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Finance reform is going nowhere unless councils can agree among themselves

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LGC’s essential daily briefing 

Much work has taken place on the future shape of local government finance over the past 18 months or so. A joint steering group set up by the Department for Communities & Local Government and the Local Government Association has been exploring how the planned new system of 100% business rates retention could work in practice.

A number of technical working groups, made up of senior local government finance professionals and DCLG officials, have been wrestling with tricky questions of redistribution, managing the impact of business rates appeals, and which new responsibilities local government should take on to account for the additional funding that would become available.

So the abandonment of the Local Government Finance Bill, which would have legislated to smooth the path of the reforms, including by formally abolishing revenue support grant, was met with understandable consternation from the sector. What does this mean for the funding of local government beyond 2020?

Writing for LGC, local government minister Marcus Jones says the Conservative manifesto commitment to allowing councils to keep more of the income raised locally still stands. As LGC’s analysis finds it would be possible to introduce much of the reforms without the need for primary legislation.

In many ways much of the legislation was largely symbolic, as those councils already doing without RSG will not need reminding, and would have made the reforms more difficult for a future government overturn.

The bigger question is whether, given the government’s slim majority and a resurgent opposition, the politics can be managed.

While Labour supported the broad thrust of the bill before the election and remains committed to devolution, the party’s manifesto said it would consider replacing both business rates and council tax with a land value tax. Writing for LGC, shadow local government minister Jim McMahon, who until last year was leader of Oldham MBC, says there is a “big question mark over the fairness of business rates on our high street” in the internet age and argues that places like Oldham need up-front investment to kick-start their growth.

The Better Government Initiative, a group of former very senior civil servants, describes it as “surprising” that local government was apparently so enthusiastic in its support for the policy in the first place. In an article for LGC, executive committee member Phillip Ward, former director of local government performance in the Office of the Deputy Prime Minister, says there is a lack of evidence for the policy, including its implicit suggestion that councils are not already pursuing economic growth.

He highlights a study published by the Commons library earlier this year which found areas that saw economic growth, measured in GVA, often did not necessarily see a growth in their business rates income.

Geoff Winterbottom, principal research officer for the Special Interest Group of Municipal Authorities, which is mainly made up of councils in deprived areas with small business rates bases, told LGC members would not be particularly disappointed if 100% retention was dropped.

He suggested the government should seek to incentivise efficiency rather than growth, as councils had more control over that.

What everyone is agreed on is that the fair funding review, promised alongside the reforms, must go ahead. Encouragingly, Mr Jones restates his commitment to it in LGC this week. However, Tony Travers warns it could also fall victim to the government’s small majority and limited domestic agenda, telling LGC it is looking “perilous”.

The best hope is for local government, working with DCLG, to devise a new system that all authorities can sign up to. But that would need an unprecedented outbreak of agreement. Locally, as nationally, it will come down to the politics.


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