the BusinessRates. We want have really localism when only a quarter of a Council's budget is raised locally

Localism hasn’t always been sexy. During the two years I worked for the Conservative Party drawing up their policies on localism, or decentralisation as we called it back then, plenty of policy areas had a far higher profile. And, despite the best efforts of my colleagues and me, during the election the media did a very good impression of not caring much about localism, or indeed anything to do with local government at all.

Skip forward a few months and localism is all the rage. In recent weeks there has been a flurry of announcements about new powers to be given to councils and it’s been hard to move for government ministers – of all departments – espousing a significant reduction of their own powers with a concurrent increase in that of communities (health, policing, housing to name but a few).

Not that this has been popular with everyone. Across the public sector, but particularly in Whitehall, there has long been a belief that localism is fine in theory (or in opposition) but that real governments run things from the centre. Thankfully David Cameron, Eric Pickles, Greg Clark et al are determined to reject this regressive, failed dogma.

So we have a new government that is genuinely committed to decentralising power – the first in decades. This is excellent news, but there is still a lot of hard work ahead to realise its vision of a localist Britain. As the new Chief Executive of the thinktank Localis, I am determined that we will continue to produce high quality and ground-breaking research, events and seminars to support the government in its localist aims. This means assisting with the development and implementation of the policies in the forthcoming Localism Bill. But it also means shaping the debate about what comes next for local government and localism.

For example, there is one aspect of the local government landscape that is almost untouched by the coalition’s plans – finance. The balance of funding between central and local government is arguably the greatest challenge this government faces in achieving genuine decentralisation.

Money is power. Without greater control of their financial revenues, councils will always be cajoled and manipulated by higher tiers of government. But only a quarter of the money local authorities spend is raised locally. By comparison, in almost every other developed country in the world, local government is between 50% and 85% locally funded.

In other words, the UK is one of the most centralised countries in the developed world. This financial emasculation is a relatively recent phenomenon. Only twenty years ago, before 1990, more than half local authority revenue was locally raised. And going further back to the nineteenth century, the dawn of local government, councils were almost entirely locally funded.

But why does the centralisation of local government funding matter? It matters because denying local government a proper degree of control of its finances undermines councils, creates needlessly complicated lines of accountability and, with central government pulling the strings, leads to unnecessary and wasteful standardisation in the provision of public services.

So what’s the answer? In a truly decentralised world councils would raise the vast majority of their income locally, but reaching this goal is likely to take a number of years. But the good news is that there appears to be some political appetite for re-thinking how the system of local government finance operates. Localis, in collaboration with Ernst and Young, is working to examine potential approaches to remedying councils’ financial dependence on central government, particularly looking at the use of business rates.

Currently business rates are collected locally by local authorities, but then sent to central government before being reallocated to councils in the guise of “formula grant”, according a fiendishly complicated distribution model called the four block model. In our work we will be testing a simple and radical solution to the problems caused by the current balance of funding - allowing councils to buy out of this bureaucratic merry-go-round and gain some real financial autonomy.

In the coming months we want to speak to as many councils as possible about these issues, before publishing our report early next year. If any Con Home readers would like to be involved, please drop me a line on [email protected].


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