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FRONT LINE FIRST-FINANCE

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The search for a robust approach to financing local government has been going on for decades, illustrating just how...
The search for a robust approach to financing local government has been going on for decades, illustrating just how difficult it is to devise a funding system underpinned by principles of fairness, accountability, stability and intelligibility.

Past attempts have often focused on detailed formula changes rather than the big picture. If the government is to deliver a good system of local government financing, a number of fundamental obstacles need to be overcome.

In giving evidence to the Scottish Parliament's local government committee inquiry into local government finance, CIPFA Scotland highlighted several of these weaknesses, in particular the imbalance in the relationship between local and central government.

In CIPFA's view, the central/local funding balance has tipped too far towards the centre, compromising local government's financial freedom. A shift in the opposite direction is now needed to restore local accountability.

The most straightforward way of achieving this shift would be to return the business rate to council control. This would help re-establish links between businesses and councils, highlight authorities' community leadership and economic development roles, and reduce the gearing effect of the council tax.

Yet simply shifting the balance is not enough. If central government continued to influence or control spending patterns, changing the balance between funding sources would be pointless.

Specific grants hamper councils' ability to exercise discretion over spending patterns. In CIPFA's view, if local autonomy is to become a reality, general grants should be the rule with specific grants used only in clear, pre-defined and time-limited circumstances.

In relation to capital finance, CIPFA urged the Scottish Parliament to introduce a framework relying on professional best practice and prudential indicators rather than central decisions.

There is no doubt the approach to local government finance needs to be built on solid foundations if it is to last. In CIPFA's view these foundations must include a shift in the balance of funding from central to local sources, a presumption in favour of general rather than specific grants and the introduction of a prudential framework for capital spending. These features would strengthen local financial autonomy and represent a huge step towards a strong and accountable local government.

Angela Scott

Senior manager (Policy and Technical),

CIPFA Scotland

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