An Unnecessary Role

embracing false choices

Archive for December 2011

The great local government stress test

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The Government’s deficit reduction strategy is like building a bridge. That’s what someone with far more knowledge that I about local government finance told me. And when you’re building a bridge you need to test the constituent parts so you know how weight they can bear. And to do that, you put them under immense pressure until they bend and break.

As far as local government goes, this isn’t only being done by the reductions in basic grant outlined in the comprehensive spending review, it’s also being done by making structural changes to the scale of funding local councils have to draw on. Today the LGA has indicated that local government funding is likely to be to adjusted take account of the public sector pay cap of 1%. Never mind that local government sets its own pay rates and hasn’t increased pay at all for two years. Government pay policy now dictates local government funding, and restraining pay restrains overall funding.

The proposals that came out of the local government resource review (with the full outcome due to be published any day now) sought to establish the principle that local government will be funded directly by business rates, and that councils can benefit from stimulating business growth in their areas. But also built into the system is the ability of Government to ensure that overall spending by local councils remains within a centrally-set limit by retaining a proportion of the overall business rates pot.

This is important because the scope for councils to raise their own funds is already drastically limited. Council tax rises are subject to a de facto cap of 3.5% (above which a council must hold a costly referendum to ratify the proposal). Even the Government’s council tax freeze ultimately does more harm than good to local authority budgets, providing some short term funding but reducing the tax base for years to come.

Now, local democracy isn’t only about the total amount of money it spends, and very many good councils will continue to thrive even with radically reduced resources. But the thing that is increasingly concerning those in local government is how long before this stress test leaves some councils in impossible budgetary positions, what happens when it does and if we can prevent that happening.

There has always been a conflict between the way local government claims (rightly) to be both the most efficient part of the public sector whilst at the same time in need of more money. This is not an easy argument to make. Local leaders pride themselves on their ability to cope, to manage budgets effectively whilst making a difference to their communities. But it’s essential to make the argument for more resources (or more realistically, more freedom to generate more resources) if local government is to be about more than providing the bare minimum of services and protection for the vulnerable.

And the politics? If the consequence of the Government’s policies is going to be a process of creative destruction, permanently reshaping what councils are fiscally capable of by permanently changing how they are funded, then that is not going to be reversed by simply reinstating investment, even if that were possible. The Labour Party’s challenge will be to explain what its plans are for public services that will have changed beyond all recognition.

Written by samelliot

December 12, 2011 at 2:04 pm

Posted in Finance, Localism

Labour gets a dose of white hot sensibleness

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The ‘In the black Labour’ authors are already the Smiths of the the post-Blairite sensible-hack-Labour centre-centre-left. In bedrooms across the land, weedy youth with posters of Matthew Taylor on their wall think “at last, someone else feels the way I do.” In the same vein, former party staffer Steve van Riel is liberated from saying nothing to saying all the sensible things he’s been saving up after the last few years of holding ‘the line’. Even Ed Balls this morning manages to write an opinion piece for the Times that doesn’t suggest the nation’s problems can be solved by a banker’s bonus tax (a lefty trope skewered by Sadie Smith here).

I’ll be writing a bit more about all this dangerously subversive stuff about balancing budgets and doing things that are popular soon. But it’s worth saying now that ‘In the black Labour’, and the calm and constructive debate it has triggered, could be a very important step for the Labour Party. Interventions like this put the party back on the path to reassuring the ordinary working voter that Labour is, to coin a phrase, ‘on their side’. That we offer practical solutions to the competing crises they see in their lives, and that we respond directly to their concerns.

In some ways, though, getting the debate back on that territory is the easy bit. The real difficulty is in identifying what policies can accompany the ‘In the black…’ fiscal rules to promote the innovation, efficiency and reform required meet them, whilst still pursuing a social democratic mission. In contrast to the salami-slicing policies of the present Government, ITBL* suggests a ‘zero budgeting’ approach, fundamentally questioning each element of spending – an ambitious approach that, although the authors don’t say so directly, would mean taking significant decisions about what it is the business of government to be doing.

This is the right place for Labour to be. In his Purple Book essay, Douglas Alexander said the 2010 election was not about the role of the state, an abstract debate ordinary voters rarely engage with. Instead, it became a ‘referendum on the public sector’. Labour was seen as the party of an often wasteful, frequently bureaucrat state sector. One of the Tories minor ideological strengths is their general suspicion of vested public sector interests. I am not suggesting Labour treats the public sector with the contempt many Tories often reserve for it. But we do need to be far more willing to question the necessity of certain Government functions and not retreat to the easy assumption that because money is being spent on something then it is essentially A Good Thing.

But as I said, saying all that is the easy bit. Picking those things we no longer want to do, or those things that can be reformed to make them dramatically cheaper is where the challenge starts.

*Guys, would it have killed you to think of a snappier title?

Written by samelliot

December 6, 2011 at 9:02 am

Posted in Finance, Labour