Agenda item

Darra Singh, Chair of the Independent Commission on Local Government Finance updated the Board following publication of the Commission’s final report. He said that findings indicated that there was broad consensus across authorities that the local government finance system was broken and that the financial sustainability of local government was currently in question. The Commission identified a number of reforms, including:

·         Creation of an independent body to advise Central Government on local government capacity to meet its responsibilities, particularly in view of new burdens.

·         Increased local freedom to set council tax, fees and charges, and to retain business rates.

·         The creation of a single place-based budget for Councils who wished to take on additional responsibilities.

·         New taxes available to local authorities, with greater freedom to negotiate.

·         Freedom to manage across partner authorities.

·         Local Government accounts committees to ensure accountability.

·         Greater equalisation at national level, with the ability to delegate equalisation to sub-national level if desired.

Asked about the boundaries of the Commission’s remit, Darra said that given the fundamental weakness in the Local Government funding system, the Commission chose to look at the broader strategic issues as oppose to the detail at this stage.

Members made the following points in response:

·         Devolution was often seen in terms of the new burdens it imposed rather than its potential, so demonstrating the link between devolution and sustainability was vital.

·         The phrase “Devolution or bust” was potentially misleading in suggesting that devolution provided a means of overcoming cuts. Members identified a danger that devolution could be seen purely in terms of the taxes it allowed councils to raise rather than through the wider democratic opportunities it offered.

·         While members appreciated that the precarious financial situation of particular cities was not part of the Commission’s terms of reference, they emphasised that local contexts should be recognised in considering the findings.  

·         Some members expressed surprise that the report did not recommend alternative measures to council tax.

·         Some members questioned whether consolidating the spending of resources with fiscal accountability at local level was ambitious enough.

·         There was a need for the proposals to recognise that while fiscal devolution may be right, it is also complicated and difficult.

·         Proportionality was a current issue affecting tax areas such as stamp duty. A local tax system would allow for regional variations to be built into the model.

·         The current Council tax system needed testing in terms of whether it was reformable as it could prove easier to reform than to introduce a new system.

·         On the proposed Public Accounts Committees, members commented that synergies needed to be built between financial authorities in each area.

·         Some members questioned how scalable the proposals were for addressing the need for local government to change and take on greater responsibility.

·         In terms of tax retention, there was a question of what the basket of taxation measures available to local authorities comprised of to enable one measure to be balanced against another. However, some members felt that even with a greater range of local income available to local government, there would always be some reliance on central government for top-ups to ensure equalisation.

·         Members asked if the Commission looked at how other taxes such as income tax, VAT and National Insurance might contribute through local budgets. Darra replied that they were considered more broadly but not in terms of a detailed model. The Commission were open to potential reforms in how these taxes were used. However, he warned that taxes such as VAT held significant complexities in determining how they were to be divided up. While other revenue sources such as National Insurance could be looked at in the next parliament, the Commission sought to take incremental steps at this stage.

·         On equalisation, members suggested that this was in danger of becoming a roadblock to further discussion. In response to a question on whether the Commission had attempted to define equalisation, Darra said the Commission had sought to avoid getting bound up in detail, but that the emphasis on local self-sufficiency and a desire to avoid constant negotiation with central government came through strongly in their findings.

·         Some members expressed concern that the detail of the existing Local Government Finance system continued to dominate debate, with relatively small amounts of money proving divisive. They suggested that they would be more comfortable with making a case for changing the conversation and looking at a new system.

·         Members agreed that an incremental approach to reforming the Local Government finance system potentially had a better chance of success than trying to do too much too quickly.

The following points were made in respect of the LGA’s response:

·         The LGA response should distinguish between recommendations it considers to be quick wins and areas which will require more work.

In terms of next steps, Darra said that the Commission had ensured major political figures and influencers had received the report. Carolyn Downs, the LGA Chief Executive added that it was important that politicians were given the chance to take the Commission’s findings to their respective political parties.  She said that there was both national and local nervousness about the idea of equalisation so the LGA would seek to demonstrate what the mechanisms would look like in pilot areas.

Actions

LGA to examine work into what equalisation at a sub-regional level might look like in practice.                                                                                         

           LGA officers