The Balance of Power: Central and Local Government - Communities and Local Government Committee Contents


Memorandum by Chartered Institute of Public Finance and Accountancy (BOP 25)

  CIPFA welcomes the opportunity to make this submission to the Communities and Local Government Committee's call for evidence to the inquiry on "The Balance of Power: Central and Local Government." We would like to respond specifically on the questions around financial autonomy.

  Our key arguments are that:

    — financial autonomy is key to local authorities effectively carrying out their strategic place shaping role;

    — best practice frameworks can be used effectively to increase financial autonomy for local authorities;

    — failure to address balance of funding issues will further undermine the credibility of local taxation systems; and

    — capping works contrary to the increased emphasis being placed on citizen empowerment.

Does local government need greater financial freedom? If so, in what ways?

  1.  CIPFA has long supported financial freedoms for local authorities. We believe that the introduction of the new capital finance regime under the Prudential Code has provided a model for greater financial freedoms underpinned by best practice. Local authorities have proved that this additional power is being used responsibly and that financial prudence is being maintained.

  2.  Of the new projects being funded by the new borrowing powers, a number include local authorities working together with PCTs or other local bodies to develop joint facilities, strengthening their place shaping roles at a very local level. In addition, another key group of projects has been authorities investing in "spend to save" schemes that will ultimately increase financial flexibility in other areas.

  3.  CIPFA firmly believes that the non-hypothecation of grant is of fundamental importance to the strategic role of local government. If local authorities are to be effective in their place shaping role they need to have the freedom to direct resources to where they will have the greatest impact. The introduction of Local Area Agreements and Comprehensive Area Assessments directly acknowledges that the success of an area is a result of the interaction of a number of different services rather than the concentration on a single one, however important. We believe the circumstances where hypothecation of grant is appropriate are limited, for example to those areas where local government is merely acting as an agent of central government.

Should local government be able to raise a greater proportion of its expenditure locally?

  4.  CIPFA has been clear in its responses to the previous Balance of Funding Review carried out by the Office of the Deputy Prime Minister and the Lyon's Enquiry that it believes the balance of funding is fundamental to the revitalisation of local democracy and local authorities' abilities to fulfil their strategic place shaping roles.

  5.  A key issue resulting from the current balance of funding is the impact of gearing. Because the entire impact of a marginal change in budget falls upon the council tax it leads to a greater focus on such marginal budget decisions rather than the soundness of the budget in its entirety. More fundamentally the impact of gearing is seen in the wide variation in council tax levels between authorities and its increasing loss of credibility among both the electorate and informed commentators.

  6.  There has been much debate about the future of the Council Tax and the pressure for its reform is only likely to increase. However, without addressing the balance of funding, attempting to either reform the current tax, through revaluation and additional bands, or to introduce a new tax is likely to be problematic. Many of the issues associated with the council tax are caused not by fatal flaws in the format of the tax but by its absolute level and the impact of gearing.

  7.  Not only is the balance of funding between local and central government an issue, but also the balance of funding between the council tax and other forms of taxation causes problems. The annual increase in council tax has consistently been above that of non domestic rates (linked to inflation) and income tax. This has resulted in a shifting of the tax burden towards council tax and increasing issues of perceived affordability and fairness.

  8.  CIPFA has long supported the return of business rates to local authority control. This would provide the greatest potential for having a significant impact on the balance of funding and reducing the impact of gearing. In addition it would provide for a meaningful dialogue between business and local authorities about the balance between the funding of infrastructure (including social and economic infrastructure) and the level of taxation.

  9.  Access to additional taxes and funding sources other than business rates would be welcomed but, if affordability and fairness are not to become an issue, it is unlikely that such sources could provide enough additional capacity to take the pressure off the council tax.

What effect does the capping of council tax rises have on local accountability?

  10.  The Community Empower White Paper is based upon the fundamental aim of increasing citizen empowerment and addressing the democratic deficit. It seems contrary to this very laudable and correct target to retain capping powers where it is clear that local authorities are effectively engaging with their communities on budget decisions.

  11.  Budget decisions should be seen clearly as being made by accountable local authorities after appropriate consultation with local stakeholders. There is a real danger that capping clouds this accountability as budget decisions become seen as a trade off between local decision making and central constraints. This could potentially lead to capping, and by default central government, being help to blame for failure to act locally.

  12.  CIPFA is currently engaged in a project to build upon existing best practices to ensure that communities as citizens, council tax payers and service users have the information they need to hold local authorities to account for their performance and expenditure. The recent consultation documents Telling the Whole Story and Back to Basics are very much in line with the community empowerment aspirations which we would argue, if properly implemented should make capping obsolete.

September 2008






 
previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2009
Prepared 20 May 2009