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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 Länder 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 Länder; 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 ten per cent) 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 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 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 19. The excesses of the performance management
regime in 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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