The strange death of municipal England

The London Review of Books published a piece on Tom Crewe’s The Strange Death of Municipal England in 2016

The piece makes the point:
“Because councils have little political ‘ownership’ of the cuts they make – they are seen, rightly, as a consequence of central government decisions – normal accountability mechanisms cannot operate. Voting one party out of their council seats and another in won’t make much difference: whichever party is in control will face the same financial situation, and will have as little choice about reducing services. Labour and the Liberal Democrats won control of Walsall council from the Conservatives in May [2015], having campaigned to protect the town’s libraries from closure: in October they announced plans to close 15 of its 16 libraries, admitting that the budget restrictions were ‘more severe’ than anticipated.”

[Walsall Council was in no overall control from 2011-2018. The Conservatives took control in 2018 and won a majority in the 2019 local elections.]

Local authorities have taken by far the brunt of the spending cuts since 2010 and the state of local government finance has continued to deteriorate since the publication of Tom Crewe’s book.

With many new Libdem councillors grappling with these severe financial constraints it becomes imperative that party policy prioritises putting local authority funding back on a sustainable basis.

The linked article notes “Around 64 percent of their funding comes from central government, in the form of ‘specific’ grants – from the Department of Education for the provision of schools, for example, and from the Department of Work and Pensions for the administration of housing benefit – and an annual block transfer known as the Revenue Support Grant. The rest is raised locally, from council tax receipts (their size depending on the value of property in the area), rents, charges and fees (parking tickets, library fines, gym memberships) and 50 percent of the rates levied on local businesses.”

The LibDem 2017 manifesto reinforced the Party’s determination to maintain its historical reputation for being the party of local concerns and decentralisation

Since 2017 a review of business rates reform has been undertaken and policy adopted that replaces business rates  with a tax on land values, the Commercial Landowner Levy (CLL). The levy would remove buildings and machinery from calculations and tax only the land value of commercial sites, boosting investment and cutting taxes for businesses in nine out of ten English local authorities  Extending the levy to incorporate residential property letting businesses’ could help in bringing in badly needed funding to local authorities.

The same research team that developed the Commercial Landowner Levy are undertaking similar work on council tax reform. Action for Land Tax and Economic Reform (ALTER) will be running a stand and fringe at the Bournemouth conference this September. Libdem Members and supporters can join ALTER and support its work with an annual subscription of £20 at Join ALTER

The fringe will present an update on proposals for council tax reform and will be held on Sunday, 15th September at the BIC, Westbourne Suite from 13:00 to 14:00,

* Joe is a Vice-Chair of Hounslow Liberal Democrats, Chair of ALTER and PPC for Brentford and Isleworth

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31 Comments

  • Laurence Cox 21st Jul '19 - 12:00pm

    However they raise the money, Councils should be responsible for raising most if not all of the money they spend. The Government should only be subsidising Councils in the poorest areas. This might mean raising Council Tax or its replacement for domestic services by around a factor of three, but at least voters at local elections would know that their votes had meaningful consequences for the taxes they pay.

  • William Fowler 21st Jul '19 - 1:11pm

    Moving social care to the nhs will take a big chunk of spending away from the councils, after that you might be able to raise all the funds locally but any taxes not based on income are likely to cause huge problems and resentment. Also councils have huge fixed costs that eat into available spending money and you might end up with someone on a state pension paying for council worker’s much more generous pensions and salaries. Much better for councils to charge on a per use basis from a menu of options, the prices reflecting the real cost without the fixed costs that would have to be covered from funds from elsewhere.

  • Peter Hayes 21st Jul '19 - 2:35pm

    Laurence, the problem is the poor areas are often in wealthy areas. Cheltenham has plenty of band 4 houses but also one of the poorest wards in Gloucestershire so it would be possible for the wealthy electorate to keep the council tax down if they wished, luckily the council is LibDem which means the average voter has a social conscience.

  • John Marriott 21st Jul '19 - 3:17pm

    There’s nothing strange about it. As the British Empire shrank and there were too many civil servants at the Colonial Office twiddling their thumbs, HM Government cast around for things for them to do. “I know, chaps, let’s get our hands on some of those local councils with all their powers”.

    Thus began the gradual emasculation of local government, which reached its zenith under Lady Thatcher and the Poll Tax, which, when its true ramifications became apparent, morphed into the hastily cobbled together Council Tax, which, as far as England is concerned, is still based on early 1990’s property values and, while originally intended only to raise about a third of the funds needed to run what turn out to be a decreasing number of services, is now expected to take over from central government grant.

    Time for reform? But is anyone listening? Perhaps it’s time that some of those civil servants in Whitehall had a reality check. There really is life north of Watford, chaps!

  • David Evans 21st Jul '19 - 4:13pm

    Laurence Cox, Bearing in mind that equality is one of our three fundamental values, I can’t understand why you are suggesting a version of local Government Finance where equality pays very little part – “The Government should only be subsidising Councils in the poorest areas”.

    We all know that there is a continuous spectrum of local authorities, from the poorest, places like Knowsley in Merseyside to the richest – the City of London, and the system of government support for them has to cover them all.

    As you indicate, your suggestion would produce increases of a factor of three in Council Tax for many areas, which would have to be paid for by local residents. This policy would move more of their residents into poverty. I am not sure if you would be happy with that. However, the one factor I think you are unaware of is that in the City of London, residents would receive a massive gift every year from their local council, while everyone else would pay more to subsidise them.

    Giving lots of money to the rich and taxing the poor more – not exactly a vote winner I would suggest, nor a policy based on Lib Dem values.

  • John Marriott
    Just add:
    …and west of Reading to your last sentence!

    I agree with David Evans and disagree profoundly with Laurence Cox. There MUST be a balancing mechanism between the better off and less well off areas. A policy on this a few years ago suggested that we get the LGA or an independent “broker” organisation to administer the balancing rather than central Government, to ensure the latter didn’t use it as a form of control.

    Another reason to disagree with the LC proposal is the specific of only subsidising the poorest areas. That, yet again, like much Tory and Coalition policies would have the effect of stigmatising the poorest.

  • Laurence Cox 21st Jul '19 - 6:22pm

    @David Evans @Tim13

    It is because the Government has over a period of decades (beginning with Thatcher) funded more and more of Local Government spending and introduced more and more restrictions on how Local Government could raise and spend funds. An old Labour Councillor of my acquaintance who was Deputy Leader of the Council in the late 1990s used to reminisce that he had less power to change things then than he had had as a back-bench councillor in the 1970s and it has only got worse since then with the Government taking Education away from local councils.

    In commenting, it should not be necessary to say that increasing local taxation would of course be balanced by a decrease in national taxation (for example by reducing regressive taxes like VAT). It should also not be necessary to say that poor areas like Knowsley in Merseyside would still receive funding from Government to supplement their local taxation base, but there is no reason why every Local Authority should receive 2/3 of its funding from the Government. Perhaps you missed this point in the original article.

    The logical end-point of your approach would be 100% of Local Authority funding coming from the Government and the elimination of local democracy .

  • David Evans 21st Jul '19 - 7:33pm

    Laurence Cox – No I didn’t miss the point in the original article which to quote you said “there is no reason why every Local Authority should receive 2/3 of its funding from the Government. Perhaps you missed this point in the original article.”
    a) because it didn’t say that in the original article and
    b) because if it had said that it would have been totally incorrect.

    Nor is it true that, as you put it “The logical end-point of your approach would be 100% of Local Authority funding coming from the Government and the elimination of local democracy.” That si just an old Aunt Sally put up by yourself to knock down.

    I did note however, that you did not engage with any of my comment about the Lib Dem value of equality, I presume you agree with it, just not for communities (another fundamental Lib Dem value). Nor on the vast sums residents of the City of London would receive if your suggestion was acted on.

    I suggest you need to respond based on facts and by addressing the detail in other people’s posts, not on what you wish they had posted.

  • Laurence Cox 21st Jul '19 - 10:09pm

    @David Evans

    When you say ‘equality’ is one of our three fundamental values, that is referring to diversity and inclusion; it means that the Party espouses equality of opportunity not equality of outcome.

    And continually bringing up the City of London when the subject is Local Government finance is just throwing a dead cat on the table. It is always going to have to be treated as a special case, unlike the other 32 London Boroughs where there are much larger populations.

  • Laurence Cox,

    The Preamble to our constitution states, “in which we seek to balance the fundamental values of liberty, equality and community, and in which no one shall be enslaved by poverty, ignorance or conformity.”

    I have never read equality here to be equality of opportunity which I consider a conservative idea because it relies on the idea it is OK that only a few people actually benefit from the “level playing field”. Equality also means before the law. Equality of opportunity is a start but not the end. For liberals equality must mean have equal choices, people not being barred from things because they don’t have enough money. Our equality value means we should ensure no one lives in relative poverty because it restricts their freedom too much.

  • Peter Martin 22nd Jul '19 - 6:09am

    @ Joe B,

    “Because councils have little political ‘ownership’ of the cuts they make ….”

    This might well be true, but is it for the reasons you give?

    ” Voting one party out of their council seats and another in won’t make much difference: whichever party is in control will face the same financial situation, and will have as little choice about reducing services. ”

    Again this is true. But why doesn’t the same situation apply to National Governments too? If it is all about the “financial situation” what’s the point of changing one Govt for another?

    “……it becomes imperative that party policy prioritises putting local authority funding back on a sustainable basis.”

    We might be thinking at this point? Is this the preamble for introducing the cure-all of the LVT?

    “Since 2017 a review of business rates reform has been undertaken and policy adopted that replaces business rates with a tax on land values…..”

    OK as expected!

    So what makes National Government different from local government? IF we had adopted the euro, then the answer would be ‘nothing much’. So, for example in Greece, the voters, by 2015, had become disenchanted with the political and economic situation. They voted in the supposed ‘coalition of the radical left’ a.ka. Syriza with big promises to solve the country’s economic woes. This was very rapidly squashed by the concerted action of the EU who controlled the nation’s purse strings.

    They were in exactly the same situation as Walsall council. They had then to make cuts just like the Walsall Tories.

    What had happened to Greece could never happen to the UK. We, wisely, don’t use the euro, so we, as issuers of our own currency, have a degree of financial autonomy which the Greek government voluntarily gave up and Walsall council never had.

    In other words, the real economic power in any society lies with the currency issuer. They can ‘borrow back’ their own IOUs at ultra low rates of interest because we all know they can never default. If that isn’t enough they can use such measures as QE. Possibly we could save our money with Walsall council and pick up a higher rate of interest than if we saved with the National Government who’ll offer us hardly anything. So why don’t we do that? It’s because we know that the National government can never involuntarily default. But we know that Walsall council can and very well might.

  • Peter Martin 22nd Jul '19 - 6:09am

    @ JoeB, (cont)

    We all know Lib Dems have “a historical reputation for being the party of local concerns and decentralisation”. It’s fair enough to have those local concerns but what is the point of ‘decentralising’ to organisations that don’t have the fiscal and monetary power of central government? A LVT might help a little, for a time, but its not going to have anywhere near the effect you’d like.

    Lib Dems are always going to be attracted to these kinds of economic ‘mirages’ until they get to grips with the way National economies work. That has to mean understanding the political and economic power that comes with being the currency issuer.

  • If we look at local government as an entity rather than individual councils, then self funding becomes more credible. What it needs to agree is a fair reallocation system that does not penalise rich areas unduly though helps poorer ones to fund their services. This should be decided by for instance the LGA or some independent body though not the government so it is taken out of local politics, much like the NHS. A strong appeal mechanism would be necessary. There will still be the issue of stronger councils adjusting their strategies to maximise their income by attracting investment.

  • Three cheers for Michael Meadowcroft’s post. He’s absolutely correct.

    The UN Report on Poverty in the UK in May this year pointed out the National Audit Office estimated that local government in England suffered a 49% real term reduction in government funding from 2010-11 to 2017-18. The impact on support services formerly provided by local government for those most vulnerable and in need is
    devastating.

    The UN Rapporteur recommended that….. “local government funding needed to provide critical social protection and tackle poverty at the community level , and take varying needs of communities and different tax bases into account in the ongoing Fair Funding Review”.

    I notice Joe’s thread title is a play on George Dangerfield’s 1935 book, “The Strange Death of Liberal England”. If Lib Dems don’t respond…. then the present surge of support will prove to be a chimera and a second demise will take place in time for a second edition.

  • Peter Martin,

    most people do not actually save their money directly with national government. They use mortgage loan repayments to build up housing equity, pension funds, bank savings accounts, ISA’s and investment funds as well as direct investments in shares and corporate bonds https://www.economicshelp.org/blog/1407/economics/who-owns-government-debt/
    These funds will hold part of their investment portfolio in Gilts but by no means the larger part. Government debt held by the private sector (i.e. not BofE) is less than 15% of total UK wealth.
    If an inflation target of 2% is maintained any investment yielding less than this amount 9such as bank saving accounts) is going to erode capital and deplete retirement savings. Although pension fund assets have increased in line with the rise of the stock market over the last decade, annuity rates have decreased such that even with a much larger pensio pot most retirees are no better off.
    This is the problem with ultra-low rates of interest that don’t provide sufficient returns on investment that allow investors to save for retirement and erode the purchasing power of pensioners on fixed incomes.
    Municipal bonds issued by local authorities offer the potential for above-inflation rates of return to local investors. The possibility of default means that borrowings and investment have to be carefully srutinised for risk and return. That is the discipline that financial markets bring and is a key element in avoiding the moral hazard of malinvestment.

  • Peter Martin 22nd Jul '19 - 5:15pm

    @ Joe B,

    Anyone saving their money will end up saving it with Govt in one way or another. I could buy some shares but the person selling them will have the choice of spending the money or saving it. Just like the buyer of the shares.

    I think we’ve discussed this point before. Warren Mosler makes the point that the push to encourage everyone to have private pension schemes doesn’t lessen the “problem” (for want of a better word) of government having to ultimately support those pensions.

    See page 51 onwards. Including the conversation WM has with Steve Moore who makes the same fallacy of composition mistake as yourself.

    https://moslereconomics.com/wp-content/powerpoints/7DIF.pdf

    The point about house valuations is very much as before. Yes, my house will probably sell for what I think it will sell for providing that there are just a few sellers on my road. If everyone wants to sell than it won’t! So the total valuation of all the houses on my road won’t ever be realised. The same goes for share valuations.

    If the price of housing were to crash by, say, 30% and the value of stocks and shares were to also crash by a similar amount we will probably see headlines along the lines that so £3-4 trillion or so has been wiped off the value of UK assets.

    So where will it have gone? The answer is nowhere at all because it never really existed in the first place.

  • Peter Martin 22nd Jul '19 - 7:45pm

    @ JoeB

    Whether house prices go up or down its utility value to the occupier remains unchanged. So too with shares in business ventures. If the productive capacity of the business to generate goods and/or services is unchanged, the vagaries of the stock market do not change its real underlying economic value.

    You must know this isn’t at all true. If house prices fall then many recent buyers are stranded in negative equity. Meaning they can’t easily sell and move somewhere else. When asset prices fall the economy generally falls with them. So it’s no good the business having the same productive capacity if the market for that production falls away too.

    What did you make of that reference I gave you re pensions and saving? Did you bother to read that?

    With all due respect to Keynes and Smith, the economy has changed in recent years. It seemed to be ticking along OK until we had the 2008 crash. The accumulation of wealth you mention had been steadily increasing for years. So why didn’t we have a gradual movement into recession? Why did that only happen when asset prices, which you seem to arguing are economically neural, collapse abruptly?

    Theories are all very well but they should at least fit the known facts.

  • Peter Martin,

    Negative equity doesn’t change the utility value of a house to its owner or occupier. Nor does asset price inflation in stockmarkets increase the productive capacity of firms or productivity across the economy in general.
    There may indeed be psychological effects on consumer confidence when house and stock prices rise and fall but that is an argument for maintaining stability in housing, public finances and financial markets.
    The US system of investing social security funds in government bonds is not intrinsically different from the UK system of maintaining a notional bookkeeping record of national insurance receipts and payments. It is a pay as you go system reliant on future taxpayer contributions.
    The 2008 crash in the UK and the US was precipitated by a real estate bubble that developed as a consequence of excess money and credit creation in the banking sector. Variable-rate mortgages arranged with borrowers with too little income to meet the interest rate payments other than by refinancing loans were packaged up and sold to investors as Investment grade securities. Once defaults reached a level that made it clear that many of these investments were worthless, credit markets and lending began to seize up. The economic fundamental (shared by both Smith and Keynes) that money must keep circulating came to an abrupt stop and the economy tanked as a result.

  • Katharine Pindar 22nd Jul '19 - 10:06pm

    I welcome your article, Joe, and the strong appeal for regained local services which it fosters: increased powers for local government but with more adequate central funding are desirable even if in some areas conflicting aims for us to have. One point, however – is it a Commercial Landowners Levy or a Community Landowners Levy, as both names are mentioned but they would seem very different? I am glad anyway that ‘the same research team’ are undertaking work on council tax reform, but it would be good to know more about them, as this may well be an obvious area for cross-party co-operation, and the need is obvious.

  • @ Joe “One place to start to reverse this trend is by bringing failing care homes back under Local authority ownership and control. Another prime area is water companies.”

    Yes, yes and a hundred times yes.

    On the former I remember being shaken when I went with my Director (as Convener of Social Care) to visit a care home on a Christmas Eve. The private owner wanted to sell off land and building for a more profitable private development housing scheme. He did it by feigning a water leak and flooding the home – we had to evacuate 30 very old people on a freezing night (in which they were fortunate to survive).

    Southern Cross and Four Seasons are case studies for any review of elderly care.

    Here’s more info : “Record number of UK care homes declared insolvent : The Guardian 5 May, 1917. Social-care-crisis-record-number-of-uk-homes-declared..- The failures mean that in total 421 care home businesses have collapsed since 2010. The figures cover nursing homes, homes for the elderly, …

  • David Evans 23rd Jul '19 - 1:19am

    Laurence (Cox), Michael BG is absolutely right. Our desire for equality cannot (and must not) be constrained to just a desire for equality of opportunity but we must also for greater equality of outcome. We know they cannot be achieved absolutely, but neither should be sacrificed or excessively constrained by the other.

    Likewise your statement “When you say ‘equality’ is one of our three fundamental values, that is referring to diversity and inclusion,” I must admit I find your view again rather confused and extremely constraining. Diversity and inclusion is an important factor in Liberal values, but are extensions to equality not limits to it. Inequality is an evil to be overcome wherever it applies, not only where it appears because of a lack of acceptance of diversity.

    Equality is a simple concept, so when a Lib Dem chooses to redefine it as something different to support their failing argument I really do worry. Let’s be clear – equality and diversity are two separate strands of Liberal Democracy – to use one to constrain the other is a common failing much loved by socialists and others who don’t really want them.

    Lib Dems know there has to be a balance at any given moment because we know we can’t achieve everything in an instant, but we cannot and should not accept arbitrary limitations on fundamental values simply because it makes for an easy argument.

    Finally as for your glib one liner “And continually bringing up the City of London,” when until that point you had not responded on it seems to show a total lack of self awareness. After all it is the richest Local authority in the country and making it a special case is definitely is not what is wanted – treating it as a special case is one thing that gets us into this mess.

  • Peter Martin 23rd Jul '19 - 10:14am

    Psychology is important in Economics. We’d all agree on that. But there is more to the price of housing than just psychology. There is much more to the housing market than just the ‘utility value’ of the housing. If you don’t understand that you don’t understand the way the modern economy functions.

    Yes the US and UK social security systems fundamentally work the same way. But you know full well that wasn’t the point I was making. It is that all saving ultimately creates debt for the Govt. It doesn’t matter if the Govt puts in the extra layer of a supposedly independent pension fund management, the net effect is the same. As explained in the link previously supplied.

    Yes the existing money stock should ideally be kept moving. But what if we can’t do that? If there’s an imbalance of wealth domestically then, at least theoretically, it can be rectified by the application of taxation. A cash pile in the UK can be reduced. A cash pile in the Cayman Islands probably can’t. If the Germans or Chinese or Danes want to sell us more than they buy from us they are going to accumulate ££ assets. How are you going to force them to keep that money circulating? You say it “must” be done, so what’s your plan?

    I don’t think you don’t have one.

  • Peter Martin 23rd Jul '19 - 10:16am

    Sorry. That last line should be: I don’t think you have one.

  • Peter Martin 23rd Jul '19 - 6:06pm

    @ JoeB,

    “So yet again we have a complex group of international finance organisations, owning a UK utility that is highly leveraged and pays little UK tax.”

    The UK has an open economy. We let our currency float. We are happy to let these “complex group of international finance organisations” buy up our assets. I don’t hear any objection from Lib Dems.

    It all comes back to our willingness to run current account deficits. These have to be balanced by capital account surpluses. “The Hong Kong billionaire, Li Ka Shing……. has spent about £450bn……” Well, yes, buying up our infrastructure! It’s all come in via our capital account surplus. So who needs the workers in the Northern towns toiling away actually making things! There is so much easy money to be made other ways.

    And you guys wonder why there was a strong vote for Brexit!

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