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Jim McMahon: Government must answer questions on funding

Jim McMahon
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Since the election we’ve seen a minority Conservative government focus on two issues only: Brexit and reinforcing its narrow grip on power with an expensive DUP deal.

The former has come at the expense of anything close to a robust domestic agenda, while the latter sees public money that could have been used on the NHS and other local services instead go disproportionately towards Northern Ireland. In amongst all of this politicking, what next for the dwindling local government coffers?

The government is to scrap its controversial business rate retention scheme. It would have meant councils in England would have kept 100% of business rates generated in their area; a move intended to incentivise local economic growth. But now councils have been left in limbo.

The Tories’ business rate reform, which was supposed to come online in 2019-20, has rightly received scrutiny. In March the National Audit Office raised concerns it would place significant financial strain on councils. The government will say it has learnt lessons from the current scheme, which allows councils to keep 50% of their business rate income. But the 100% business rate retention scheme had been rushed forward at a time when councils were facing real-terms cuts to their funding. Council spending power fell by 25% between 2010-11 and 2015-16, and is expected to fall a further 5% by 2019. The Institute for Fiscal Studies estimated between 2010 and 2020 local government will have had its direct funding cut by 79%.

Those of us who have come from local government and are close to the sector also know how challenging it is to boost local economies in towns like Oldham. Oldham’s local economy has come a long way in the last decade, but there is still a lot of work to do. That’s not for want of trying either. Despite evidence the 50% retention scheme did help boost local economies generally, each area is different. Towns like Oldham need the up-front investment in business and services that reap benefits further down the line. Hamstringing council finances to the point of breaking won’t help the sector.

So the government has left a huge question mark hanging over local government: what will the next local government finance settlement look like? Essentially, where is the money coming from for our already overstretched services? I asked this very question to Sajid Javid last week, and I eagerly await his response.

Labour may not be in power in Westminster but it is in power in local government all around the country, looking after roughly half of the country’s population. Innovative and resourceful Labour councillors are finding new and creative ways to support our communities under immense financial pressure.

In Parliament Labour isn’t shying away from the big question around local government funding. We held the government to account on the 100% business rate retention scheme - when it was still alive - by ensuring the best deal possible for councils. We’re also calling on the government to bring forward the better care fund, to address the immediate funding crisis in local government.

But we’re not happy with just delaying tactics designed to stall the Tories from further decimating councils. We want our hands on the reins of power so we can implement the vision we know is the right way forward for the sector. We’d initiate a review to reform both council tax and business rates, and consider new options such as land value tax. We want to see a sustainable model for local government funding in the future; but we also realise that change to councils must happen on an even footing. A top priority for a Labour government would be to stem the crisis on social care by bringing forward £8bn in funding for this service.

Specifically, there’s a big question mark over the fairness of business rates on our high street. In the same way council tax no longer reflects the real value of a property, the same can be said of business rates in relation to a business’s income. An ‘out of town’ warehouse may have double the income of a high street business, but only pay a fraction in business rates. Not only is this lost money to councils, it is killing the heart and soul of our town centres.

Above all, we want to see local economies flourish. This is without doubt the long-term answer to vibrant local areas, employment and the funding of our local services. But this growth should be community led; not forced through using the tired old levers of Whitehall. Labour is the party of devolution. We believe in handing back power to local economies, while providing the funding to watch them flourish.

Jim McMahon, shadow minister for local government finance and devolution


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