Memorandum from Localis (BOP 34)
— This submission draws on research undertaken
by Localis, working with the Local Government Association, for
a forthcoming publication comparing the position of local government
in England with that in a peer group of countries
— No model can be transposed precisely,
but there are aspects of the constitutional reinforcement of local
government elsewhere that could be adopted here, probably through
a Parliamentary resolution
— Local government representation in a
reformed Upper House is desirable, as in an enhancement of its
role in debate on issues that affect it
— Local government in England is unusual
in combining quite wide functions with a narrow tax base, and
experience in countries such as the Netherlands and Australia
emphasises the difficulties of sole reliance on a property tax.
More diversified and buoyant revenue streams are essential
— Among the many efforts to deal with the
problem of national government placing unfunded burdens on local
authorities, the Danish "Extended Total Balance Principle"
is particularly attractive
— The scale of inspection, performance
management and central intervention remain very high compared
with that in other countries. Recent efforts to contain and reduce
this should be extended significantly
1. This submission to the CLG Select Committee
inquiry into "The Balance of Power: Central and Local Government"
draws on research undertaken by Localis, working with the Local
Government Association, to compare the position of local government
in England with that in a peer group of seven European and Commonwealth
countries. The aim of the research is to examine the proposition
that England is especially centralised, to draw out the features
that make it so (if it is) and to use the insights of the research
to make recommendations that can help redress the central-local
imbalance. The full report will be published in October.
2. The peer group comprises Germany, France,
the Netherlands and Denmark in Europe; and South Africa, Canada
and Australia within the Commonwealth. The peer group embraces
two international groupings of which the United Kingdom is part;
it includes various sizes of territory and population, and both
federal and unitary states. Given the effect of devolution, our
commentary on the situation within the United Kingdom focuses
on the position in England.
3. England (or Britain) has not always been
a centralist country; it was, for example, part of Victorian Britain's
self-image to contrast its local freedoms with French centralism.
Among the factors that have arguably contributed to the centralist
drift here have been: the informality of our constitutional arrangements,
giving no protection to local government from the centre; the
weakness of local government's financial base; and the lack of
an obvious and workable sub-national (or regional) level of government.
The report's research uses the evidence of the peer group to assess
these factors for centralisation, while also examining points
of comparison such as the functions performed by different tiers
of government in various countries, and the degree and nature
of the supervision to which local government is subject.
4. With regard to constitutional safeguards,
the peer group demonstrates a variety of experiences. Three of
the countries have federal structures. These provide some counterweight
to centralisation, albeit to varying degrees and with significant
pressures nonetheless working in that direction. However, in protecting
sub-national government, they do not necessarily give any guarantees
to purely local government; in Canada and Australia, for
example, local government is a creature of the provinces and states
respectively. Germany's Basic Law has much more to say about the
Lander than it does about local government; nonetheless,
it does give some support to the role, self-government and financial
capacity of local government.
5. Among unitary states, France provides
an example of significant constitutional provisions regarding
local government. These include a clear statement that the Republic
is organised in a decentralised way; scope for local government
to experiment derogate from some laws and regulations; and a variety
of statements about financing, covering diversity of funding sources,
"decisive" levels of self-funding and the need for funding
to follow allocation of new responsibilities.
6. Uniquely, South Africa's constitution
both offers protection to local government and emphasises the
need to enhance its capacity, a reflection of the effort to build
a new government system following the end of apartheid. Unusually,
the constitution spells out the functions of local government.
It also makes provisions regarding finance, combining a relatively
modest tax base with an "equitable share" of national
taxes, and representation, giving organised local government a
voice both in the upper chamber and on the Financial and Fiscal
Commission that advises on funding issues.
7. International experience suggests that
constitutional provisions regarding local government have their
limitations as a barrier to centralism. Nor are they the only
way to have strong local government: in Denmark, decentralisation
is rooted more in ways of working and administrative capacity
than it is in the constitution. Nonetheless, they can provide
a degree of safeguard that is simply not to be found in this country.
Given our absence of a formally codified constitution, some commentators
have argued for a parliamentary resolution as a way of entrenching
local government's role. We believe that a parliamentary resolution
is the right way forward, and that such a resolution could draw
on concepts (and sometimes, but not always, wording) from both
the European Charter of Local self-Government and last year's
Central-Local Concordat. Critically, it would need to go further
than did the Concordat with respect to funding issues, drawing
on the Charter's recognition for "diversified and buoyant"
sources of local government finance.
8. One way in which local government's interests
can be safeguarded is through an established role in national
decision-making, perhaps through representation in a reformed
Upper House. Many second chambers are supposed to represent territorial
interests, especially in federal systems; however, in many cases
(such as Canada and Australia) this gives no real link to sub-national
or local government. However, in Germany the Bundesrat very clearly
represents the governments of the Lander; in the Netherlands,
the provincial assemblies elect the upper house; in South Africa,
the upper house represents the provinces but with a voice (though
not a vote) for organised local government. The clearest link
to local government is the Senate in France, chosen by electoral
colleges that are dominated by local government.
9. There is a clear will in the Commons
for the majority of members of a reformed Upper House to be elected
directly; however, this does not preclude a portion (Sir Simon
Milton argued for 10%) to come from local government. However,
proposals that local government leaders should sit in a reformed
Upper House run into difficulties over their ability, given their
other commitments, to be full-time legislators. International
experience confirms this: attendance at the French Senate is poor,
while the Bundesrat operates in a very different fashion from
many other second chambers, including our own. However, it may
be possible to use a system of substitutes (as do provincial leaders
in South Africa); alternatively, local authorities could choose
additional, indirectly elected members for whatever large constituencies
are used for the new Upper House. Such a system is used (for the
sub-national tier) in the Spanish Senate, although there would
be a need for stronger reporting relationships to councils than
is the case in Spain. We believe that local government representation
along these lines in a reformed Upper House is desirable.
10. However, given the uncertainties over
Lords reform, it makes sense to look for other ways to strengthen
local government's role in the legislative process. Legislation
that would put extra burdens on local authorities, or makes major
changes to the status of local government, could be subject to
special procedures (including committees of both Houses), as are
applied to Deregulation measures. Local government's role in this
could be strengthened further by giving local government leaders
the right to speak in this committee, a modest echo of the role
of organised local government in the South African upper house.
11. With respect to finance, English local
government suffers from a series of related but distinct handicaps.
These include high levels of dependence on government grant, especially
specific grants (despite some moves towards more general grants
recently); its role as a one-club golfer, dependent on a single
tax; the lack of buoyancy of that tax; vulnerability to capping;
and exposure to financial burdens imposed by central government
legislation or regulation.
12. When comparing England to the peer group,
it is worth considering finance and functions together. Danish
local government stands at one end of the spectrum, with a very
wide range of responsibilities, including elements of health,
but also a wide-ranging and buoyant tax base, including local
income tax. At the other extreme, local government in Canada and
Australia has lower levels of expenditure (in both cases below
5% of GDP), a narrower range of services and reliance on property
tax. Some of the bigger-spending public services, such as education,
are organised more at the sub-national level, and in Canada it
is the provinces that have access to more buoyant sources of funds
(Australia is more financially centralised). However, in both
countries there have been increased pressures for local government
to move beyond traditional, property-related services, which has
put severe pressure on its financial base.
13. The English system represents a curious
hybrid, with local government's service role in a middle ground
between the Scandinavian and Commonwealth extremes, but with a
narrow tax base. The end result is a high level of dependence
on government grant and for many upper-tier authorities an unstable
relationship between a controllable budget driven increasingly
by social services expenditure and funding based on a property
tax.
14. International experience confirms the
vulnerability of reliance on a property tax. Dutch local authorities—which
in many ways experience an even more centralised financial system
than that in England, and which is reliant on property taxes—experienced
central government intervention when tax increases became a sensitive
issue. In New South Wales, local government has been subject to
rate-capping for decades, while elsewhere in Australia local governments
have felt constrained in increasing rates to meet their growing
financial pressures.
15. France and Germany both demonstrate
a middle ground through a combination of locally controlled taxes
and assigned shares of taxes. While this does not give full fiscal
autonomy (in Germany only about 20% of local government revenue
is raised in taxes for which local government controls the rate),
it does enhance buoyancy and diversity of funding sources while
reducing vulnerability to central government funding formulas.
We therefore support the principles set out by the LGA in its
submissions to the Balance of Funding Review and the Lyons Review,
arguing for local government to have access to a reformed council
tax, relocalised business rates and some element of income tax,
perhaps initially via assignment of part of the tax take (an option
favoured also by Lyons) and with scope for local variation in
the longer term. A similar set of "radical but politically
feasible" proposals were advanced by Policy Exchange and
Localis some years ago.
16. Many of the countries in our peer group
have had to grapple with the problems of governments (and, in
federal countries, sub-national tiers) passing unfunded burdens
on to local government. Perhaps the most attractive model is the
Danish "Extended Total Balance Principle". This offers
two important features that differentiate it from the "new
burdens" procedure in this country. Firstly, local government
representatives negotiate directly with spending ministries, rather
than merely being consultees. Secondly, the process allows for
adjustments to grants in subsequent years if initial estimates
turn out to be incorrect (and of significant magnitude). We believe
that these key features of the Danish model should be applied
in this country. Among its great merits is that it gives local
government the full role of a negotiating partner in matters that
affect it.
17. The degree of central intervention
in and oversight of local authorities' actions is the other distinctive
feature of the English model. That local authorities have been
reorganised is not unique, though the frequency with which this
has been undertaken in recent decades is unusual. Local authorities
in Australia and Canada have been subject to reorganisation and
to other interventions, though this has been at the hands of sub-national
rather than national government. The same was to some degree true
in Germany, notably in the 1960s and 1970s. The stated aim of
these reorganisations was to create stronger organisations capable
of delivering a wide range of services effectively at the local
level. The same has been the case in the recent and wide-ranging
reform of local government in Denmark, and was also the justification
for the encouragement of co-operation between groups of French
communes. Admittedly, similar justifications were offered for
reform in England, notably in the Redcliffe-Maud report, but in
practice changes in structures have been accompanied by diminution
of functions.
18. Much the same can be said of the degree
of performance management applied to local authorities here. In
European countries supervision of local government by higher tiers
relates to matters of legality (an important component of the
French decentralisation of 1982 was to remove the power of
the Prefect, as representative of the central state, to control
and overrule the decisions of local authorities (except, again,
on grounds of legality). Admittedly, in Germany, where local authorities
are carrying out administrative functions on behalf of the Lander,
they are subject to more wide-ranging oversight, but there is
a clear distinction between this and their own "self-government"
functions. It is also striking that the process of managerial
reform in German local government in the 1990s was driven not
by higher tiers of government, but by KGSt, a consultancy funded
by the municipalities and counties.
19. The excesses of the performance management
regime in England have been recognised and to some degree reduced.
However, we believe that this should be taken further, with Local
Area Agreements to have a more genuinely local flavour and a delivery
of the Concordat's pledge to continue reducing the burden of inspection.
In addition, the transfer of key functions in skills, infrastructure
and economic development from quangos and agencies to local government
should go significantly beyond what is currently envisaged.
20. There is no single reason why England
has ended with the peculiar central-local balance—or imbalance—that
it has; the explanation combines financial limitations, the lack
of an intermediate sub-national tier of government as a counterweight
to the centre (although, as a number of our case studies show,
such a tier can be a mixed blessing for local government) and
the informality of the constitutional arrangements underwriting
the localism seen in the nineteenth and early twentieth centuries.
Equally, there is no single measure that will represent a comprehensive
reversal of the trend; however, the measures advocated in this
paper would result in local government that was more financially
robust and treated as more equal partner with the centre, and
thus would achieve a cumulative transformation in its standing.
September 2008
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