Few things are more likely to generate a round of applause at a public meeting than condemning the so-called postcode lottery. And of course random unfairness in the quality of a service – the ‘lottery’ aspect – is a bad thing, especially if people are paying the same but getting worse outcomes.
But what about difference – where one part of the country or one neighbourhood does things differently compared to another? What if it’s not a lottery but a choice?
And if people have freedom to do things differently and better, can we accept the risk they’ll not succeed and things may be worse?
Such dilemmas are the very stuff of political choice, and your instinctive answer to questions like this determines your political ideology – socialist, conservative, or liberal and democratic.
Business rates
These thoughts were uppermost in my mind when recently looking at the arcane subject of local government financing, and the promise by the coalition government to relocalise the business rates – which Mrs Thatcher centralised and nationalised in the 1980s
The promise to “set local authorities free from dependency on central funding” set some hearts racing, especially in London where we generate the lion’s share of the loot, while others naturally worry about loosing out.
Local government is massively dependent on central government for three quarters of its income. That’s bad for democracy, bad for services, and bad for business and job creation.
With Whitehall holding the purse strings, lack of fiscal autonomy renders the local ballot box impotent and depresses voter turnout.
When the rates were nationalised, the incentive on councils and companies to work together to boost prosperity locally was removed.
It’s essential that re-localising rates is accompanied by new ways to boost economic growth and retain the benefits in London. There’s a limit to what national taxation can invest in London’s essential infrastructure, after the mess Labour left us all in. But we can keep a greater share of the new growth investment will unlock.
This approach works in America, builds on experience here with Business Improvement Districts and is the logic behind the Crossrail levy.
Five principles
However such a radical change in funding is rarely easy and fear of the postcode lottery never far away. So I’ve developed five principles that should govern our approach to the coming reform of local government finance.
- No area should be worse off. A system of protective ‘floors’ is needed, to protect poorer regions.
- The new financing measures should reward additional growth, incentivising councils and companies to generate extra jobs, revenues and commercial opportunities.
- Regions including city regions like London should be able to pool their funds, allowing poorer neighbourhoods to tap into opportunity areas.
- Regular reviews (every three to five years) should revisit the protective ‘floors’ and redistribute surpluses nationally, in effect creating ‘ceilings’ too.
- Along with greater discretion over resources should come additional powers for councils. The Localism Bill must be just the beginning.
Years of centralising Labour and Conservative governments have left the current system in a mess. The Treasury’s dead hand on London’s economic growth must be lifted and Whitehall’s grip on our communities released.
In London, we’re on the cusp of big changes to the way we run our city. Get it right and it won’t lead to a lottery but to a huge difference to people’s everyday lives.
Mike Tuffrey is a member of the London Assemby and running to be the Liberal Democrat Mayor candidate for 2012.
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11 Comments
“1.No area should be worse off.”
Doesn’t that imply that no area will be better off either, unless the total funding that’s available is increased?
It’s always tempting to believe this, but is there any evidence for it? Specifically, I don’t recall voter turnout being any higher back in the days when councils set their own business rates. And it hardly accounts for the considerable fall in turnout at national elections that has undoubtedly taken place over the same period.
With regard to your five principles, don’t (1) and (4) pretty thoroughly undermine the whole idea? If “no area is to be worse off”, then you’re just asking for a huge extra tax take so that some areas can be better off, aren’t you? Otherwise, there’s no change at all.
Malcolm Todd – I think the main point of his argument is that councils shouldn’t rely on central government for their funding.
I completely agree with Mike Tuffrey’s sentiment. I’m not sure what the best way to achieve that would be, but one other idea I’ve heard is to scrap VAT and have a local sale’s tax for funding local councils. Maybe business rates would be easier as I think the EU regulates VAT is some way.
If councils were self-funding then there should be much greater freedom and responsibility for designing services. This would essentially allow experts rather than government ministers to design services. If a local council was providing a bad service in one sector then it would be clear that it was the council doing a bad job and it would be easier for a local community to hold that council to account and make changes to imrpove the service.
I don’t live in London but if these are the kind of ideas Mike Tuffrey is trying to get elected on then I wish him luck as they would dramatically change and in my view improve society.
“I think the main point of his argument is that councils shouldn’t rely on central government for their funding.”
But if central government is determining how money should be redistributed from richer areas to poorer areas, as suggested in (4), then won’t councils still be relying on central government, in effect?
@Sam, if councils have to raise their own funds then you end up with rich parts of the country having the money to invest in council services that poorer parts cannot. This further entrenches the gulf between rich and poor by removing mechanisms by which the state can ensure that poorer parts receive sufficient investment to maintain a minimum standard of service.
If councils were made self-funding, there would be a catastrophic loss of services in poor areas with no decent tax base on which they could possibly raise their revenues locally. A whole lot of mainly Labour councils would indeed get blamed for what central government had done to them, and would raise Cain in protest. Even a Tory government would not relish this, which is why councils are not going to be made self-funding any time soon. A great deal of their revenue just must be raised centrally and thus redistributed more fairly (though perhaps it could be cut back from 75%)
Given that fact, the poor old voter out there is never going to be able to see any very clear evidence as to whether he or she should be blaming local or central government for deficiencies in local services.
So, look at it from Joe Voter’s point of view. All he knows is that there really ought to be a public widget dispenser in any decent community. He does not care how it gets there. The Liberal ideologist tells him that if councils are empowered to buy widget dispensers out of Council taxes, then he, Joe Voter, can vote them out of office in four years time if they have failed deliver. Joe Voter thinks this sounds cumbersome and ineffectual. The centralist ideologist says that all councils should be compelled to buy widget dispensers and eliminate the postcode lottery. Joe Voter thinks that in this case, centralism works better.
G – But Mike Tuffrey is recommending a minimum floor so poor areas would have their budgets topped up essentially by wealthy areas. In any case a local council could have mechanism to try to increase investment in the area if they were motivated to do so.
David Allen – I didn’t realise that centralism eliminated postcode lotteries! It’s bizarre that you claim centralisation eliminates postcode lotteries.
Only politicians with a heightened sense of vanity advocate centralisation (in most cases). It allows parliamentary parties and politicians to go to the electorate and say we done this and this and this and it makes them look good.
You may advocate ministers of state having an overwelming amount of responsibility but I prefer to put my faith in experts with decades of knowledge and service.
Here’s a good example where centralisation can go very wrong: http://solutionfocusedpolitics.wordpress.com/2011/05/30/sharon-shoesmith-a-case-of-incompetent-government-incompetent-minister-and-all-the-reasons-i-voted-lib-dem/
Underpinning all this is the belief that local freedom and flexibility will get more economic growth (and more revenues locally) than would have happened otherwise. The question then is what to do about the gap between the ‘rich’ areas – like London? – and those where the underlying economic trends are such that greater local discretion is not unlocking growth and they are falling behind, relatively and possibly absolutely. Conservatives would not mind – market forces and all that. Socialists would leap in and take the money off the rich areas, choking off the incentive for future growth. I’m saying periodic reviews, and tolerating more of a postcode variation in the belief that freedom brings its own rewards.
Plenty of room to argue about the details of course. And business rates is only one of several taxes where more local autonomy would help. In fact virtually all so-called poor areas generate more in taxes than the local council spends. Leaving the money locally and giving them more discretion would, I’m sure, go a long way to rejuvenating those areas, economically and socially.
“Underpinning all this is the belief that local freedom and flexibility will get more economic growth (and more revenues locally) than would have happened otherwise.”
So essentially your idea is that if the total (national) revenue from business rates remained unchanged, the funding situation would remain as it is now, but if there was an increase in the total “take” (as opposed to the same amount just being shifted around) then that increase would somehow be shared out in a way that reflected which areas had managed to attract more business?
@Mike: “In fact virtually all so-called poor areas generate more in taxes than the local council spends.”
What on earth has that got to do with the price of fish? They surely don’t generate more in taxes than is spent by government overall in those areas. If you’re suggesting that every local authority raises and spends its own taxes locally but national taxes are raised differentially in richer and poorer areas so as to spread the burden fairly, you’re effectively advocating an even more complicated version of the current system.
@Sam: “I think the main point of his argument is that councils shouldn’t rely on central government for their funding.”
Yes, I got that. The trouble is, he then says: “No area should be worse off. A system of protective ‘floors’ is needed, to protect poorer regions. … Regular reviews (every three to five years) should revisit the protective ‘floors’ and redistribute surpluses nationally, in effect creating ‘ceilings’ too.”
So instead of “relying on central government”, councils in poorer area rely on redistributed surpluses from richer areas. Redistributed, of course, by central government according to centrally determined formulae – how is that any different?
Martin,
Voter turnout in local elections has definitely fallen since the mid 1980s, and especially since the 1970s or the 1960s.
The decline is even greater when you consider how much easier it has been made to vote in local elections in recent years, such as changes to the rules to apply for a postal vote, the introduction of a rolling register for the electoral roll and longer opening hours of polling stations on election day (it wasn’t that long ago when polling stations only opened at 8.00 am and closed at 9.00 pm for local elections).
There might be many reasons for the long term decline in turnout in local elections, but lets not deny that it has definitely taken place.
Mark
http://webarchive.nationalarchives.gov.uk/+/http://www.dca.gov.uk/elections/elect_odpm_turnout.pdf