House of Commons - Communities and Local Government Committee

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

Memorandum by the Institute for Public Policy Research North and the Institute for Public Policy Research (IPPR) (BOP 50)

KEY POINTS

— Centralism and the command and control approach to governance has failed to deliver uniformity and impacts negatively on the delivery of public services. It is time for a more localised approach.

— The role of the centre should be the enforcer of minimum standards, focusing on setting key national outcomes without getting bogged down in the detail of delivery. This will open space for local innovation without undermining equity.

— A wider range of fiscal powers for local government will boost autonomy and the ability of local government to capitalise on the powers and functions available to it.

— Capping constrains autonomy. A wider range of fiscal options is likely to reduce the reliance on the council tax as a source of revenue, making capping unnecessary.

— Greater fiscal decentralisation must come hand in hand with an equalisation mechanism based on need and seen to be fair. Without this poorer areas with a smaller tax bases will suffer.

— The power of local government varies across policy areas. It is the "priority areas" of crime, education and health where there is the most opportunity to increase the role and influence of local government.

— The approach of local government earning "freedoms and flexibilities" through an incremental case-by-case approach should be superseded by a more coherent, and radical approach to decentralisation.

— The biggest challenge is achieving cultural change—locally and centrally—so that there is greater ambition for the role of local government. It should move more firmly into the role of setting broader local priorities and outcomes, marshalling other services. Too often national priorities trump local ones, and local government and other parts of the local public sector look "up" to Whitehall rather than "out" to the local area. This requires changes more broadly than within local government itself.

— This debate needs to move beyond a zero sum balance of power between central control and local autonomy. We should look instead at the relationship and interdependence between the centre and localities.

— Many of the best ideas, knowledge and innovation lie at the front line where policy is delivered. Given the proximity to users, it is here that the success or failure of policy becomes apparent. This must be fed back to decision-makers (whether locally or centrally) and drive ongoing improvement.

— For this to work there are some additional important issues that the committee should consider:

Lines of accountability:

Reforming the centre:

Workforce development:

THE BALANCE OF POWER: CENTRAL AND LOCAL GOVERNMENT

1. Over the last 10 years there has been a great deal of rhetoric around "localism" and "decentralisation". The Blair and Brown governments have at various times claimed to be in favour of shifting the balance of power from centre to the locality. At times, however, it hasn't been clear quite what this means and to which institutions central government has favoured empowering. Moreover, it is clear that there is a significant gap between the rhetoric of decentralisation and the reality on the ground.

2. The government's approach to local government to date might be described as "Jekyll and Hyde". The Dr Jekyll of localism has delivered powers of "general well being", prudential borrowing powers, three-year budgets the partnerships agenda, and the concordat between central and local government. But Mr Hyde's presence is felt in the form of capping, which remains alive and well, ring-fenced budgets and through the "audit explosion" in central targets and the corresponding performance management regimes, which are still notable, despite being whittled down through the Local Area Agreement (LAA) reforms. Consequently, and in spite of recent changes, England still remains one of the most centralised countries in the Western world.

3. This submission will briefly outline the case for a more radical shift in the balance of power between central and local government, before looking more specifically and what additional powers local government should be handed, and how local government will need to change if it is to exercise these new powers effectively. We will conclude by outlining some additional issues that we think the committee should consider as part of its inquiry, which we believe are essential to this agenda.

THE CASE FOR GREATER DEVOLUTION

4. Many of the limitations of the centralised command-and-control model of central government are now well understood. To some extent there is a consensus across political parties, policy experts and interest groups in favour of various forms of de-centralisation, one of which is the re-empowerment of local government.

5. At the same time, there are real and understandable concerns at the centre about "letting go". These include fears that the pace of public service improvement will slow, and that local inequalities will emerge as a result of divergent local practices. This has been the "social justice" concern in relation to decentralisation, and centralisers can certainly point to historical examples of dysfunctional local councils in the UK that trapped their citizens in poorly performing services without effective redress.

6. There is also concern at the centre that if power was given away the centre would nonetheless retain all its responsibilities, and be blamed when things go wrong. Understandably central government does not want to be subject to blame for events over which it has no control.

7. While these concerns are real and must be addressed, they do not amount to a robust defence of the status quo. Most notably this is because centralism can be seen to have palpably failed on a number of fronts:

The centralised state has not delivered uniformity:

The centralised state cannot respond adequately to diverse needs:

The centralised state stifles innovation:

The centralised state results in looking up rather than out:

The centralised state undermines local accountability:

8. Not only has excessive centralisation failed, but we would argue that greater localism could help address many of the problems outlined above.

Finding local solutions to local problems:

Unleashing innovation:

Being locally responsive:

Better joining up:

LOCALISM AND SOCIAL JUSTICE

9. Localism is not anathema to equity and social justice. This is not to say the issue of striking a balance between equity and diversity is irrelevant, or that furthering social justice and localism automatically go hand in hand. Equity is undoubtedly a crucial aspect of social justice. But in the context of public service delivery this is too often taken to mean there must be uniform provision of public services, which would imply a centralised approach. A more sophisticated interpretation would be to argue that it is not centralism per se that guarantees equity in terms of common standards and the elimination of postcode lotteries. Instead, what may be more important is the effective enforcement of national minimum standards—however these are achieved. This casts the role of central government in a rather different light: as enforcer of a shared minimum rather than a designer and deliverer of services. It also opens space for local innovation in how these standards are met without undermining equity.

10. Achieving this would require a framework setting out which activities, in relation to each public service, should be performed at each level of government. Such a framework is conspicuously absent at present, with each central government department seemingly acting with little reference to the actions of others. A framework would need to set out criteria for determining the circumstances in which a service should be provided uniformly across the country, irrespective of place, or when a degree of service variation should be allowed, perhaps underpinned by a minimum national standard, but with variation in service design and delivery.

11. Setting such minimum standards will require a much more sophisticated understanding than we currently have of the spatial level at which decisions are best made in different areas of public service, and the areas where the public are willing to see variation. There will also need to be careful negotiation of what the national minimum standards should be. If they are set too high it would effectively remove any real local autonomy, as all efforts will be directed to achieving this 'minimum', to the detriment of pursuing other locally determined outcomes. If it is set too low then—in the absence of other effective mechanisms and incentives for improvement—some local authorities may consistently under-perform.

POWERS AND FINANCE—WHAT NEEDS TO CHANGE?

12. Ultimately much of the debate about shifting the central-local balance is about powers and finance. And while there has been some extension to the powers, functions and flexibility available to local authorities, the development of financial instruments has not kept pace. This must be a priority area for change.

13. One way of evaluating the degree of centralism still exercised in England is to compare the balance of funding between central and local government across countries. In the UK there is a clear dependency on central government grants, much of which is earmarked for specific functions prescribed by the centre. Meanwhile, only approximately 25% of revenue is collected locally (Mrinska 2008). This is a very small proportion when compared to some other Western countries. For example in Sweden over 70% of local spending is from local taxation. Even in France, which is often thought of as a highly centralised country, approximately 50% of revenue is from local taxation (Lyons 2007). Only the Netherlands, Ireland and Italy are more reliant on central grants to local government than the UK, and the first two are substantially smaller countries in terms of population.

14. This raises serious concerns about local government's ability to make the most of the powers and functions available to it, as without corresponding fiscal flexibility the autonomy of local government will always be constrained.

15. Not only does this reduce the autonomy of local government to respond flexibly to local needs and circumstances, but it is likely to have the effect of constraining the ambition of local government. In the current fiscal climate, even with the increased predictability of central level financing promised by the government, it will be difficult to take risks in implementing locally meaningful projects without first ensuring total support from central government as it remains the main source of funding for any significant investment project.

16. Capping demonstrates how centralised local government finance is, with central government willing and able to cap the one key tax that local authorities are meant to control. This is an affront to local autonomy, and putting a brake on council tax rises should be a job for voters through the ballot box. It is important to note that the reliance on council tax as a means of revenue would recede if local authorities had a wider range of fiscal instruments available to them.

17. However, as with the debate about the impact of greater decentralisation on social justice, there is a balance to be struck with regard to fiscal powers. According to the fiscal federalism literature greater decentralisation will lead to more efficient spending as authorities will be responsible to the public for raising revenue it spends. Greater fiscal decentralisation could also bring accountability gains, clarifying what local government is responsible for.

18. But this has to be balanced against considerations of equity. Going too far down the route of fiscal decentralisation will have negative consequences for poor areas, where there is a smaller tax base to draw upon, yet a greater reliance on public services. A potential comparison could be drawn here with the Local Area Business Grant Incentive scheme, which sought to reward increases in rateable values with a financial incentive from central government, which could be spent on improving services. However the dominant outcome was greater increases in rateable values (and therefore the corresponding financial reward) in affluent areas. Greater fiscal decentralisation must therefore be matched with a robust equalisation regime that is based on need and seen to be fair.

19. This focus on the need for more fiscal instruments in not to say there is nothing to be done on powers. In reality the level of autonomy available to local government varies across policy areas, with much greater discretion seen outside the "priority areas" of crime, education and health. It is, therefore, in these areas where there is the most opportunity to increase the role and influence of local government. It is also these areas that greater local government autonomy and influence would provide the largest challenge to central government. However it is also important to note that what is a sensible level of decentralisation for one public service will not necessarily be the same for another.

20. Overall, a key problem is with the current approach to extending the powers and functions of local government, by which local authorities must "earn" greater freedoms and flexibilities by "proving" themselves through high performance, in most cases to central government, although in some cases it is to other tiers of government. For example, following the Sub-National Review, local authorities must "prove" their economic development capacity to the regional development agencies. In practice this has too often amounted to earning greater discretion to do only what central government wants and approves of.

21. Ultimately, earning "freedoms and flexibilities" on a case-by-case basis only results in the incremental extension of local government power, rather than anything more radical. Such an approach also fails to address the question of reforming central government.

22. It also fails to initiate the cultural shift that is required both centrally and locally in order to achieve more ambitious and empowered local government that sets the agenda locally based on local needs and demands. This is an issue we turn to in the next section.

SHIFTING THE CULTURE CENTRALLY AND LOCALLY

23. There is a need for all levels of government to be more ambitious about the role that local government can play, both as a local leader and as a contributor to the national debate.

24. To the credit of local government, its performance has improved significantly and rapidly as judged by the comprehensive performance assessment (CPA), indicating local government is doing a good job of performing within the remit set for it. We note in passing that a comparison of the CPA with the Departmental Capability Reviews shows that local government has performed significantly better than its counterparts in Whitehall.

25. A more ambitious approach in part means local authorities making full use of the powers available to them. In particular, the prudential borrowing powers, power of well being and charging and trading powers all remain underutilised by many local authorities.

26. But as well as making full use of its powers and performing well within the framework set out by central government, local government must demonstrate capacity for self-generated improvement and initiative. This will give central government departments increased confidence to devolve further powers, functions and flexibilities.

27. Too often local services remain the product of national priorities and decisions, which are taken without adequate consideration for local context. This is further compounded by the tendency of many local authorities to look 'up' in order to try and interpret what is wanted by the centre, which tends to trump what is needed locally.

28. As the centre is the source of most funding and the performance management regime, this is quite rational. But these target setting and performance management regimes can lead to perverse outcomes including target hunting, gaming, segmenting policy streams and limiting innovation. Instead local government should primarily be accountable to the electorate whom they serve, with their needs at the forefront of their actions.

29. Local government should move more firmly into the role of setting broader local priorities and outcomes, marshalling other services and steering local activity. As the directly elected part of the sub-national web of governance, it is right that it should play this role, bringing local legitimacy to the activities of other parts of the public sector. Local government should be the fulcrum of democracy at the sub-national level. In this respect the establishment of Local Strategic Partnerships (LSPs) and LAAs have been moves in the right direction.

30. But for local government to be fully in the driving seat requires changes more broadly than within local government itself. For example, there remains a question about the adequacy of the duty to cooperate given most parts of the local public sector outside of local government look "up" to their masters in Whitehall rather than "across" to local government for direction. Shifting this tendency is clearly a big job that would require change across the public sector. In particularly there would need to be changes in central government as well as locally to be effective.

31. Too often the debate is about central control or local autonomy, cast as a zero sum balance of power. It is time to move the debate beyond this approach, and to look instead at the relationship and interdependence between the centre and localities.

32. Many of the best ideas, knowledge and innovation lie at the front line, with the so-called "street level bureaucrats" delivering policy, who given their proximity to users are often the first to know whether a policy is working or not. A core function should therefore be to feed that back to decision-makers (whether locally or centrally) and for them to play the part of "talent spotter", developing and disseminating ideas.

33. For such feedback loops to work public service managers need to be appropriately incentivised to provide such feedback, rather than focusing solely on the more immediate task of meeting output targets. A more open process where all share a desired outcome and are pursuing a common minimum, but the design and delivery of services is open to debate may better deliver this goal.

34. These are the sorts of changes that aren't easily captured by mechanisms like the concordat. That is not to say the concordat hasn't been useful—although it is difficult to judge its success given it has not been in place for long and remains largely untested.

35. A constitutional settlement for local government may be more important here. A constitutional settlement would set out the relationship more clearly, helping to overcome key problem for local government, which is the sheer level of public confusion over the respective roles and responsibilities of central and local government. A constitutional settlement would also be much more difficult to erode or ignore than a concordat. The relative weakness of the constitutional position of local government in England ultimately explains why central government has been able to adjust the powers, functions and boundaries of it with such frequency and relative ease.

BARRIERS TO LOCALISM—SOME UNASKED QUESTIONS

36. This inquiry asks some very important questions about the balance of power between central and local government. However in our view there are some further important issues that the Committee should consider, which we have hinted at in the text but outline more fully below. They are: lines of accountability; workforce development; and reform of central government

LINES OF ACCOUNTABILITY

37. Perhaps the most important barrier to localism in Britain is a political culture which tends to hold ministers responsible for all actions of "the government" most broadly conceived. Local problems often result in the desire to "hang the minister". The most obvious example of this is in the health service where the Secretary of State is expected to answer for every hospital infection or dirty ward. The reasons for this are complex. In part this is because the doctrine of ministerial responsibility is deeply ingrained in the national psyche; it is partly because central government fails to exercise restraint, and wades into arguments and it is partly because it is not obvious who is to blame if it is not the minister, and the lines of accountability are too opaque.

38. The Lyons report rightly makes clear the importance of cultural and behavioural change at the top of government: ministers and departments need to be clear about the limits of their responsibilities, and they need to resist the inevitable pressures to respond to matters of detail which are the responsibility of individual local authorities.

39. One way of addressing this is through more directly elected mayors, as the name recognition and direct accountability they bring may serve to increase the confidence of central government to give powers away. Certainly this has been the case for the Mayor of London. In some respects it is understandable that central government does not want to give powers away if it is still be blamed when things go wrong. This would be to give away responsibility but retain accountability.

REFORMING THE CENTRE

40. Reform of the centre of government has been conspicuously absent from these debates in Whitehall. The failure to look at this issue alongside reforms at the local level has both limited the speed and extent of improvements to public services and local democracy, and offers a very significant opportunity for the future.

41. The way we govern has changed, with government increasingly "steering not rowing" and having to operate through reformed state institutions, through networks created and managed by them and through markets shaped and monitored by them. Twenty-first century Whitehall cannot command and control and must be reformed accordingly. This means being able to work with a constellation of public, private and voluntary actors, negotiating across boundaries at the international, regional and local levels and managing diverse delivery chains. It requires the centre to take a more strategic role, rather than trying to micro-manage delivery.

42. Such a reformed role should mean more concern for articulating clear outcomes for public services, and less with the process of saying how these outcomes should be achieved. This should be led by local government in partnership with other actors.

WORKFORCE DEVELOPMENT

43. Such changes, both locally and nationally, raise serious questions about skills, capacity and capability of the workforce, both in local government and in Whitehall.

44. If local government is to raise it sights, be more ambitious and lead in setting local outcomes and how to achieve them, local policy capacity will be an issue for most authorities. For services to be the product of local decision-making and for policy initiative to be grasped, local government needs a high quality workforce. This not only means investing in the current workforce, but taking steps to attract the brightest and the best to a career in local government. A perennial—and convincing—argument of the champions of devolution is that the perception of local government as disempowered and subservient to national government makes it more difficult for it to attract the best people into both political and officer roles. Steps must be taken to make a career in local government as attractive as one in Whitehall.

45. One way to do this would be to end the formal distinction between the civil service and the wider public service and move towards establishing a more unified public service workforce, which would ensure much greater mobility of staff between central and local government and other public bodies. For instance a public service graduate recruitment pool could be developed. If such a move is deemed a step too far, an improvement would be to increase the mobility between the two workforces through secondments, and other such opportunities for more frequent interaction. A missed opportunity in this respect has been making the National School of Government a civil service only resource, whereas opening it to different parts of the public sector would have increased cross-fertilisation.

46. Such developments would help to fill a capacity and skills gap in central government, as it would increase the likelihood of those working in Whitehall having direct experience of, or at least direct contact with, those in local government and other parts of the public sector. This would help to break down barriers and increase understanding, as currently the centre is too distant from and lacks contract with those delivering policy. A central challenge for civil service reform is to bridge this divide and establish a new working relationship with public service delivery bodies, including local government.

47. So far the debate on central-local relations has tended to focus exclusively on devolving powers and functions and resources and overlooked the issue of how we spread human capital across the two sectors. A stronger focus on the workforce is needed.September 2008

September 2008



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