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Matthew Taylor: On finance Brokenshire can be great reformer

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By the time this column is published we will be past the peak of columns, blogs, tweets and, possibly, handwritten notes advising James Brokenshire on what he should do in his new role as secretary of state for the Ministry of Housing, Communities & Local Government. That won’t stop me adding my views, partly because they are out of line with the apparent consensus.

There will, of course, be a hundred and one things in the minister’s inbox but I’m not going to compose my own list. Instead I want to advise Mr Brokenshire to ignore the view of most rather world-weary commentators; because, unlike them, I don’t think the secretary of state should place the reform of local government finance straight into his ‘too difficult to do’ file. Let me explain why.

First, the pressing case for action. As we all knew, and as the National Audit Office has recently underlined, the current finance system is broken and no credible account of a future system exists. The one big idea – business rate retention – seems to be getting further away, not closer. On the one hand, we have many authorities burning up their reserves at a rate that is unsustainable over the next two years let alone longer. On the other, the ultimate destination of reform is anyone’s guess. The status quo is only (just) sustained by last minute handouts, sometimes ear-marked for a specific purpose. This is good neither for sensible planning nor for local accountability.

Second, the strategic argument. Given that any reform will rely on Treasury backing (both political and financial), the 2019 spending review process offers an opportunity to situate local government funding in the context of the government’s overall financial strategy. As I found out in my review of employment status, for the chancellor fiscal sustainability is a very high priority. Instead of begging scraps from the table, Mr Brokenshire should try to persuade Mr Hammond that a properly structured local finance system can be a central part of meeting that broader fiscal challenge.

Third, the political opportunity. This may seem trivial but I suspect it may not be. For many decades a major barrier to local government finance was the way people paid their bills. While most people coughed up for income tax monthly through PAYE, the council tax came in an ugly annual bill. This meant increases in the latter were even more unpopular than increases in the former. Barry Quirk tells the story of being verbally attacked by angry Lewisham residents complaining about their local bills’ value for money and deciding that, on balance, it was probably better not to tell them that the council tax actually covered only a fraction of the cost of services. But now – although I have to admit I couldn’t find the figures anywhere – I suspect most people pay their council tax through direct debit. This may be why recent rises in council tax haven’t, at least so far, attracted as much opprobrium as those in the past.

A bigger political point relates to wealth, housing and social justice. An obvious and important focus for reform would be council tax bands. Updating valuation and adding bands at the top would be the obvious step while more ambitious would be to abolish bands entirely and simply tax the value of property. The reaction to such proposals is generally to assume they would be political suicide. But with a growing consensus about the need to tackle asset inequality (mainly housing based) and the inter-generational inequality it drives, I wonder whether the argument may have titled. And in a country where widespread homelessness and overcrowding coexists with an estimated 25 million empty bedrooms, the fact that higher council tax bills on larger properties might encourage a bit of downsizing is another plus.

When you apply the principles of clarity, fairness and devolution, it is possible to see the outlines of a new funding framework. That doesn’t mean it wouldn’t be hard work, very hard work, but my last grounds for action are personal.

Mr Brokenshire has spent much of his ministerial career – especially his time in Northern Ireland – trying to manage difficult situations. But, whatever Alistair Darling might say, a career of heading off crises isn’t the greatest legacy for a politician. If the new secretary of state wants his name to go down in the history of local government and public administration then grasping the nettle of finance is his chance. Perhaps the odds aren’t quite as heavily stacked against boldness as most people seem to be assuming.

Matthew Taylor, chief executive, RSA

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