Examination of Witnesses (Questions 43-59)
PROFESSOR GLEN
BRAMLEY AND
PROFESSOR TONY
TRAVERS
27 APRIL 2004
Q43 Chairman: Can I welcome you both.
Can I ask you to identify yourselves for the record, please?
Professor Bramley: Professor Glen
Bramley from Heriot Watt University in Edinburgh.
Professor Travers: My name is
Tony Travers from the London School of Economics.
Chairman: Do either of you want to say
anything by way of introduction? No. Christine Russell?
Q44 Christine Russell: If you had the
most exciting job in the land, which is designing a new system
for local government, what would it be?
Professor Bramley: I think you
would need to take a big decision about whether central government
is going to back off from the close dictation of standards in
areas like education. If it is willing to leave that as a local
government service then I think you have to allocate substantially
more diverse robust revenue sources to the local level, and I
would certainly go with the previous speakers in allocating at
least half the non-domestic rate to the local government sector.
I think you would have to look seriously at a local income tax
as well and reform the council tax along the lines that Peter
Kenway was talking about, which I think was a sensible suggestion.
There are also some things to be done about equalisation arrangements
which I will come back to in a moment. I do think there is another
possible choice, which is to be more honest about the continuing
extent of central government interest in certain key services
or core services of which education is the most quantitatively
important. I think that leads to what I would describe as a variable
geometry financial solution where central government pays for
a much higher proportion of those core services perhaps along
the lines of something like the police grant which is linked to
the general grant formula anyway. Then, with the remaining services
which are seen as more local responsibility, you would have a
balance of funding that was predominantly local but with an equalisation
backdrop.
Q45 Chairman: Are there any services
other than education that you would put in that category? What
would you put in it, police, fire, education? Anything else?
Professor Bramley: I do not quite
know whether fire is, possibly given its emergency planning aspect.
Police is already in that category. Things like housing benefit
are very much in that category, they are almost wholly specifically
grant funded already.
Q46 Chairman: Is not the demand for child
protection basically a national demand as opposed to something
that you have local discretion about?
Professor Bramley: It looks a
bit that way at the moment, but I do not know whether that is
the best way of handling services for children. There is a strong
interest in it at the moment that is somewhat artificially and
media driven.
Q47 Sir Paul Beresford: You touched on
it, but some of the other speakers were a little more open on
it and that is whenever central government pays it likes to look
at it and monitor it and check it and all the rest of it. If I
could quote from one of the little local district companies, this
councillor says, "We have a specific support unit for best
value (and CPA) that costs about £100,000 per year. A best
value review lasts about a year and takes up ten percent of senior
officer time when it is underway. The CPA review lasts for about
a year and takes about 20% of Corporate Management time and perhaps
10% of senior officer time when it is underway." This means
enormous costs particularly if you bring into the account the
knock-on effect to council tax especially bearing in mind that
this is not covered in grant. Would you agree with that statement?
Professor Bramley: I think I would
agree with what you say. It is quite a costly process. It has
become rather a central feature. I am a bit of a sceptic about
the Comprehensive Performance Assessment (CPA) process. I think
the Audit Commission has done valuable work over the years in
looking at value for money in particular services and highlighting
problems and keeping a general watching brief on things, but to
run the whole system around a CPA process seems to me to be very
centralist and at the end of the day it is still quite a subjective
judgemental process. I am a bit of a sceptic about that and it
is quite a costly thing. I am very concerned about research and
intelligence and its role in local government and I think such
research and intelligence resources as there are in local government
have been wholly diverted into supporting processes like CPA and
special initiative bidding exercises.
Q48 Christine Russell: Tony, do you agree
with what Professor Bramley is saying, that a wider basket of
funding is necessary?
Professor Travers: Absolutely.
In a sense we are discussing local government finance here which
is really a part of the wider constitutional settlement in the
UK. Local government finance and the balance of funding is an
issue which has a constitutional impact and it is not the only
aspect of the British constitution that is currently under discussion,
it is one of several that are under discussion and parallel. Therefore,
any discussion about a better or an ideal solution to local government
finance has to be seen against the backdrop as to what kind of
constitutional settlement are we going to have. There are arguments
that Britain has evolved into a certain kind of social democracy
under governments of all parties where the public wants guaranteed
national standards, where the Government is involved in acting
as the guarantor of everything and there is another world where
local government would have much greater freedom, where there
would be much bigger diversity and one in which it would be appropriate
to have a wider range of local taxes and much less Treasury control.
In a sense we are discussing local government finance but it is
also that bigger issue in that personally I would go for a much
more localist solution and go for the freed-up constitutional
balancing version of local government in which there would be
a significantly larger proportion of resources raised locally
from more than one local tax.
Q49 Chairman: Would you also go for a
much lower level of services in one place as opposed to somewhere
else?
Professor Travers: I would be
prepared to take that risk. I am not saying that it is inevitable,
Chairman, I am saying that one of the consequences of genuine
local discretion and autonomy (and certainly in a system that
is very different to the one we have now) there is a risk that
of course the worse would be worse but the better would be better.
Economists would argue that you get some dispersal from the middle
but I think that is a price worth paying for a more autonomous
local system. However, I concede exactly that many people in Britain
might not feel that that is the right thing to do.
Q50 Sir Paul Beresford: Should the government
have a right to put in a ceiling?
Professor Travers: A ceiling?
Q51 Sir Paul Beresford: On expenditure
or on taxation?
Professor Travers: Absolutely
not. I do not think capping is an appropriate mechanism, in part
because the margin on local government spending in any year is
very small in relation to the whole economy and therefore I think
it is unlikely to unbalance the economy in any one year, but in
terms of local accountability I think that having national government
intervening to set local taxes is very damaging to the notion
of accountability at the local level.
Q52 Mr Cummings: Professor Bramley, you
have written about a fiscal straitjacket for cities. You say:
"A fiscal straightjacket has replaced fiscal stress, and
cities are in a dependency relationship with government. The challenge
for the future is to find ways out of this straitjacket."
Could you perhaps give more detail to the Committee about this
problem as you see it and can you advise the Committee of any
ways in which you believe it could be resolved?
Professor Bramley: When I first
wrote those words we had barely escaped from the generalised capping
regime that operated for most of the 1990s and so perhaps things
have improved a little bit. I was contrasting Britain in a way
with the situation in other countries like the United States where
there are more diversified local revenues and perhaps more traditional
local freedom. I think that the sort of reforms that I talked
about a minute ago would go part of the way, particularly a partial
re-localisation of the non-domestic property tax, and having that
partially equalised but not fully equalised would give authorities
an incentive because central cities particularly traditionally
provided a lot of services to their whole region—specialist
services, central services—and they played often a leading
role in developing their regions economically because they knew
they could get that money back through their property tax base
and that has been taken away from them. Perhaps some of the smaller
more supplementary revenue sources, the congestion charging that
was mentioned earlier, possibly a tourism tax, that has been mentioned,
these kinds of things might be quite significant for some of these
local authorities that are trying to play a more entrepreneurial
and economic development role. There are a whole lot of issues
around capital funding, the use of assets, the recycling of assets,
the treatment of capital receipts where central government has
been quite restrictive in how those could be used. Also local
authorities have not always used them in the most appropriate
ways. There have been various other kinds of innovations in terms
of new ways of funding capital through partnerships and PFIs and
so on which can be relevant as well. It is quite a wide agenda
really.
Q53 Mr Cummings: Do you see this problem
applying only to cities or do you see it applying to the more
rural areas?
Professor Bramley: In principle
it is an issue that faces any local authority. When I originally
wrote this we were particularly focusing on cities which have
a certain sort of pattern and a relationship with a region that
is quite significant usually.
Q54 Chairman: Did that not have more
to do with the boundaries of cities? It seems to me that Leeds
is in a very different position to Manchester, for instance. Leeds
dominates its conurbation whereas Manchester is now very similar
in size to the other nine local authorities in Greater Manchester.
Professor Bramley: It is partly
down to boundaries but I suspect that there are many political,
administrative and other difficulties with achieving boundary
changes, and certainly achieving agreement about boundary changes
and I think we would wait a long time to solve these problems
through boundary changes. Also the problem is that the boundaries
solution leads you towards ever larger local authorities. Our
local authorities are probably already too large by international
experience really on average and so I think that you have to have
other mechanisms such as equalisation grants and sometimes regional
arrangements and planning arrangements to deal with cross-boundary
issues as well. You cannot get away from that.
Q55 Mr Betts: To take you on to two hypotheses
about the link between accountability and local taxation. One
is probably the Layfield view that there is a direct link and
what we need to do is to increase the funding of local authorities
that comes from local taxation and that makes them more accountable.
The other view is one that says it is what happens at the margin
that matters and local people are interested in looking at how
much extra they pay for either a better service or an additional
service and you might call that the Blunkett philosophy of people
going out and voting in a local referendum to get extra police
or community wardens in return for them paying a bit of extra
local taxation. How do you view those two approaches?
Professor Travers: I think we
have all stumbled over creating an absolute causal relationship
between the proportion of resources raised by local government
and accountability. The evidence that has been sent to the Committee
cites both John Gibson's evidence one way suggesting that, as
in the late 1980s, as the proportion of money raised locally increased
then turn-outs increased. On the other hand the Balance of Funding
Review commissioned Rallings and Thrasher from Plymouth University
to look at the relationship in the context of the current system
and found no relationship at all between the proportion raised
locally if you aim off for other factors and turn-out. So are
these things related? I think in the long term the what you might
call "he who pays the piper calls the tune" argument
where national government raises a large proportion of all taxes
and then redistributes part of it through grants to local authorities
leaving local authorities raising only a small proportion of their
income from local taxes is likely to lead to national government
feeling that it is its money that is being spent and therefore
involving itself through specific grants, passporting, and a range
of controls and interventions which do amount to eroding local
autonomy and in that indirect way feeding through into a relationship
between the proportion of money raised locally through local taxation
and the amount of central involvement, and there is the question
at the margin about whether the signals that are sent to local
tax payers for a particular increase in spending are appropriate
and at the moment that ratio is—we all know the gearing
problem—one percentage point on spending leads on average
to four percentage points on council tax in either direction and
that is a distorted relationship.
Professor Bramley: Can I follow
on and give a complementary answer on that question. I agree with
that. The current system is supposed to make it the case that
a pound of extra expenditure costs a pound to the local domestic
taxpayer and that was the argument that was put strongly in the
1986 Green Paper and the 1990 council reforms that has carried
through to the present day, but its corollary, together with the
nationalisation of the business rate, was this high level of gearing,
and I think living under this gearing regime, albeit it has been
complicated by capping some of the time, has, I think, convinced
me that people are more interested in percentages and can relate
better in a debate and accountability relationship to percentages
than to pound for pound. I also think pound for pound is wrong
because extra local services do generate benefits for a wider
regional and national community and not just locally and an optimal
grant system would reflect that. I also want to make a related
and important technical point which is in my note, which has also
been made by one of the contributors to the Balance of Funding
Review, you can to some extent decouple gearing from the share
of national and local taxation if you are willing to use the grant
system in a way that is slightly more complicated but where grant
varies with budgeted expenditure or budgeted revenue requirement
rather than being a fixed item. The gearing problem is a product
of fixed grants, it is the fact that the grants are fixed. If
you are willing to go with a grant that is part way contingent
on the budget decision of a local authority then you can create
any relationship you like between a percentage increase in local
taxation and a percentage increase in expenditure and at the same
time you can equalise that for rich and poor authorities—
Q56 Chairman: The Treasury would never
let you get away with that.
Professor Bramley: That was the
system from 1948 until 1989. We lived with that system for 30
or 40 years. It got a little bit too complicated in the 1980s
because the DoE insisted on trying to keep recalculating grant
on outturn expenditure. They could have it fixed as Stephen Freers'
paper to the BoF review makes clear, on Budget day before the
year starts and then it is fixed. I think it is a workable compromise
and I suggest in my paper that if there is one magic bullet in
all this that solves two of your problems in one go without having
to introduce a new local tax, it is that. I would take that proposal
very seriously.
Q57 Christine Russell: Could I ask my
question to Tony. It is based on something that you have put in
your submission where you are actually saying that you think that
greater freedom could give local authorities greater scope to
actually improve and be a bit more competitive. What confidence
do you have that that will actually improve services rather than
building bigger and better council offices to compete with each
other?
Professor Travers: I think the
point in the paper where I raise this issue is that we live in
a society where there are few greater difficulties in terms of
public services than the so-called postcode lottery. We all hear
a great deal about the evils of the postcode lottery and my concern
about that is if the postcode lottery is always seen as such an
evil that there is not much room for local government. If in a
sense every service must be the same everywhere then there is
not much room for local discretion. So my hope was that if there
were a more freed up system of local government finance that we
would see, as in Victorian Britain, particularly in Victorian
England, towns and cities competing with each other to provide
better public services, which is what they did, competing the
quality of provision upwards. I think we do see shadows of that
today. If you look at the way in which major cities, particularly
outside London, now compete with each other for economic improvement
and regeneration they are highly competitive in a positive way
and that I think is a model for the way in which a more competitive
system—and there is quite a lot of potential in economic
regeneration to be competitive—would drive standards upwards.
All places will want to improve and I think that is the point
I was making.
Q58 Christine Russell: Do you think a
part of the explanation, and it is only a partial explanation,
for that could be that the CPA has enabled those high-performing
authorities to have more freedoms? Is there any evidence that
that is beginning to work?
Professor Travers: I am not sure
there is any evidence. I certainly have not done any research
or and I do not know of any research that would suggest that the
possibility that being an excellent authority would lead to freedoms
is what makes them try to be excellent. I think they want to be
excellent because they want to be excellent and all authorities
want to get as far as they can up the league, as it were. So I
think it is driven far more by that given also the ambiguous nature
of the flexibilities—I will put it kindly—that have
been offered thus far. I think being excellent is the thing that
authorities want pre-eminently and that means they are competitive
in this different sense.
Q59 Chairman: There is a penalty in being
competitive, is there not? If I take Greater Manchester, the City
of Manchester provides one or two very good parks with their urban
city farms in them but an awful lot of people from outside Manchester
come in to take advantage of those facilities and they make no
contribution to them other than perhaps a little bit coming back
through the ice-cream franchises.
Professor Bramley: It is an example
of the point that I touched on earlier that taxes like the non-domestic
rate and certain other taxes can have a wider pattern of incidence
that will more fairly reflect some of those patterns of usage
than council tax which just focuses on residents and properties
within the area. I think it could lead to a better match between
the benefits of services and the incidence of the taxation.
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