Local government reorganisation: The debate is intense but is the case for reform proven?

A white paper on local government devolution and reorgnisation may be delayed until next year but that doesn’t mean the argument isn’t white hot. We asked a panel of experts to offer their views.

Ruth Dixon and Thomas Elston

Local government re-organisaton is back in the news. A white paper from central government is due this autumn, and has already been pre-empted by a recent report by PwC for the County Councils Network. This argues that considerable savings could be made if district and county councils were to be amalgamated to form a single tier of unitary authorities.

Not for the first time, government is being told to merge councils in order to achieve economies of scale. And, not for the first time, there are reasons to be cautious.

Scale

The notion of economies of scale appears to be common sense—the bigger the better, as it were. But predicting the results of mergers and reorganisations is complex, and there is a long history of such reforms producing questionable results.
For example, a study of the English and Welsh local councils that merged in 2009 found that “few of the desired financial outcomes were realized” by 2012. There are several reasons why scale economies are easier said than done.

Large organisations can be difficult to manage, swamped in red-tape, and slow to innovate. Research has also shown that the economic benefits of scaling-up are exhausted at relatively low levels.

For example, a 2017 study of property tax collection costs in the Netherlands found that efficiency was maximised for groups of about 30,000 dwellings—well below the average of over 45,000 dwellings in English district council areas.

Indeed, after decades of following the “bigger is better” logic, UK local authorities are now the largest in Europe by a long way. Going even further down this well-trodden path, as is now proposed, could result in high transition costs for little or no gain in efficiency.

Shared services

Under Eric Pickles, the government itself paid attention to these issues, pausing several in-progress council amalgamations and arguing for shared services instead. In 2012, the government published guidance, Fifty Ways to Save, which ranked shared services first out of 50 “sensible savings”.
In our recent research, we investigated the results of sharing back-office services. Could collaboration achieve the same or better outcomes as amalgamation, with far less disruption?

Unlike in the rest of Europe and the US, such collaboration had previously been rare in the UK. But by 2016 over 75% of English local authorities (including nearly 90% of district councils) took part in arrangements for sharing back-office administration (HR, audit, legal services, etc.) Contrary to expectations, however, we found no evidence of a relationship between the level of participation in shared back-office services and the change in relative administration costs from 2008 to 2016. (Data was drawn from the Local Government Association shared services dataset and the local government revenue expenditure and financing statistics published by MHCLG.)

This finding, surprising to many enthusiasts for the shared services approach, was robust to various statistical approaches, definitions of administration costs based on staff and/or non-staff categories, and to the separate analysis of upper- and lower-tier authorities.

Moreover, we also confirmed the results by investigating an analogous field of activity—council tax collection—where 22% of English district councils share tax collection services. Analysing just that type of council, again we found no significant relationship between participation in sharing arrangements and the change in council tax collection costs per dwelling.

Reasons

There are several reasons why councils which shared services performed no better than those that did not. Over the period of our study, councils were, on average, making substantial savings in back-office costs both in absolute terms and relative to total expenditure. Council tax collection costs per dwelling were also falling.

Thus, councils that were not sharing services were exploring other strategies for making savings. Those across-the-board savings were not restricted to larger councils. Indeed, district councils showed the greatest percentage decrease in administration costs and had the lowest unit costs of council tax collection during the period studied.

For councils that were sharing services, coordination and set-up costs may have been higher than expected. For example, ensuring that existing local entitlements to pensions and benefits are preserved may require a more “bespoke” IT system than predicted.

In conclusion, catch-all reforms rarely realise the predicted benefits. Shared services were presented as a viable, even more attractive, alternative to the kind of merger PwC is recommending. But even in that apparently straightforward case, collaboration produced no greater savings than going it alone.

Once again, economies of scale appear to represent a “phantom” promise of reform, beloved of those looking for a quick fix with an intuitive, if superficial, appeal.

Yet the outputs of multiple research projects suggest that, whether by amalgamation or by collaboration, economies of scale are much harder to achieve in practice than in theory within the already very large English council system. Instead, we suggest that reforms should be targeted to the local context and subject to public debate. The Covid crisis has highlighted the value of local responses. It is not clear that further consolidation would improve resilience, accountability or financial sustainability.

Ruth Dixon is a research fellow and Thomas Elston associate professor at the Blavatnik School of Government, Oxford University.

 

Peter Bingle

Local government faces a period of potentially radical change. The much anticipated devolution white paper promises a complete overhaul of local government structure. This is short hand for sweeping away the current two-tier structure outside our metropolitan areas and replacing it with large unitary councils run by directly elected mayors.

This isn’t the first time a Tory government has tried to tackle the two-tier structure. Lord Heseltine wanted to abolish county councils in the 1990s and was for the most part thwarted. The political mood is now very different. Counties are on the offensive and the districts face the very real possibility of abolition or merger.

The case for larger unitaries is overwhelming. So too is the case for directly elected mayors. For any reforms to be really effective and long lasting, however, the government needs to address two really fundamental issues. The first is the role of local government and the second is funding.

The sad truth is local government has been emasculated by successive governments of all political persuasions. It has very few real powers and acts for the most part as the implementer of government policies. Local councils are now also totally dependent on government funding. The funds raised from local businesses and residents is insignificant. Little wonder that turnout in local council elections is so low. What’s the point?

If the government is truly committed to a radical future, it will give local government real powers over health, transport and welfare. In addition, it will allow local councils to raise through local taxation a much more significant element of their revenues. Ministers will need to be brave. They rarely voluntarily give away political power!

The magical factor is the concept of directly elected mayors. The case for them has been brilliantly made by Andy Street in the West Midlands and Ben Houchen in the Tees Valley. High profile, charismatic and transformative. Contrast this with the average local council leader who is blessed with total anonymity.

For change to be effective, local government needs a new generation of political leadership. The old guard needs to be pensioned off. County wide unitary authorities must not simply be county councils run by the same bunch of politicians who nobody has ever heard of!

In normal times, local government structure would not be a political hot potato. These are anything but normal times. Combine the creation of large unitary authorities with a streamlined planning system and the potential ramifications for economic growth are enormous. This is a political prize so large that it completely justifies a political punch up with nimby Tory MPs and self-interested local councillors.

Change in local government is hurtling down the tracks. Will ministers have the courage to be really radical? The jury is still out.

Peter Bingle is founder of Terrapin Group, a former councillor at Wandsworth Council and a former chair of Bell Pottinger Public Relations.

 

Paul Swinney

At the last general election, the government committed to reforming England’s councils. This is certainly needed as the current system is long past its use by date and, in its current form, not fit for purpose.

A complicated patchwork of several hundred overlapping district, county, unitary and combined authorities cover England, as well as the Greater London Authority.

This causes two problems. The first is that most of these authorities have competing mandates and interests that makes the long-term strategic planning that places need to level up very difficult.

In Nottingham for example, a city of 678,000 people, there are nine separate authorities of three different types covering the city. This situation is in no way unique.

The second is the huge financial challenges of maintaining these overlapping authorities, particularly after a decade of austerity in city and town halls, makes the system unsustainable in the long run.

Tools and powers

Attempts to reform local government have been attempted in the past, most notably with the Redcliffe-Maud proposals from the late 1960s. They’ve mostly been shelved or watered down. But reform cannot wait any longer: We cannot help struggling parts of the country while their local councils lack the tools and powers to level them up.

Our recent report, Levelling Up Local Government in England, sets out detailed plans to reduce our 349 existing authorities with 69 unitary or combined authorities whose political boundaries match the economic areas that they cover. These authorities would be led by one directly elected leader with the mandate, powers and funding to level up their area.

In addition, we propose devolving significant economic and fiscal powers to these stronger councils. Everything from housing to bus franchising to adult education should be managed at the local level.

Discretion

And with any new powers must come greater fiscal responsibility. Councils should be granted control over council tax, business rates, sales and charges to allow them to raise and spend what they need to help their areas thrive. They should also be allowed more discretion in how they manage their budgets than the current fiscal rules allow.

With unemployment rising and businesses facing an uncertain future, many places across the country are struggling. Local government, with its detailed knowledge, is best placed to be the driver of their recovery.

The upcoming white paper now needs to give them the tools to act on this knowledge.

Paul Swinney is director of policy and research at Centre for Cities.

FREE monthly and weekly newsletters
Subscribe to Room151 Newsletters

Monthly Online Treasury Briefing
Sign up here with a .gov.uk email address

Room151 Webinars
Visit the Room151 channel