Government finance

It became clear very quickly after the 2010 election that the budget to be allotted to local authorities was to be substantially reduced and that this would impact on their ability to provide even existing services. The comprehensive spending review announced on 20 October 2010 not only drastically cut their budgets but also frontloaded the cuts to reduce local authority spending disproportionately in the first year. While the Central Government's intention was clearly to rationalise services and reduce administration costs, local authorities complained, first, that since many of their services were mandatory, the opportunities for cuts would fall disproportionately on their support for local voluntary organisations. Secondly, since the bulk of the cuts came within the first year and after staffing commitments had been made, there was insufficient time for them to easily seek savings in administration costs through major reorganisation. Some of our Local Authority CEOs and local political leaders had anticipated this and planned ahead but others had not.

Clearly, some control over finance is essential for the maintenance of services, but local authorities complained that they had been given neither the time nor the powers with which to achieve it while protecting services. As Carswell (2004) argues, 'attempting to localise control over public services without devolving taxcollecting powers would be to attempt to impose localism from the centre' (p.5). Quite how local authorities could best secure finances at the local level has been debated widely. Some have advocated local hypothecated taxes (Burwood, 2006), others a local sales tax (Carswell, 2004), yet others local property and income taxes (Jones and Stewart, 1983). The latter is not a new idea. As long ago as the 1950s, a study group of the Royal Institute of Public Administration recommended a local income tax, though the proposal was never implemented (Cockfield et al., 1956). As we saw in Chapter 5, the Coalition Government has proposed some discretionary business rates through local rate supplements, and other varied
improvements for City Regions, including tax increment financing in some cases. What those advocating greater Localism have been arguing for is the opportunity for local authorities to raise their own revenue and spend it according to local conditions and needs. As one of our interviewees told us: 'I am all for Localism so if government lays its hands off local councils and allows it to raise the money it needs that's fine' (local politician).

The possibility of having greater control over budgetary matters was very attractive to Local Authorities, even though it was unclear what freedoms they might have. The one initially on offer was the removal of ring-fencing within their existing budgets. All were agreed that the key problem was the actual size of the budget. However, on ring fencing, opinion was fairly evenly divided: 'Well, yes it does help in theory. But one of the problems is that they said they would take away the ring fencing but then they reduce funds' (Core City Local Authority Director); 'Removing ring fencing is per se a good idea. But if a budget has to be spent, it has to be spent whether you've got a ring around it or not' (Local Authority Leader); '[It] allows you to reprioritise. But it doesn't give you an additional resource, an additional amount to play with' (Local Authority Leader); 'What we are looking at now is a single budget and actually it is for the local politicians who are locally accountable to dispense that money as they see fit in consultation with us' (local business CEO). At the same time, 'in some ways ring fencing had the advantage that money wasn't grabbed when it was going to a Cinderella cause' (Local Authority Mayor); 'ring fencing is a defence for certain areas of policy which are not particularly popular. Removing that may well be a threat to certain kinds of services' (3rd Sector CEO); 'I think the ring fencing is good and we've taken advantage of it … we prioritised our budget accordingly. That's the right thing to do … [but] … de-ring fencing enables us to be more rational' (Local Authority CEO).

There was great enthusiasm for having real control over tax levying powers. 'I think we should be levying our own business rate' (Local Authority Mayor); 'On business rates, well actually, we as a business representative organisation campaigned actively against repatriation of business rates' (local business CEO); 'We do want control of rates. We are certainly looking at ending the second home owner council tax discount. We certainly would like the business rate income but we are worried as to whether the Treasury is snaffling all the incentive out of it … Get on with it but for God's sake, don't tie us down and top-slice it so much that it hardly becomes worth it because what is the point?' (Local Authority CEO). There was also some enthusiasm for Tax Increment Funding: 'It would help. But it depends on how the scheme works. It is a bit like the business rate thing. If they are just going to top slice …?' (Local Authority CEO). Tax increment funding is currently only being offered to a handful of City Regions, as we saw in Chapter

5. Interestingly, the LGA is considering developing its own collective agency, to be launched in 2014, to issue local authority bonds in order to reduce 'exposure to shifting government lending policies', creating a market which would allow
local authorities to issue their own bonds and so improve access to capital finance (Local Government Association, 2012).

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