THERE IS a pressing need to abolish the current funding structure of local government. In particular more democratic control is needed over the spending rather than over the raising of taxes.
The dismantling and clearing out of obsolete local government rating and council tax establishments that I proposed in my earlier article will no doubt cause trouble with the unions, because of the tens of thousands of potential job losses in local government and HMRC, but will be subdued by collaboration in diverting most of the billions saved into the NHS and education budgets leading to new recruitment there. Coming directly after two years’ practice with Brexit, the operation should seem remarkably smooth.
In practice, the administrative upheaval will not be so daunting as initially feared. Every year since the 1960’s the major spending departments – NHS, education, defence, social services, work and pensions, transport, justice, etc. – have embarked on their ritual round of negotiations with the Treasury, led by their respective Cabinet Ministers, although most of the in-fighting is conducted by the corresponding teams of civil servants; each department claiming as large a slice as it can of the national cake that the Chancellor has baked. The only difference under the new municipal finance regime is that the club of spending departments has a new member, represented by a Minister of Local Government, pitching and parlaying with the rest for the highest attainable share.
In 1951 the new Conservative administration established a Ministry of Housing and Local Government which lasted until 1970 (by which time the era of large-scale housing provision by local authorities was coming to an end) when it was merged with the Ministry of Transport to form a Department of the Environment; but now that local authorities are to be wholly funded directly by the Treasury a Cabinet Ministry devoted purely to Local Government is essential, which actually requires merely the upgrading of existing departments. Compared to the fabrication of ‘Defra’ and the mélange of Culture, Media and Sport, the reorganisation within Whitehall will seem like child’s play.
The most conspicuous benefit of this innovation is sheer transparency. Politicians, media and public at large will be for the first time made fully conscious of the actual global cost of local government, shattering the popular superstition that councils’ expenditure is largely covered by council tax and business rates. Electors will be confronted by the awful fact that the Exchequer has always been doling out more than 80 per cent of local authorities’ budgets by block grants and all manner of subsidies and subventions. So the ages of conflict, propaganda and riots has actually been about less than 20 per cent of what councils spend.
Central and local government alike have for so long suppressed this basic information in order to minimise the real scale of expenditure and also to sustain the illusion that council members and officers are in control of it, as well as for the illusion of democracy. The scale of civic waste and profligacy, and of councils’ staff pensions, etc., presented as coming out of the total budget, appears as only a small fraction of what it would truly show if it were all coming out of just the minor percentage that councils do in fact control!
But after 2030 the Ministry of Local Government will simply take its pre-determined slice of the national cake and divide it among local authorities throughout the UK. The portions for councils in Scotland, Wales and N. Ireland are transferred en bloc to Holyrood, Cardiff and Stormont for internal distribution, according to their respective domestic economic policies and priorities.
The Ministry’s apportionment in the first instance among local authorities throughout the UK is worked out, and is adjusted each year, according to a formula; basically per capita but infinitely flexible to take account of respective geographic, demographic and economic variables. Just as the whole country will be aware of its precise budget for local government, so will each local authority, just as transparently. Even more important, so will every voter. Of course, behind the scenes as well as quite brazenly, every council has been lobbying the Ministry for a larger share, just as the Ministry lobbies the cabinet at the top end of the food chain and just as, at the bottom end, every department within each local authority ought to be lobbying its own council.
Two additional benefits flow from this transparency. One is empowerment of local authorities, to the extent that, having been presented with a fixed sum for the year, each council is then very largely free to determine how it is going to be spent; and the other great benefit is that this freedom is subject to the need for the local electorate’s approval. The 2023 Act would require that from 2030 every council must call an annual General Public Meeting at which the Accounts and Report for last year and the Budget for the coming year are presented, debated and approved as amended or qualified; or the proposed new Budget might even be rejected, in which event it has to be revised as necessary and presented afresh to an early emergency GPM, or else the responsible councillor(s) and/or Treasurer resigns. Such procedures are normal in the conduct of multi-billion pound companies so why not for local authorities: are they not large publicly owned concerns?
As most major commitments undertaken by councils extend from one year to the next or through two or more years, there are various transitional provisions. Essential functions and special projects are underwritten for the medium or longer term as necessary but such ongoing activities do not disrupt production of annual accounts or preparation of budgets and cash-flows. Planning is more difficult under the present regime with its dependency on year-to-year collection of council tax and business rates.
The key to the new system is that budgetary control is exercised by Ministerial prescription at the outset and by popular mandate in operation. GPMs will be packed and vociferous, for everybody realises that if they approve plans for a new Civic Centre costing £10 millions that’s £10 millions less for waste collection and recycling; £1 million on refurbishing the Councillors’ Lounge means £1 million less for a homeless shelter. Polling at municipal elections nationwide will exceed general election levels. Major employers are offering pro bono advice to councils, while local businessmen and women are co-opted as non-voting Committee Members. Local quangos have been abolished and Taxpayers’ Associations have gained control of many councils, defeating candidates representing parties controlled from London or Edinburgh. Transformation of local democracy has in turn revitalised national politics as the rediscovery that councillors are accountable to the electorate has even led to revitalisation of parliamentary constituency associations.
But the most spectacular result, affecting the entire population, will be the increase in prosperity from growth in commercial and industrial investment thanks to the elimination of business rates and associated fees, expenses and executive time, plus direct savings to every household from elimination of council tax.
Yes, allocating a share of the Treasury’s cake means baking a correspondingly bigger cake, which does mean increasing national taxation. But the net increase directly attributable, after crediting the colossal savings, will be a small fraction of the gross amount of business rates and council tax paid each year under the present regime.
Besides, that net increase in direct taxation is surely negligible compared to the immeasurable benefits to democracy, the economy and sheer efficiency in administration.
Historically, too, this rationalisation is long overdue. For it was the concentration of commercial activity in town centres accompanied by the rise of a middle class, as the nation’s character began to change from predominantly rural to urban, that created the need to introduce a tax on houses and markets to replenish the Crown’s and government’s coffers and thereby maintain the stability of society. But that was over a century prior to the introduction of income tax and over two centuries prior to the introduction of corporate taxes, which together have rendered taxation of houses and markets (from which council tax and business rates derive) obsolete and superfluous. So all we are doing is cutting out dead wood.
The State is forever adding to restrictions and the burdens of bureaucracy, increasing its power over the people. The persistent question, “but what will you put in its place”, that is invariably asked in response to any proposal for abolition of some superfluous impost or defunct levy, for once can be answered, with rare collective vision and courage, in one word: “Democracy”.
©Vivian Linacre FRSA FSA (Scot) is a Fellow of the Rating & Valuation Association (1989), Founding Member of the Society of Property Researchers (1983); Founding Member of the British Council of Shopping Centres (1984); and Chairman of the Scottish Appeal Committee, UN International Year of Shelter (1987).