Examination of Witnesses (Questions 1-19)
MR PETER
KENWAY, MR
GUY PALMER,
MR NICHOLAS
BOLES AND
MR DAN
CORRY
27 APRIL 2004
Q1 Chairman: Can I welcome you to the
first session in the Committee's inquiry into local government
revenue. Can I point out that the evidence we got in on time has
been published and is available from the Stationery Office or
you can read it on the Committee's website. Can I ask you, gentlemen,
to introduce yourselves for the record?
Mr Boles: Nicholas Boles. I am
the Director of the Policy Exchange.
Mr Corry: Dan Corry, Director
of the New Local Government Network.
Mr Kenway: Peter Kenway, one of
the directors of the New Policy Institute.
Mr Palmer: I am Guy Palmer, the
other one!
Chairman: Do any of you want to say anything
by way of introduction or are you happy for us to go straight
to questions? No. If you agree with each other please keep quiet,
but if you disagree then catch my eye as quickly as possible.
Bill O'Brien?
Q2 Mr O'Brien: One of the important factors
of this review is the question of local accountability and this
matter has been around for a long time, Layfield referred to it.
Do you agree with the Layfield hypothesis that increasing the
proportion of expenditure financed by global taxes is the best
way to increase the local accountability of local government?
Mr Corry: I think there are two
elements. I think you can get a long way in turning local government
back into local government instead of local administration by
stopping all the controls on the way local government spends its
money, a kind of single pot approach. I think that is an important
element and one should not lose sight of it. It is not all just
about how much is funded locally. We could have 75% funded locally
but the government having so many targets and so many controls
that local government still was local administration, it is important
to bear that in mind. But, while you have a large proportion of
the money and the overwhelming proportion coming from the central
state, even if it wills the desire to let local government spend
it more as it wants it will always feel unable to, it will always
want to control because it feels answerable for the way the money
is spent. So unless you change the proportion you will not get
real local government. Politics at national level and politics
at local level to some extent should be about asking the electorate
about their trade-offs between paying more tax and more public
services and our current system does not let that question be
asked very well at local level and therefore you do not really
have local government.
Mr Kenway: I do not think you
can answer the question about whether you agree with the Layfield
hypothesis or not without looking at the structure of the local
tax that is being used to raise the money locally and in some
senses that is the means by which accountability is achieved.
As you know, the council tax is a very regressive tax and that
means that the burden falls disproportionately not on the very
lowest incomes because of council tax benefit but on the group
who suffer most, which are the low paid in work. This has two
effects as far as accountability is concerned. The first is that
I do not see how families for whom council tax may be higher than
income tax, which is indeed the case for families working at £5
an hour, can ever realistically be expected to be in favour of
an increase in council tax. I do not see how they can exercise
a democratic choice, they are not in a position to do so. Secondly,
and related to that, local authorities themselves recognise that
problem and feel under pressure. Progressive local authorities
feel under pressure to keep the council tax down to protect their
low income council tax payers. It does not seem to me that, with
council tax structured as it is, there is very much scope for
accountability at the moment whatever the proportion.
Q3 Chairman: Does everybody agree that
it is a very regressive tax for that group of people? I need something
a little bit more than nods because the shorthand writers find
nods difficult to put down. Can I count it as four nods?
Mr Boles: Everything is relative,
is it not? It is relatively regressive relative to many of the
alternatives we might all band about of alternative forms of local
taxation. It has clearly got progressive elements within it. Wealth
is not as important as income in certain circumstances. If you
live in a much more valuable house you do have an asset against
which you could, in theory, although we all know the markets make
it difficult, borrow to generate an income stream. There are progressive
elements within a council tax, but clearly it is more regressive
than some alternatives, certainly focusing on income. What is
the problem is the fact that it is on its own and it is being
asked to do all the work and that is what makes it regressive,
it is the strain that we put on it, not in and of itself. If it
was there alongside some other forms of taxation which might be
more traditionally progressive on an income basis then I think
council tax would cease to be regressive in an egregious way.
Q4 Sir Paul Beresford: Local authority
costs have gone up enormously over the last ten years. Mr Corry,
how much do you think the strictures and inspections and so forth
that he touched on have affected that? The general fund has gone
up by over 70% in the last 10 years. If there was a move towards
more local taxation in whatever form that local taxation would
have to rise quite dramatically without necessarily any compensation
from central taxation. Would that be a good move?
Mr Corry: I think there are a
few things confused there. I do not think most people are talking
about changing the aggregate level of taxation that most people
are paying, we are taking about the distribution between what
is raised nationally and then distributed locally and what is
actually raised and spent locally. I think there are savings to
be had if the Government pulls away from its command and control
approach to local authorities. I think it has created a lot of
waste, some of which will probably be pushed out of the system
through the Gershon review. There are services which local authorities,
even if they had complete freedom to do whatever they want, would
still want to produce and there are things that the central state
will still ask them to do. I do not see some sort of massive change
which now means that we need to raise less in aggregate.
Q5 Mr O'Brien: The question was about
unlawful accountability and we accept that the poorer authorities
would be the ones that would suffer most whatever system we put
in place, particularly local taxes. We have to try and suss out
what the best approach is for local accountability and what percentage
of revenue should be raised from local taxes. Gearing is one of
the worst effects on local government. What are your views on
that situation? What percentage do you think should be raised
from local taxes if we are going to have local accountability?
Mr Corry: Two things are relevant
there. You are absolutely right, in the current system the gearing
is unfair, it makes it impossible for local authorities and I
think the evidence to the Balance of Funding Review suggests it
does not discipline local authorities to be more efficient. The
other issue is equalisation. People argue you have got to have
a very high percentage of money coming from the centre to make
sure that poorer authorities do okay. As I understand it the work
that has been done suggests you do need to have a certain amount
of central money, but it is not nearly as much as we have at the
moment. You can go quite a long way and still hit both the things
you want to.
Q6 Mr O'Brien: Are you suggesting it
should be 50:50?
Mr Corry: I do not like plucking
numbers out of the air.
Q7 Mr O'Brien: We are here to obtain
information from the experts and you are saying you are not prepared
to give us an indication.
Mr Corry: I am certainly not prepared
to pluck numbers out of the air. It all depends on the balance
of funding, on the kind of taxes you are using, on the strings
that central government is putting on the way local government
spends its money. It is a whole combination of those things as
to whether I would say I now feel I have got local government
rather than local administration.
Q8 Mr O'Brien: In your evidence you suggest
that elected regional assemblies could have some role in policing
local taxation in the regions.
Mr Corry: Elected regional assemblies
are quite an interesting and new player on the scene. If you were
going to give local authorities more freedom in the way that they
raise their share of the money, which is something that we suggested,
one of the ideas is perhaps the regional assembly in some way
playing some role in making the sure the system—
Q9 Mr O'Brien: They could provide the
cap.
Mr Corry: It would not necessarily
be the cap. In our submission we say that we think there should
be lots more subsidiarity in the way that local authorities raise
their proportion so they can choose a bit more their taxes, but
there should be limits on that.
Q10 Mr O'Brien: So the level would be
the cap?
Mr Corry: Not necessarily the
cap.
Q11 Mr O'Brien: So why would you apply
a limit?
Mr Corry: For instance it may
be that although one wants to give local authorities quite a lot
of freedom to raise money, you would not want them to use a sales
tax if you felt it was very regressive. You could either leave
the policing of that to central government or you could have regional
variations of how that is done.
Mr Boles: You asked for numbers.
We are about to publish our proposals. We are doing a big project
with Tony Travers who I know is advising you on your deliberations.
I think you need to start with some benchmark numbers because
otherwise none of us knows where we are, none of us knows what
the principles driving our reform are. Our suggestion is that
all authorities—and no doubt there may be two exceptions
but there should not be more than that—should be raising
at least 50% of their expenditure through a locally determined
taxation, and we can get into the question of whether council
tax is really locally determined or not and many should be raising
more than 75% and it should all be compatible with some broad
equalisations. I look at the fact that Westminster, which must
surely on any of our measures be one of the richest areas in the
country, is not raising more than a minority of its expenditure
through local taxation. Surely it should be possible to take equalisation
to the point where Westminster is funding 100% of its expenditure
through its own raised taxes and you have still got all of your
capacity to equalise people who are poorer than the average because
Westminster is clearly right at the top. I think you can aim for
some quite brave figures and if you do not we will end up in exactly
this spiral that we have been in for 40 years or more.
Mr Palmer: It is not right to
equate the proportion of money that is raised locally with the
degree of accountability. It seems to me that the whole issue
of how you achieve local accountability is quite a complex question.
As Peter was arguing, it depends on the shape of the tax and who
is paying it and what you mean by accountability. It is easier
to achieve accountability whereby you get people to vote against
taxes and money being spent than it is to achieve accountability
the other way, particularly if you have more money raised locally.
Q12 Mr Clelland: Do you think the regional
government or a devolved government ought to have a role in the
distribution of central funds to local government?
Mr Corry: There is a case for
that. Something we published by Professor Ian McClean did suggest
that in some way what central government might want to do was
decide its allocation across the regions and then, if there were
elected regional bodies, let them decide the allocation across
the local authorities and his suggestion was also that that should
be an independent body. So the elected bodies would give the criteria
on which that should be done, but then it should be up to some
sort of independent Monetary Policy Committee-type body to take
the constant lobbying and politics at the micro level out of the
system. In my experience there is less of that than people think,
but they do think there is an awful lot. These are ideas that
if we had elected regional assemblies become possible and I guess
that is what we wanted to throw into your thoughts.
Q13 Chris Mole: To what extent do the
formula spending assumptions of central government drive actual
increases in council tax, aside from the factors that Sir Paul
was referring to such as the demands for improved services by
central government? To what extent have those increases been assumed
in the Red Book in the first place? Is that not a factor that
should be completely removed if there is to be any accountability
at a local level?
Mr Corry: The Treasury make an
assumption about what council tax will go up by and they have
to do that for the macro-economic forecasts and public finance
forecasts. You are talking to ODPM people later and they will
tell you, but I am not aware that then determines the way that
you run the formula. Of course, it is very embarrassing if things
are coming out completely differently and you keep an eye on them.
I do not think it is done in that way. It is simply that the Treasury
have to make assumptions and unfortunately they have to make the
assumptions quite a long time before you get down to the nitty-gritty
of what is available and what the formula is churning out.
Q14 Mr O'Brien: Mr Palmer, did I hear
you say that local accountability is not the important factor?
Mr Palmer: No, I said I did not
think there was a simple equation between local accountability
and the amount of money that was raised locally.
Q15 Mr O'Brien: Surely the people who
are providing services locally and the quality of those services
depend on what resources are available to them. Surely the people
locally should be the ones that decide what the level should be
for their communities. Would you agree with that?
Mr Palmer: I would agree with
that. My worry is that the assumption that is made is that by
simply increasing the amount of money that is raised locally will
result in substantial increased local accountability, whereas
I think the equation is more complex than that. I am worried about
adopting too simple an answer to the accountability question,
not that it is not important, I think it is absolutely central.
Mr Kenway: I agree with my colleague.
The point I would stress is that I think the thing one is looking
for is clarity, which is not easy to achieve, but when I think
back to last year and the business around the shortage of funding
to schools, who was to blame? Was it the school, was it the local
authority or was it central government? We were asked this question.
We are experts and I do not know the answer. The real issue is
where you go if you are unhappy with an outcome.
Q16 Mr O'Brien: You would take away this
question of gearing if the balance was right and so the problem
that you raise about education would not be apparent. This is
the problem we have at the present time, we have ring-fencing,
which means that Government policies are going to be carried out
by local authorities and we also have the question of gearing,
so local authorities cannot raise money in line with what is required.
Mr Corry: I think you will always
have an accountability problem while the centre does give money
to local government, and I think it always will, because local
authorities will always say, "It was not our fault. You did
not give us enough money," and the Government will say, "Nonsense.
You have been inefficient."
Q17 Mr Sanders: Where central government
has a policy priority for a service such as education which is
delivered by local authorities, how can central government ensure
that the resources which are earmarked to deliver its spending
priorities reach their objectives locally?
Mr Corry: At the moment we have
a system where supposedly local government has some freedom on
these issues but in practice it has very little. In working out
the allocation to LEAs Government takes deprivation into account,
but it then feels that LEAs, Government making their distribution
to schools, weakens the impact of that assessment. So there are
issues about how LEAs distribute money to the schools. To some
extent the way I would like us to go in general is by giving local
government outcome targets. Where central government feels it
has a right and wants to give national minimum standards or even
higher standards than it should be giving outcome targets to the
local authority, making its own assessment of how much money in
total they need and basically holding them to account for that
rather than the ring-fenced approach and the inspection process
and all the rest of it. If you were the education Secretary of
State and you were giving your money to education, you would want
to make sure it was all used for education, but I think a situation
where some councils are being told off for not passing through
enough money to education when they are exceeding Government outcome
targets is somewhat ridiculous.
Mr Palmer: I think a very important
question for you to consider is the role or otherwise of ring-fenced
grants. They have gone up considerably since 1997. There are clearly
arguments both ways. The reason they have gone up is central government
trying to achieve its objectives. The down side is to do with
local accountability and local decision-making. If I may take
a small example. I am working in the area of homelessness at the
moment and homelessness monies are essentially ring-fenced, and
all the monies are basically taken up by providing support for
homeless families, which means local authorities have no money
to provide support for homeless people without children and because
it all comes from a single ring-fenced pot these two groups are
competing against each other. The local authority cannot say,
"I want to spend twice as much on the homeless".
Q18 Mr Sanders: Does this not go right
to the heart of the problem of the Balance of Funding Review,
we need to work out what local government is for first before
we rearrange the deckchairs? The Balance of Funding Review ought
to be called the "What the hell are we going to do about
the council tax review?", which is where the impetus seems
to be coming from. If a service is directed from government to
government targets what is the point of local government having
any say or input other than as a quango? As to the idea of accountability,
when the whole direction of the grant, what you do with the grant
and how the grant is assessed is determined up here there can
be no accountability at the local level through a local authority,
so why do we bother with this mirage of local government?
Mr Boles: I rather agree with
you. I think with the current system we are falling between two
schools. If we think that education is always going to be an absolutely
core objective of central government then probably we should move
to a much more honest system whereby central government determine
per pupil funding and you can have variations for different socio-economic
categories and different levels of deprivation, but something
that went to pupils and they said very explicitly to local authorities
that they can be as explicit about whether they were going to
provide anything over the top to satisfy their local goals where
you think central government are not doing that is enough or you
can decide not to do anything and then it would be clear. At the
moment we are trying to pretend that we are giving the money to
local government but then we are actually telling them how to
spend it and that is nuts.
Q19 Christine Russell: That was the question
I was going to ask. You have given us your views. What do the
rest feel? Should education expenditure come straight from the
Treasury?
Mr Corry: I agree with the logic
that Nicholas has gone through there. In education I have some
worries that if you directly fund it from Whitehall local government
will say, "We are not going to bother getting involved in
education," and I think that would be a big mistake because
I think a lot of the difficult issues of underperforming children
and schools and so on need the local authority fully involved.
I worry about that, but I agree with the general point. There
are some things where local government always will be acting essentially
as an agent of central government and where it is we should be
very clear about that.
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