Free councils?

Interesting reports today that the government’s review of local government funding will result in between a quarter and a third of councils being set free from central government and allowed to retain the bulk of business rate and council tax income.

The LGiU has always argued that councils should have greater freedom (and a corresponding responsibility) both to raise and spend money locally. This is partly a question of efficacy. Councils with greater financial autonomy will have more diversified income streams and be more economically resilient, less dependent on changes in the national political weather and better placed to respond to local priorities. It’s also a question of democracy. Local government funding is notoriously complex and opaque. A clearer relationship between local income, local spend and local outcomes would allow citizens to see more clearly where local government is or is not delivering for them and would re-energise local democracy.

We made this case in Paying for it a collection of essays published ahead of the review last summer, where we argued that the government should grasp this opportunity to set local government finance on a sustainable, localist basis.

Whether it will do so or not remains to be seen. Early signs are promising but key questions remain. What redistributive elements will be built in? What proportion of business rates will councils keep? What criteria will determine which councils are able to do so?

There’s also a question of how ‘sticky’ the review will be. The Lyons and Layfield reviews seem like distant memories now. Both made far reaching recommendations about local government financing, both were largely ignored.

In Paying for it, Sarah Philips of CPSP compared local government finance to the Schleswig-Holstein question and quoted Lord Palmerston. “It is so complicated that only three men in Europe have ever understood it. One was Prince Albert, who is dead. The second was a German professor who became mad. I am the third and I have forgotten all about it.” Complicated maybe, but the resolution to the Schleswig-Holstein question shaped modern Europe.

Local government finance may not be the sexiest or the simplest of topics, but getting it right has the potential to radically re-shape political life in this country.