Memorandum by Tony Travers (LGB 42)
INTRODUCTION
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.
CAPITAL FINANCE
(SECTIONS 1 TO
20, SCHEDULE 1)
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.
FORMULA GRANT
(SECTIONS 29 TO
49)
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.
BUSINESS IMPROVEMENT
DISTRICTS (SECTIONS
50 TO 67)
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.
NON-DOMESTIC
RATES (SECTIONS
68 TO 78)
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.
MISCELLANEOUS (SECTIONS
100 TO 115)
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.
WALES
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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