An Unnecessary Role

embracing false choices

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.

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Written by samelliot

December 12, 2011 at 2:04 pm

Posted in Finance, Localism

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