Commission: “End fluctuating grant funding”

Central government should end fluctuating levels of grant funding to local authorities while devolving greater control over local taxes, according to the Independent Commission on Local Government Finance.

The commission, established by the Local Government Association and the Chartered Institute for Public Finance and Accountancy this week produced its final report, which said that self-sufficiency does not mean the absence of government grants.

Rather, it said that regions should receive stable levels of grant funding with poorer authorities supported mainly from within their sub-region.

“The proposition is therefore that the national grant settlement is on the basis of the larger geographical area and remains largely stable (perhaps adjusted for changes in population).

“It would then become the role of the governance within the area to manage equalisation between component parts,” the report said.

It said this would produce strong incentives for growth at the sub-national level, whilst protecting services within individual local authorities.

According to analysis by the LGA, 85% of redistribution should be made within the sub-region, with the remainder being carried out between regions on a less frequent basis.

The proposals should be trialled by “pioneer areas”, advised by a national independent funding body.

Paul Dossett, head of local government at accountancy firm Grant Thornton, told Room151 that the report was “really on the mark”.

“We have got to a position where local government has become so financially dependent on the centre that it erodes democracy,” he said.

However, he said that the equalisation proposals would work much better with fewer local authorities than are currently in existence.

“Bigger units could manage this much more easily. I am not necessarily advocating massive reorganisations, but you wouldn’t want more than 150 councils, which could be based on the current counties and single tier authorities,” he said.

A separate survey of local authorities released this week by the Local Government Information Unit found that 76% of respondents believe increasing business rate retention would allow them to become self-sufficient.

Jonathan Carr-West, chief executive of LGiU, said: “Councils across the country are telling us that the local government finance system is broken. We know they are struggling to make ends meet as they balance their budgets for next year in a system that is out-dated and not fit for purpose.

“Removing the bureaucracy and control of central government and giving councils control over their own financial destiny is the only solution.”

However, in a speech this week, CBI director general John Cridland warned that any plans to devolve powers from central government should not be rushed.

“Any devolution of powers must be done in a careful, considered and transparent manner and not through rushed backroom deals between politicians and civil servants,” he said.

“Let’s take time to breathe and – above all – let’s make sure we get this right. The alternative would be uncertainty, complexity and increased costs at the moment we can least afford them.”

Elsewhere in its report, the commission recommended that the next government allows sub-regions to carry out council tax revaluation, and ends the policy of setting referendum limits.

Dossett agreed:  “No sensible politician is going to whack council tax up 10% because they would be running the risk of getting voted out,” he added