As the government’s consultation on fair funding nears its closing date, Chris Buss wonders whether it could possibly achieve its own stated aims.
A few weeks ago Tom Cruise was filming in London for the next Mission Impossible film. One wonders if he was actually in Marsham Street advising MHCLG on their own version of mission impossible — the fair funding review.
On the face of it, the review is straightforward: it’s about making the post-2020 local government finance settlement fair in every respect. In the words of the review, the new system will seek to be transparent, simple, contemporary, sustainable, robust and stable. In addition, the settlement will continue to provide a strong incentive for local authorities to continue to grow their economies. That’s seven objectives to be met, all of which are laudable. However, some of these are potentially contradictory, in my view.
Being “stable” and “contemporary” are two conflicting objectives that immediately spring to mind. Stability in terms of fair funding must, by definition, lead to a degree of underpinning of guaranteed income whilst mention of being contemporary, or up to date, implies change by its very nature. The art will be in balancing these two factors in any formula that is eventually derived.
Any rational person would accept that the current methodology for funding local government needs a review. The current arrangements have their origin in the four-block model which, by 2020, will be 15 years-old and rely on data that will be seven years-old. It’s a system that’s out of date and neither transparent nor simple.
However, moving from that system to any other will be problematic, as any change will by definition produce winners and losers. The latter will want, and need, to be protected, the former will wish to receive their gains as quickly as possible.
Damping
When the current arrangements were introduced in 2006 it was at a time of relative plenty. Public spending was growing, as was financial support to local authorities. This meant that the government was able to offer protection to losers in terms of damping grant, which in some cases is still working its way through the system some 15 years later.
However, 2020 will be a completely different scenario, with local government at the end of a decade of austerity and with a much diminished funding pot. There will be real winners and losers in this scenario. It’s not beyond the realms of possibility that there will be others in a similar position to Northamptonshire; a dramatic reallocation of resources with inadequate transition periods could lead others into issuing Section 114 notices.
In effect, the fairer funding settlement will see the local government sector arguing with itself over the income from business rates, which is not as certain as it has been in the past due to changes in how the public in general shop and work, a completely different landscape from 2006.
Unless additional resources are made available the fairer funding mechanism will pit rural areas against metropolitan areas, and districts against counties, as each tries to defend their corner.
If extra money is pumped into the system, where will it come from? In an ideal world the cash would come from central government. However, this is unlikely to happen.
Discretion
On the assumption there will be no additional tax raising powers given to local authorities, the government will, in my view, have to square the circle by giving greater flexibilities to councils.
As the consultation document says, one of the aims of the review is to provide “as much discretion as possible to local councils over the use of resources so as to empower the transformation of local services and ensure that councillors are accountable for deciding how funding is used locally.”
However, without removing or raising council tax referendum limits for authorities coping with significant reductions in redistributed business rates, these are just empty words. I know what the argument from the government will be. From its point of view the referendum limit ensures accountability, but all it really does is undermine the electoral mandate of councils.
Of course, a more radical approach would be to do some of the more unthinkable things concerning council tax. Looking at the approaches to be used for the wider fairer funding consultation, how is using 1991 property values as the basis for a tax “contemporary”? Why is the mandatory granting of student exemptions “robust”? How does creating an artificial ceiling on council tax for empty homes “encourage the local economy”?
If the fairer funding review is to be truly radical, and make a real impact, it needs to look not only at how funding from retained business rates can be spread around the system, but must go much further and look at the whole council tax system. Will it? I very much doubt it.
Chris Buss is executive director of resources and assets at the Royal Borough of Kensington and Chelsea.
*The Fair Funding Review consultation closes on 12 March, 2018. The review document can be found here.
