Memorandum by the County Councils Network
(CCN) (LGR 20)
BACKGROUND
1. The County Councils Network (CCN) is
a Special Interest Group within the Local Government Association
(LGA), with all 35 English Shire Counties in membership. The Network
exists to promote the voice of our members within the LGA and
the values and interests of the English Counties. Together these
authorities represent 47% of the population of England and provide
services across 84% of its land area.
2. The CCN welcomes the opportunity to submit
this written evidence for the inquiry into Local Government Revenue,
to the ODPM: Housing, Planning, Local Government and the Regions
Committee. We would of course be happy to provide any further
oral evidence if so required by the Committee.
CHANGING THE
BALANCE OF
FUNDING
3. The CCN believes that a change in the
balance of funding to reduce the reliance on central government
support would improve local government's accountability and, agrees
with the LGA that the current system "distorts accountability".
4. A key principle of the Layfield enquiry
was that whoever is responsible for incurring expenditure should
also raise the necessary revenue. This is not delivered by the
current system and the increasing involvement of central government
in local service provision by way of targets and specific grants
is blurring the delivery of local services still further.
5. A change in the balance of funding will
assist local taxpayers in identifying those services which are
the responsibility of local government, encouraging engagement
and enabling them to place a higher degree of accountability on
local government for service delivery and cost. It will also provide
greater incentives for efficiency and stimulate local authorities
to consider alternatives for the range and level of service provision,
enhancing flexibility to respond to local needs.
PROBLEMS WITH
THE CURRENT
SYSTEM
6. The CCN believes that there are many
serious problems with the current local government taxation system
highlighted in this submission and one of the fundamental issues
at the centre of the balance of funding review is the "gearing"
effect. As the LGA has previously highlighted, the current dependence
on Government Grant means that, on average, every 1% increase
in a local authority's budget requirement (not covered by government
grant), leads to a 4% increase in council tax, a gearing ratio
of 4:1.
7. High gearing leaves local authorities
facing a difficult choice between large increases in council tax
or cuts in service provision and this was clearly evident in 2003-04
when national funding pressures, particularly the shortfall in
schools and social services funding, led to significant and unsustainable
increases in council tax levels, well in excess of the level of
inflation. This also places an unfair burden on the less well
off, particularly the elderly and other groups on fixed incomes,
which are not increasing at the same rate as council tax rises.
8. The CCN believes that the most effective
way to address this problem would be to return the NNDR to local
control and introduce other sources of local revenue, which would
have a similar impact. This would provide a clear link between
the proportion of finance raised locally and democratic accountability
and local autonomy.
PRINCIPLES AND
OBJECTIVES
9. The CCN reiterates the shortcomings of
the current system previously identified by the LGA, and wishes
to highlight the following issues:
— Transparency and Accountability—local
taxpayers must able to relate the level of council tax they pay
to the services received and the decisions affecting those services.
The current "gearing" effect and system of specific
grants is a particular barrier to this. There must also be real
discretion for local priorities in all areas of local service
including education.
Transparency and accountability should
include clarity about how the Government influences grant distribution
via the formulae. The current system adds complexity and is not
understood by the local taxpayer, particularly the hidden impact
of resource equalisation.
— Fairness—the tax must be fair
in terms of ability to pay and should also be comparable between
authorities in terms of what is paid in council tax and what level
of service is received.
The CCN is concerned that ability to
pay is not fully taken into account within the current system,
even with the provision of council tax benefits. We are particularly
concerned that there is an unfair burden on the less well off
with certain groups on fixed incomes, including pensioners, being
particularly affected by the impact of "gearing", leading
to large increases in council tax levels.
In terms of the comparability of council
tax and service levels, the current grant distribution system
attempts to deal with these issues although, as the problems in
2003-04 have shown, this system is far from effective. Indeed
the CCN is particularly concerned that the resource equalisation
provision within the system is unfair in that it is not based
on any researched evidence of service levels or efficiency, and
is in fact "hidden" from the general public by the complexity
of the methodology.
— Stability and Predictability—the
CCN contends that these elements are essential for effective forward
financial and service planning. The provision of floors within
the grant distribution system is welcome but this is not announced
far enough in advance to be of any real benefit. Again, coupled
to the gearing effect, this also means that local consultation
on council tax levels cannot be meaningful in the absence of detailed
information on the level of revenue grant and often has to concentrate
on marginal changes to the budget.
— Freedom and Flexibility—the
CCN has welcomed Government initiatives to provide greater freedom
and flexibility to local authorities including the introduction
of BID's, powers to extend charging and trading, and the ability
to retain growth in NNDR receipts. We are however concerned that
these have only very limited potential to raise additional income
for most local authorities, are in some cases restricted, and
include further provisions for what is effectively additional
resource equalisation.
Local authorities need the freedom
to access a much wider source of local income if the "gearing
effect" is to be truly resolved, and local authorities are
to have real flexibility in service provision.
— Popular Perception—the CCN
believes that the increases in the level of council tax, well
in excess of inflation, in recent years are becoming increasingly
unpopular with local taxpayers, particularly those groups on fixed
incomes linked to inflation. A number of our members have also
indicated that the current system acts as a barrier to improved
engagement with local taxpayers.
Conversely, this is at a time when
there is continuing pressure to improve services (eg PSS) and
evidence indicates that the public do not want service reductions.
RELATIONSHIP BETWEEN
COUNCIL TAX
AND LEVEL
OF SERVICE
10. The CCN believes that the current local
government finance system distorts the picture from the point
of view of local taxpayers. There must be a much clearer relationship
between the level of council tax and the level of service received.
11. The position is further complicated
by the range of specific grants and service targets set by the
Government, which are effectively leading to the perception amongst
local taxpayers that services like education and social services
are primarily controlled by national government. The CCN believes
that in order for local government to be truly accountable to,
and engaged with local taxpayers, it must have much greater freedom
and flexibility to determine the level and cost of service provision
in its area.
LINK TO
ELECTION TURNOUT
12. The CCN supports the view of the LGA
that the work of Professor John Gibson Local Tax Levels and
Turnouts in English Local Elections shows that turnouts in
local elections were higher when the balance of funding was more
even.
13. The CCN also believes that if local
taxpayers are making a greater contribution to the funding of
local services, by whatever method, and can see the impact that
funding has on service provision, then they will feel more engaged
and more likely to participate in local elections, referendums
and the range of other consultations undertaken by local authorities.
GOVERNMENT INFLUENCE
OVER LOCAL
GOVERNMENT EXPENDITURE
14. The CCN believes that whilst the direct
impact of the gearing effect is a key element in the distortion
of local accountability, there are a range of other factors at
work which need to be addressed—
— Passporting—the requirement
to passport education funding means the budget provision for education
is, in effect, dictated by central government and not by local
need. This also has the added disadvantage of diverting focus
from all local authority services to those which may directly
be affected by the resulting level of council tax, outside the
protection of the passporting system. The CCN believes that the
requirement to passport funds to education must be removed from
the FSS system and local authorities should be given the freedom
and flexibility to decide on the level of local education budgets
based on local service needs.
— Quantum—whilst welcoming the
increase in funding provided by central government for local authority
services over the last few years, the CCN highlights that there
are still significant shortfalls between funding provision and
service costs, particularly in some areas eg social services.
This was further highlighted in 2003-04 with the significant problems
in the provision of funding for education in the light of the
scale of increasing costs.
Research undertaken by the CCN indicates
that substantial increases in grant support will be required in
excess of the provisions already announced by the government if
significant increases in council tax are to be avoided in coming
years.
The CCN believes that until local authorities
have access to significant local funding sources, the distortion
of accountability will remain.
— Specific grants and service targets—the
CCN believes that the proliferation of specific grants, government
targets and league tables are diverting local authorities from
provision of service based on local need, to those of national
priority. The CCN believes that the government must give local
authorities greater freedom and flexibility to implement services
based on local need.
— Freedoms and flexibilities—the
CCN reiterates its view that the various financial, statutory
and performance requirements placed on local government by national
government are preventing it from undertaking the effective discharge
of its local democratic role. The CCN believes there needs to
be a much greater range of freedoms and flexibilities across the
board if local government is to be truly accountable to its local
electorate.
RESOURCE EQUALISATION
15. The CCN believes that there is an urgent
requirement for specific research to be undertaken into the need
and level of resource equalisation between local authorities.
We categorically reject the arbitrary and judgmental basis used
for the current system, which is based purely on levels of past
spending with no reference to the level of service provided or
the efficiency with which it is provided. We believe it is vital
that any system of equalisation should not negate incentivisation.
16. The CCN believes that a change in the
balance of funding would not need to have any impact on a properly
researched level of resource equalisation. Indeed the equalisation
transaction itself needs to be more transparent so that local
taxpayers can be fully aware of the provision for, and level of,
equalisation taking place.
17. The CCN preferred option to address
the balance of funding is the return of the NNDR to local control
and the introduction of other sources of local revenue, which
would have a similar impact. This in itself would not eliminate
central grant and would still provide the opportunity for a properly
researched and justifiable level of equalisation to take place.
EFFICIENCY AND
GEARING
18. The CCN believes that the gearing effect
is not an appropriate tool to control local authority spending
and only serves to reduce the accountability between a local authority
and local taxpayers.
19. There is a range of provisions in place
for consultation, control, and if necessary capping of local authority
expenditure and there is no specific research which suggests gearing
itself acts to promote efficiency.
20. There also remains a question over the
public perception of the relationship between council tax levels
and efficiency.
21. The CCN further believes that rather
than promoting efficiency, the gearing effect works to promote
inefficiency. The inadequacy of the quantum particularly in areas
like social services and highways, means that in order to avoid
even larger rises in council tax, it is the repair and maintenance
or preventative service budgets that suffer. In the long run this
creates even greater cost and long term demand upon services.
It is vital that the Government provides sufficient quantum for
all services.
OPTIONS SUPPORTED
BY THE
CCN
22. The CCN believes that by restoring the
NNDR to local control or by introducing other sources of local
revenue, which would have a similar impact, the balance of funding
issue can be addressed with minimal disruption and change to the
existing system.
23. The CCN further believes that many
of the problems associated with the current Government control
over Local Government Funding could also be addressed by restoring
the NNDR to local control and by introducing other sources of
local revenue which would have a similar impact.
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