As the public hate figure for many of the coalition government’s most unpopular policies Nick Clegg has had a rough time of late. You could understand it, therefore, if he shied away from a fight with Eric Pickles, darling of the Tory right, out of nervousness about opening up yet another front in his battle to stamp the Liberal Democrat’s imprint on the government. Particularly when the territory being fought over is local government finance, which few, if any, truly understand - and even more so when the end game is the introduction of local taxes.
But Clegg, to his credit, has entered this battle all the same. As LGC revealed this week, the deputy prime minister wrote to the communities secretary demanding that the local government finance review - expected to be launched before the end of the month - be wide ranging in scope and consider root and branch reform.
For his part Mr Pickles, with the support of cabinet minister and coalition trouble shooter Oliver Letwin, wants to limit the focus of the review to the localisation of business rates and Tax Increment Financing - a mechanism that would enable councils to borrow against the income stream from business rates.
Clegg VS Pickles
To be clear this is no small potatoes - the localisation of business rates would be a massive boost to town halls and local economies and assuming ministers will also develop a fair mechanism for equalisation, will be broadly welcomed by local government. On this, it seems, there is violent agreement.
So why would Mr Clegg bother picking a fight with Mr Pickles over further reform? Well, I’m told by sources close to Mr Clegg that he has become increasingly concerned about the government’s lack of ambition in its decentralisation agenda - particularly as it is being delivered by Mr Pickles and his colleagues in the Department for Communities & Local Government - and he sees the local government review as a chance to stamp the Lib Dem’s imprint on the coalition’s localism.
This of course means strengthening, not weakening, the role of town halls. The one clear difference between the Conservatives and the Lib Dems on localism is that where Tory ministers are just as happy to bypass town halls as they devolve down to communities or other bodies (witness Michael Gove’s free schools; Andrew Lansley’s GP commissioning consortia; Theresa May’s elected police chiefs; Iain Duncan Smith’s private sector-led welfare reform) the Lib Dems have always seen strengthening local democracy by freeing town halls from central government control as the essence of localism.
Seizing the localism agenda
Hence, I am told by source close to Mr Clegg, that he is “passionate” about using the local government finance review to once and for all free local government from its overwhelming dependence on Treasury’s purse strings. “He wants a fundamental root and branch review in order to reduce as much as possible the need for local government to come back whinging to central government,” one Lib Dem source said.
Not simply a lip-service localist, Clegg should be cheered for wanting to overcome the Treasury’s traditional insistence that it control every aspect of the nation’s tax and spend
Douglas Carswell MP (Con)
LGC understands that after Christmas Mr Clegg held a meeting with his top team that focused on the localism agenda, where the local government finance review was discussed in detail. At the meeting Mr Clegg raised concerns about the government’s lack of ambition around localism and suggested he would like to see the localism agenda pulled into Cabinet Office , with decentralisation minister Greg Clark brought across from DCLG. A senior Lib Dem source said: “The kind of ‘guided localism’ that [Mr] Pickles is espousing is paternalistic - a Lib Dem would never say that and if they did they’d be shot for it”.
Hence, then, the letter to Mr Pickles, in which Mr Clegg says the finance review should start from the assumption that, with the exception of the schools grant, local authorities are self-funding, and should “work back from that goal”. The review, Mr Clegg said, must “demonstrate the full scale of our ambition” and ensure local authorities “have the greatest range of revenue raising powers and freedom from central government constraints”.
Over and above the localisation of business rates, this would also involve handing town halls the freedom to levy a basket of new local taxes and charges (see box) as well as an overhaul of the prudential borrowing framework to give councils more freedom to borrow to invest, particularly in housing.
Revenue-raising localism: What Nick Clegg proposed
Mr Clegg said the review should aim to ensure that local authorities “have the greatest range of revenue raising powers and freedom from central government constraints” and should include:
- The introduction of local taxes, including fuel taxes, sales taxes, landfill taxes, workplace parking levies, utility levies, tourism taxes, local airport levies, duties on alcohol, tobacco and stamp duty
- The introduction of local charges, including parking, speeding, waste collection, road pricing, gambling licensing, section 106 agreements and planning gain supplements
- The complete reform of formula grant, with local authorities deciding on an equalisation formula, rather than having one imposed on them by government
- An overhaul of the “full range of financial constraints imposed on local government”, including the borrowing framework, with emphasis on borrowing to invest in housing - this should include scrapping the borrowing controls proposed through the Housing Revenue Account reform
- The devolution to councils of complete freedom over council tax discounts
Writing for LGC, Tony Travers says Mr Clegg’s intervention is a welcome boost for town halls. “The coalition as a whole has become enthusiastic about ‘localism’, but without a coherent plan - thus far - to promote elected local government’s right to raise and keep a larger amount of local taxation,” he says. “Mr Clegg is now an important figure for councils in England.”
Mr Travers says the Lib Dems have “a distinguished tradition of supporting local freedom to tax”. “One way of stamping the party’s problematic image on the Conservative-led government would be for Mr Clegg to deliver a full measure of local tax devolution,” he says. “The coalition is probably the most radical government in terms of public sector reform since Clement Attlee’s at the end of the 1940s. It would be a dreadful signal if such a willingness to make change did not include the devolution of local taxing powers.”
Support from Tory right
Mr Clegg can draw succour from the reaction on the Tory right to his proposals. Douglas Carswell MP, who recently called for the localisation of fuel taxes, praised Mr Clegg for “leading the way with the kind of radical, decentralising reforms we ought to be seeing implemented from every government department”.
“Not simply a lip-service localist, Clegg should be cheered for wanting to overcome the Treasury’s traditional insistence that it control every aspect of the nation’s tax and spend,” he wrote. Mr Carswell went as far to say that Mr Clegg’s agenda “has far more in common with the kind of changes grass roots Tories want than is generally understood.” Food for thought there for Mr Pickles.
The Daily Mail’s take on LGC’s exclusive unsurprisingly focused on Mr Clegg’s desire to introduce local taxes, but in a comment piece Harry Phibbs gave a “cautious two cheers” to Mr Clegg for his proposals. “The big question is whether adopting Clegg’s approach would be a ruse to end up paying more … he can have three cheers when he agrees that scrapping VAT and council tax will be part of the same deal,” he wrote.
There was a similar reaction at the Spectator, where Alex Massie wrote that the move to localise taxes, if revenue neutral ( ie - matched by a reduction central government taxation) should be applauded. “That’s the deal. If the government’s bally localism agenda is actually going to be properly meaningful local government must raise rather more than 15% of its income itself,” he wrote. “Broadly speaking, the Lib Dems have the better of this argument and the Tories are wrong even if the detail of the matter remains open for discussion. Spending powers that aren’t balanced by revenue-raising duties will always be abused.”
Mr Travers agrees. He says Mr Clegg’s plan need not increase the overall tax take and - perhaps more importantly - could have zero cost in terms of deficit reduction. “No one need argue for higher taxation or spending, simply for an end to the national embarrassment of living in a country where central government determines 100% of all taxes,” he says.
But will Mr Clegg win his battle with Mr Pickles - and of course George Osborne at the Treasury -over the scope of the review? We will soon find out. This week local government minister Bob Neill said the review would be launched before the end of the month - that means probably next week. If it is delayed we can assume Mr Clegg has forced Mr Pickles to give some ground - and if it’s not we will quickly learn whose brand of localism has held sway. Either way things need to move quickly if reform is to be in place by April 2013. A complete overhaul of local government finance will be a real job of work, but town halls and the communities and businesses they represent have much to gain.