Select Committee on Transport, Local Government and the Regions Appendices to the Minutes of Evidence

Memorandum by Tony Travers (LGB 42)


  1.  There has been much local government legislation during the past 30 years. The structure, functions and finance of local authorities have been subject to virtually continuous reform under both Labour and Conservative governments. As a result of this relentless process, there is inevitably a certain war-weariness about any further efforts to bring about change. Under the present government, a number of significant changes have been made to regulation and performance measurement regimes, to the internal management of councils and to the control of services. Another structural reform is in the offing as a consequence of the Government's decision to introduce regional government in England.

2.  The draft Local Government Bill must be seen against the background of this historic reform process and also of the resulting condition of local government in England and Wales. By international standards, English local government has suffered a significant diminution of its powers and financial autonomy in the period since 1945. There is virtually a consensus today about the over-centralisation of power within England. 96 per cent of all taxation in the United Kingdom (£391 million in 2002-03) is paid to the Treasury the remaining 4 per cent (£16 billion) is accounted for by the council tax. It is inevitable that the allocation of the public expenditure financed by this £391 billion of nationally-determined income has produced to a concentration of political power at the heart of central government.

3.  Thus, the impact of the Bill must in part, at least be judged in terms of the need for less centralisation and for a more rational balance of power within the United Kingdom's political system. The paragraphs below highlight a number of key aspects of the proposed legislation.


4.  The Bill creates a framework for a new system of controlling local authority capital expenditure. The existing system of capital controls is an amended version of arrangements put in place during the 1980s and 1990s to give Whitehall detailed and precise control over local authority borrowing and capital expenditure. The proposed new system would make it possible (and this is clearly what ministers currently intend) to operate in such a way that authorities will be free to borrow for capital investment without government permission. Councils would have to ensure their total borrowing was prudent and that interest payments were capable of being met. But apart from such prudential considerations, local authorities would be free to decide their own spending and borrowing totals.

5.  Such a system, operated in the way currently intended, would represent a major move in the direction of local autonomy. Many councils would enjoy significantly greater freedom than in the recent past. However, the draft Bill also includes provisions that would make it possible for the Government to re-introduce full control of national and individual authority borrowing limits (and thus, in effect, spending totals) at any time. Parliament would not have to be consulted. The draft Bill, therefore, offers the possibility either of far less central control than at present or, alternatively, little change.

6.  The Government is also proposing (Section 10 (1) (a) (ii)) that the Secretary of State shall have the power to require the receipts from any asset sales to be paid to him. The potential use of such a power risks discouraging authorities from selling assets and thus undermines the possibility of an effective strategy for the management of those assets.

7.  Overall, the Government's intentions with regard to capital controls appear consistent with the reduction of central control, though there are substantial reserve powers that undermine the apparent commitment to longer-term decentralisation.


8.  The Revenue Support Grant is to be re-named the Formula Grant. The draft Bill creates the legislative operating framework for the allocation of the bulk of central government funding to local authorities. The actual method to be used for calculating allocations is hinted at by the use of the word "formula", though the sub-section facilitating the allocation (Section 34 (2)) simply states that the calculation of the formula grant "shall be in accordance with the basis of distribution specified in the report". There are, therefore, virtually no constraints on the basis of distribution except that it shall be approved by a resolution of the House of Commons.

9.  The new Formula Grant will include the National Non-Domestic Rate (NNDR). There will no longer be a separate NNDR calculation. That is, the NNDR will cease to be a tax "hypothecated" to local authorities. A tax that was, until 1989-90, locally-determined will in future become just another revenue to the Treasury. The whole of the formula grant will be derived from central government revenues that will include the NNDR. While this change is in many ways cosmetic, it is indicative of a mind-set within central government.


10.  BIDs have been a feature of civic life in the United States and Canada for over 20 years. They offer a small-scale opportunity to raise additional non-domestic rate income for use by a business-controlled board to spend on local cleansing, securityenvironmental and promotional activities. They have, in the overwhelming majority of cases, been exceptionally effective and have cost very little compared with public service budgets.

11.  The draft Bill makes provision for a legislative framework for BIDs. The model followed is close to those that have operated effectively in the American states and Canadian provinces. Many of the details about the creation and operation of BIDs are left to regulations. However, given the general approach within the Bill of following the successful operation of BIDs overseas, it appears likely the government will regulate so as to continue to follow such overseas examples.

12.  BIDs are a form of government which, where they work best, involve local authorities, businesses and the community. It is absolutely essential to their success that the private sector has a powerful voice on BID boards, though local authorities must feelcomfortable with the activities of any BIDs within their area. The overall gain to local areas has included cleaner and safer streets, less graffiti, visible uniformed patrols and a better business environment. BIDs are a small but important step towards increased local autonomy.


13.  The Bill makes a number of changes to the National Non-Domestic Rate (NNDR). The most important of these (the final stage of the "nationalisation" of NNDR) is considered in the section on Formula Grant above. One other change, concerning transitional relief, is highlighted here. Section 71 (10) requires the Secretary of State to ensure that any arrangements for transitional relief introduced because of radical changes to rate bills resulting from a revaluation should be self-financing. That is, any assistance given to rate-payers facing higher bills must be funded by those that might otherwise expect to pay lower bills.

14.  Such a system will risk alienating both "gainers" and "losers". Non-domestic ratepayers whose bills should fall because of the revaluation will find they do not fall as much as they are expecting, while those facing higher bills will face an increased bill in both the short- and longer-term. A better way of coping with this issue would be for the Government to hold back resources from the total NNDR yield (under the new rules, this would effectively mean from general taxation) and use this sum to assist the losers. Gainers could then receive their full gain immediately Council tax (Sections 79 to 87)

15.  The decision to hold a revaluation (and future regular revaluations) of the council tax is to be welcomed. Any tax whose base becomes out-dated risks a threat to its legitimacy.


16.  The draft Bill gives local authorities powers to charge for discretionary services and to increase the extent of their trading activities. The Secretary of State will be empowered to modify or exclude existing powers that impede authorities from trading in this way, though it appears this power will be used to reward particular councils for their performance in service delivery.

17.  This part of the Bill appears to offer the Secretary of State significant powers to decide which authorities shall benefit from particular derogations. As such, it is consistent with the wider approach to "earned autonomy" adopted by the Government. This approach will give greater freedom to some councils, though it still leaves Whitehall at the centre of all decisions about levels of autonomy and which authorities shall be free to exercise new powers.


18.  The tortured tone of sections 7 and 8 of the Consultation Paper ("Section 1") accompanying the Bill suggests it is now very difficult to reflect the needs of the Welsh Assembly Government in legislation of this kind. This kind of difficulty perhaps suggests the time has come for Wales-only legislation (drafted by the Welsh Assembly Government) on matters affecting local government.

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