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FEATURES - IMPOSSIBLE DREAM

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The government has been talking a good game about grant distribution, but is its vision of a 'fairer and more intel...
The government has been talking a good game about grant distribution, but is its vision of a 'fairer and more intelligible' formula just an illusion?

In its white paper, Strong local leadership - quality public services, the government declares it is seeking 'a fairer and a more stable' grant system.

The product of this search is a consultation paper of nearly 200 pages. This document is supposed to promote intelligibility, but in fact it is of mind-bending complexity - partly because it presents a range of options for each factor likely to be included in any new formulae.

This range of options exposes the problems of seeking fairness. A fair grant is a mirage. What one authority sees as fair will be seen by another as unfair. Any formula can never be wholly objective. This point is recognised in the paper: 'Clearly the extremely technical nature of the issues means that there is frequently no clear-cut optimum solution. The government recognises pragmatic decisions will be needed to produce a workable system.'

Despite being aware of this, the government is wrong to assume it is just down to problems of a 'technical nature'. The problem is more fundamental. Grant formulae put values on different services and on factors affecting those services. There can be real differences about those values, and disputes between and within councils about what those values should be. These issues are political, best determined through political processes. There cannot be objective formulae for a grant system.

The government's approach is confused. In the white paper the idea that standard spending assessments are a measure of spending need is described as highly misleading because 'the government does not claim to know how much an individual authority should spend'. We hope ministers will bear that in mind in the future.

The paper also says, 'SSA is a means of distributing grant'. We hope the government sticks to that too.

There is, however, a problem for the government. On what is the fairness of the grant formulae to be judged unless there is some concept of the need for expenditure? Among the principles noted in the paper it is said, 'formulae should where possible be based on objective and factual evidence which relates to need to spend on services'. Need to spend, although dismissed in one section, creeps back in another. The reason is simple. Fairness implies a concept of need; but judgments of need involve values and cannot be based on objective and factual evidence alone.

A further problem is that the requirements of a fairer, more stable and intelligible grant system contain the seeds of each other's destruction. The quest for a fairer grant is unlikely to lead to stability, because any formula adopted will be seen as unfair by some who will press for changes, which inevitably undermine stability. What starts out as a simpler and more intelligible grant system becomes more complex as the search for fairness is endlessly pursued through better technical solutions.

The paper says, 'there will inevitably have to be an element of rough justice'. This common sense is unlikely to be accepted because of one simple fact. Too much is at stake. Grant will always be important to authorities, but its importance is magnified because of the huge dependence of councils on grant from central government. 'Rough justice' means that when a council is 2% worse off in grant the consequence can be an increase in local taxation of 8%. This gearing effect makes the 'fairness' of the grant formula four times more important than it need be.

Simpler and more stable grants are never likely to be achieved as long as councils are so dependent on high grant. This reality links consideration of grant to the issue of the balance of funding for local expenditure between central and local government, which the paper says is to be considered by 'a high-level group, involving ministers and senior figures from local government'.

The solution to the excessive dependence of local government on central grant was put forward in the report of the Layfield committee. Grant should be reduced by introducing a local income tax, so that local government should have both a property tax and a local income tax. Many regard local income tax as permanently ruled out by the Treasury, but an imaginative chancellor attracted by innovative approaches might see benefits from reducing the burden on the national taxpayer by replacing part of the grant with a tax that was the responsibility of local government. That would place the burden of maintaining local services more on local taxpayers. If the government proposed such a change, some in local government might worry about facing real local accountability, but most, we hope, would welcome it, as giving greater meaning to local elections.

George Jones is a professor of local government at the London School of Economics and John Stewart is Emeritus Professor at the University of Birmingham

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