Speech to LGA Finance conference
Steve Reed MP spoke to the Local Government Association’s finance conference on Wednesday 6 January 2016.
I’m delighted to be here this morning. Despite starting my working life as a chartered accountant, then publishing textbooks on financial management, and ending up as leader of a council, my highest regard was reserved for people who understood the complexities of local government finance. I once mentioned to a council finance director that I would benefit from a briefing on local government finance, but sadly the 150-slide powerpoint presentation I got as a result of that request shed more darkness than light.
The truth is, of course, that if you want to know what’s really going on in a council, you follow the money. And things have never been so tough. Rising demand for services and reducing levels of funding have stretched councils to breaking point.
I left local government three years ago when I was elected to Parliament. Even then, it felt to me that the business model for local government was breaking. Services were predicated on much higher levels of funding. Too many public services managed failure instead preventing it. And by trying to solve too many problems for people without really involving them, we failed to take account of their own insights and experience – a huge wasted resource.
If the old business model is bust, then we have to ask whether we need a completely new model for local government and local public services. I think the answer is yes, although I’m not going to pretend to have all the answers. But I do think that local government, collectively as a sector, and with our residents, can shape a new settlement that works better for everyone. But it has to encompass a new relationship between national and local government, as well as a new settlement between citizens and the state.
I’d like to share some thoughts on where I think we need change, and I’ll look forward to your comments and views afterwards.
First – devolution. Britain is one of the most over-centralised countries in the world. Hoarding power at the centre has constrained growth, stifled innovation and locked in inefficiency. We have to get power out of Whitehall and closer to the people it affects. We’ve just seen the Cities and Local Government Devolution Bill go through parliament with support from all parties. It’s a step forward, but it’s nowhere near enough.
Fiscal devolution must play a bigger part. Within a few years, all local government funding will be raised locally, primarily through council tax and business rates. That is a historical opportunity for local government to demand more decision-making power for itself.
But fiscal devolution comes with a responsibility on the sector not to let areas with less capacity for growth to sink. I’d like to see local government come up with its own distribution mechanism that rewards areas for achieving economic growth, improving productivity, becoming more sustainable, while also channelling support to areas that need more help to grow. We need longer-term funding settlements to help councils plan, and I’d also like to see more influence for localities, particularly through combined authorities, in influencing national infrastructure spend so every part of the country can benefit.
Too often in recent years we’ve seen the Government misuse devolution as a means of devolving the blame for cuts made in Whitehall. It happened with the localisation of council tax benefit. It mustn’t happen with funding for social care if and when that is integrated with health at the local level. We need to close the adult social care funding gap otherwise integration won’t work.
Local areas should have more control over how they raise revenue. The power to vary business rates. The power to add higher and lower council tax bands to make the tax more progressive. We should look too at a land use tax to encourage owners to use land for socially beneficial purposes and put a stop to speculative land-banking.
If we’re going to devolve more responsibility over services like education, welfare, housing, infrastructure, health, as I hope we will, then at some point we also need to look at localising elements of VAT and income tax.
In the meantime, the current Government’s allocation of funding cuts is shockingly unfair. The 10 most deprived communities have suffered cuts 18 times higher than the 10 least deprived. That isn’t the broadest shoulders bearing the greatest load – it’s a naked and opportunistic political assault on the weakest, the poorest, and the most vulnerable.
And while recognising that the deficit must be paid down, there is a political aspect to the cuts made starkly clear in the chancellor’s u-turn on tax-credit cuts. That £3bn saving was reversed without any impact on the chancellor’s deficit timetable. What the Government is doing isn’t just about the country’s finances, it’s about rolling back the state, pure and simple.
There’s a clear financial case for going further and faster on devolution. Decisions made closer to the people they affect are better decisions. They make better use of resources. They are more accountable. They deliver better value for money. But while the Government talks localist, they can’t break their centralising habits. The Housing Bill going through Parliament now includes over 30 new centralising measures. The Government is forcing local authorities in areas with a desperate shortage of social and affordable housing to sell off more of what little remains. Not much devolution in that.
Look too at the Government’s urge to control more and more schools directly from the Department for Education. The gradual removal of the local role in pupil places planning. The imposition of the Work Programme without proper local involvement. The political attack on councils for holding reserves against risks that the Government is making worse.
Just before Christmas the Government pushed through a piece of secondary legislation they trumpeted as devolution that scrapped the need for the Secretary of State to approve councils’ decisions to license tattoo parlours after they’d been made, but they reinserted a requirement for the Secretary of State to approve such decisions in advance. They don’t even trust you to license tattoo parlours on your own!
We clearly need a new political settlement, devolution by default – far more radical than the piecemeal approach the Government has adopted. Local government can’t just exist on licence from national government – we need a new constitutional basis for local government, a principle of subsidiarity, devolution by default, and Labour wants to see a constitutional convention set up so the country can shape that new settlement.
Devolution can’t just be about shifting powers from Whitehall to town halls, or even combined authorities. It must go deeper. We need to find new ways to hand power to service users, members of communities, workers on the frontline. People’s trust in politics is broken, and we won’t fix that until we show people that politicians trust them. We need more open data so citizens can participate in decision-making and scrutiny.
New technology offers exciting opportunities to extend participation and personalise services. We need to explore new forms of community or mutual ownership so communities – especially the most marginalised – feel they have a bigger stake in the places where they live and the services they use.
There are some fantastic examples of services that have given communities and service users more control over the decisions that affect them. It can lead to better outcomes and greater efficiency. Tenant-managed and cooperative housing has a bigger role to play. There’s further to go with personalised care budgets, and pooled budgets that give groups of users more influence over service providers.
Community management of parks, youth services, libraries, even controlled parking and some waste services. As long as these aren’t just cover for unsustainable cuts, they can help us rebuild communities that are more resilient and self-reliant, and tap into a wealth of new ideas.
Local government is at a turning point. It’s being ripped apart by this Government. But it has the creativity to reinvent itself for a new age, with a new vision of personalised, preventative public services where power is transferred to the citizen.
That doesn’t just demand a new financial settlement but a new constitutional settlement. That’s why we need to be much bolder than this Government has been. Change on the scale that’s needed can only come if we set local government and local communities free.