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One year after the Lyons report

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In March 2007 hopes were high as Sir Michael Lyons submitted his finance proposals to ministers. One year on Tony Travers finds little has changed.

The Lyons report was awaited with such hope and expectation. One year ago, four years after Nick Raynsford had set off with his balance of funding review, Sir Michael Lyons released his proposals for the future of local government finance. In fact, by the time he reported, the project had not only been extended, but its terms of reference had been widened.

A year on and virtually no progress has been made on the reform of local government finance. Despite Lyons’ carefully argued case for incremental reform, the government has done virtually nothing. The problem the balance of funding, over-centralisation, a lack of local autonomy and so on remains unsolved. Only Sir Michael’s desire for ‘place-shaping’ has made much progress.

Back in the 1970s, Labour’s then environment secretary, Peter Shore, flunked a decision about whether or not to reform local authority finance. Despite the Layfield Committee’s well-argued report, Mr Shore opted for a ‘middle way’ between a ‘centrally funded’ or a ‘locally autonomous’ form of local government funding. That is, he made virtually no reforms.

Poisonous backdrop

Central/local relations in the 1980s created a poisonous backdrop to the Lyons Inquiry and any government efforts to respond to it. Margaret Thatcher was, in part, destroyed by a local tax. The potential damage that can be wrought by fiddling with Britain’s only visible tax (rates/community charge/council tax) is so great that Major, Blair and Brown have done nothing in this sphere since council tax was introduced in 1993.

However, governments can only resist demands for certain kinds of reform for so long. Almost every British politician knows England has become dangerously over-centralised. Scotland and Wales, it is true, received their devolved governments. England, on the other hand, has seen only minor devolution to the Mayor of London. The Local Government Association, faced with out-of-kilter balance of funding, lobbied the Blair government for a review of council finance.

Thus, in 2003, Nick Raynsford set off with his balance of funding review. His report, published in July 2004, became the starting point for Michael Lyons’ review, which was set up with the intention of reporting at the end of 2005. Following interim findings, Sir Michael’s work was extended into 2006. The remit was then further expanded to include the implications of parallel official reports on transport, planning and skills. The deadline for completing the work was moved to 2007. Thus, a process that had started in the spring of 2003 took four years to complete. Layfield had taken half the time.

Glint of light

With the benefit of hindsight, it is clear the government used delaying tactics. The crab-like progress of Raynsford/Lyons turns out to have been an object lesson in Yes, Minister-style government behaviour. Moreover, Lyons was operating within constraints that made it very difficult for him to find much space to be radical. Labour had taken six years to get round to setting up the balance of funding review and was in no hurry to be presented with proposals for a radical reform of council funding.

Sir Michael’s report was a testament to the limited territory over which he could operate. He proposed that council tax should stay, albeit with a revaluation and possibly additional valuation bands. Capping should be dropped. The national non-domestic rate should remain centrally set, but a small, locally determined add-on should be introduced. In the longer term, it might be possible for councils to gain a share of income tax. It was possible a small number of smaller revenue streams might be introduced. The council tax benefit system should be made to work effectively. Finally, there would be merit in allowing authorities to keep part of any growth in their tax base.

The Lyons report was not a demand for a major constitutional reform. Rather, it accepted the status quo and proposed a few steps that might be taken towards increased local autonomy. It was ‘developmental’. The Treasury, which controlled virtually all aspects of the public sector economy, would, it was hoped, not be too offended. Local government, on the other hand, would be able to see a glint of light at the end of the tunnel.

Continuing debate

Yet on the very afternoon the report was published, local government minister Phil Woolas rejected Lyons’s proposals to remove capping or to hold a revaluation. The government “welcomed” Sir Michael’s findings, but there has been silence about what should happen next. No one now expects much reform to result from the four years of review of local government finance.

One thing the government acted on quickly was a minor proposal to tax non-domestic property that remains empty in the long term. As this would add to the Chancellor’s coffers, it was perhaps unsurprising. There has also been a continuing debate about the possibility of introducing a discretionary supplementary business rate, albeit at a lower rate than envisaged by Lyons. Efforts to encourage major improvements to council tax benefit have led nowhere. Council tax remains capped, unrevalued and unreformed.

After the well-documented efforts of Mr Raynsford and Sir Michael, it is unacceptable that even the modest proposals that emerged have led nowhere. James Callaghan’s government, post-Layfield, had no parliamentary majority. Mr Shore, arguably, had a defence for his failure to act. Gordon Brown, by contrast, has a substantial majority. Hazel Blears is in a far better position to act than Mr Shore was.

Tightening the screw

Capping is now being used every year and is treated as normal behaviour. Indeed, the screw is being tightened so that ministers can deliver lower and lower average council tax rises. There is no chance the present government will stop using capping. The only possible escape route has been proposed by David Cameron, who has put forward the idea of referendums as a way of allowing councils to set their council tax above a centrally determined norm.

Revaluation, similarly, remains an untouchable issue, except in Wales. Cardiff politicians bravely rushed in where Whitehall fear to tread. The decision to abandon revaluations may be good politics, but is profoundly bad government. The mid-market tabloids have so traumatised both government and opposition frontbenchers that the risk of millions of revaluation ‘losers’ is a complete political no-no. The press’s reaction to rubbish collection charges has simply intensified ministerial terror about visible increases in local taxes or charges.

The modest progress made about introducing a supplementary business rate (SBR) has been driven by the Crossrail project. Were it not for this, it is almost certain that the government would have backed off from even the modest 2p-in-the-pound SBR that has been proposed. Business lobbies have attacked even this limited proposal. Moreover, Crossrail is still not a certainty, so it is yet possible the SBR proposal could be abandoned. It has, however, been decided to rename the levy ‘business rate supplement’.

Smaller revenues such as charging for refuse collection have, as observed above, become mired in controversy. Congestion charging has still only been introduced in London. Progress towards road pricing in Manchester and Cambridge is slow and painful. Despite a recent Audit Commission report about charging, there is little evidence the government wishes to follow Lyons’s proposal that there might be additional moves towards a number of smaller local revenue sources.

All in all, progress since Lyons has been negligible. Only in Scotland have real changes been proposed. In England, local government finance remains in precisely the same position as before Mr Raynsford started his balance of funding review. Local government operates with a capped, unpopular tax whose base politicians are too afraid to revalue. There are no proposals for new and more buoyant income sources. The benefit system still fails to work effectively. If ever evidence were sought of weakness and a lack of decision taking capacity in British government, the response to the Lyons Inquiry is surely a classic case.

Lyons Inquiry Timeline


21 March 2007

  • Lyons report released after numerous changes to timetable and remit.

  • Ministers kill off hopes of major devolution by immediately rejecting the call to end council tax capping. Decisions on property revaluation and additional council tax bands are postponed

June 2007

  • LGC’s survey of council chief executives and senior officers reveals widespread support for the SBR with 83% saying it would help them grow their local economies

July 2007

  • Sub-national review (SNR) appears to support Lyons’ recommendations. SNR proposes councils should have a duty to pursue economic growth in their areas. John Healey raises possibility of devolving tax-raising powers to regions

August 2007

  • Communities and local government select committee backs Lyons review proposals for councils to be allowed to set a supplementary business rate

October 2007

  • Comprehensive spending review promises to consult on powers for councils to levy an SBR

December 2007

  • The central/local concordat fails to end confusion over reform of local government finance

  • In the same month the Councillors Commission applauds Lyons report ideas about the roles of members and recommends that national political parties allow councillors greater
    leeway to represent ward issues

January 2008

  • In an interview with LGC Lyons criticises the political machinations that impeded his report and urges the next government to act on council tax revaluation

March 2008

  • Hazel Blears launches a white paper on how to give citizens greater control over local services

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