The assumption among most commentators is that authority has been gradually moved from Town Halls to central government. Steve Winterflood’s research suggests that has not always been the case.
The apparent continuing loss of financial authority for English councils over recent years has led us, almost inevitably, to conclude that it is just part of a long-term trend.
It was ever thus. Every year local financial arrangements appear to become more and more centralised. However, by looking into the ingredients that make up financial authority for every year between 1945 and 2015, it is apparent that such a conclusion is far from the truth.
As part of my research, I have identified five measures which have enabled me to plot the ebb and flow of local financial authority over 70 years. The five measures are:
- The ability to set the base of local taxes and to levy new taxes.
- The ability to set the rate of local taxes.
- The level of control over local revenue and capital spend.
- The level of ring-fencing of government grants.
- The freedom to borrow.
Each measure is then ascribed a score; these are then combined to produce a Local Financial Authority Index (LFAI). The scores have been calculated with reference to changes in legislation, government financial statistics and an extensive literature review.
Housing & Regeneration Finance Summit
October 31, 2018, London Stock Exchange CFOs/Treasurers/Investors/CEOs
Local Government – Housing Associations – Institutional Investors – Developers
Rising authority
Remarkably, local financial authority actually increased between 1945 and 1980. So, for exactly half my study period, central government increased local councils’ financial authority.
Decentralisation, at least in financial terms, was at one time a reality. However, throughout the 1980’s local financial authority decreased to the levels previously experienced in the mid 1950’s due to a combination of increased central government control over the rate of local taxes, increased ring-fencing of government grants and greater central control over local expenditure.
The biggest single loss of financial authority occurred in 2000, primarily due to the Local Government Act 1999, which brought about universal capping.
Worse was yet to come. The nadir (hopefully) of local financial authority occurred in 2006 due mostly to increased levels of ring-fencing, particularly as a result of the introduction of the Dedicated Schools Grant.
And it is not a matter of party politics. The biggest financial centralisers were Margaret Thatcher and Tony Blair, with the latter being slightly ahead.
National interest
The reasons for the enthusiasm of these particular governments for reducing the level of local financial authority differ in some major respects. But there is a common thread in that both Conservative and Labour governments, between 1979 and 2007, felt it was in the national interest to reduce the level of financial authority exercised by locally elected councils, and that councils were no more sovereign organisations than businesses or community groups.
This was a very different view to what was proffered by governments prior to 1979 in that the democratic legitimacy of local government was at least recognised, although not always respected.
For Thatcher’s governments, the necessity to centralise was complicated. The imperative to reign in the enthusiasm of a number of leftwing councils for implementing their own political agenda rather than simply acting as agents of central government, was, of course, significant. As was the view that the local government monopoly needed to breathe in the fresh air of private sector competition.
But such explanations do not really help to explain the specific diminution of local financial autonomy.
Perhaps the reasons lie more with the government’s oft-stated concern to protect local rate payers, thus protecting themselves from a political backlash from their supporters; and for macro-economic reasons, in that local government expenditure was included at the Treasury’s insistence as part of general government expenditure.
It is clear by reference to the House of Lords select committee on relations between central and local government (1996) that the arguments for such an approach are less than convincing. Indeed, the committee notes, that this is a “Humpty-Dumpty argument”.
However, belief in such an approach gives powerful support, on grounds of macro-economic policy, for central government to control all local government expenditure in the national economic interest.
The Blair government’s bypassing of local government led inevitably to reductions in local government financial authority, most notably over the control of local expenditure and the increased level of ring-fencing of government grants.
Local priorities became secondary to the imperative of eradicating the “postcode lottery” and promoting local choice, and involvement, beyond the confines of local democracy.
And the local heroes? Surprisingly perhaps, the most decentralising government in terms of finance was led by John Major.
The measures I have constructed in compiling the LFAI are only at the draft stage as they need a lot of checking and they still need to be weighted following my interviews with leading chief executives, leaders and other experts on local government.
Steve Winterflood is a PhD student at INLOGOV researching measures of local government authority and is a former chief executive of South Staffordshire Council.
