Progress on finance review could spell greater freedom for Reading

Interesting news in The Guardian today that the Coalition government is making progress on reviewing local government finances with an announcement expected within the next two weeks. This is something the government pledged to do in the Coalition Agreement:

"The government is planning to cut many richer local councils loose from Whitehall control in one of the biggest shakeups of local government funding since the 1980s.



Between a quarter and a third of local authorities will become "free councils" entirely independent of central government grant by the end of the parliament in 2015, under plans to be unveiled by the coalition in the next fortnight.


Many richer boroughs such as Westminster and big metropolitan councils would no longer be required to use their business rates to subsidise other parts of the country, although ministers say there would still be "an element of redistribution between wealthier and poorer councils".

The Conservatives and Liberal Democrats are close to agreement on the terms of a quick six-month inquiry into the future of local council funding.


This will focus on how to restore the right of councils in England to retain the bulk of revenue from business rates, as well as to keep more council tax revenue. At present business rates are collected by local government, but then all sent to central government for redistribution using a complex and little understood formula."

 The article continues:

"It is estimated that at present about 300 councils receive subsidies from business rate redistribution and 80 or so councils, such as Westminster and the big metropolitan authorities, put money in from the business rate."

It has long been known that only 25% of Council Tax is spent locally and the majority of the Tax revenue raised in Reading is spent elsewhere. This is a source of frustration for councillors in Reading as it limits the amount we are able to to improve the town for local residents and to develop a sustainable, thriving local economy.

I blogged last month about the positive impact this localist approach to finance could have on Reading.

The last time local government finance was investigated in depth was in 2007 by Sir Michael Lyons. The Labour Government failed to implement his recommendations and shelved plans to re localise business rates.

Guardian political commentator Simon Guardian has long championed devolution of tax-raising powers to councils. In 2007 he wrote:

Local government is, according to the Audit Commission, now more efficient than central government. No city council is run as incompetently as the Home Office or the defence, health or agriculture ministries. Councils cannot and do not bust their budgets. They cannot borrow at will or indulge in ludicrous computer schemes. Council schools are clean, government hospitals filthy.

Each year new burdens are imposed on councils under statute, through targets and by centrally negotiated, usually inflationary, wage deals. This, coupled with an ageing population and soaring inward migration, imposes costs on councils that are well above inflation, hence the severe upward pressure each year on council tax.

As the burden of meeting local spending has shifted to the centre (from 60% local in the mid-1980s to 25% now), the local share must be covered by an unbuoyant, fixed-band council tax. Business and income taxes and VAT, which benefit from economic growth, are retained by the Treasury. The government will not tolerate revaluation or introduce higher tax bands, as in Wales. A revaluation due before the last election was postponed by the then local government minister, David Miliband, out of sheer fear. Britons now pay among the lowest local taxes in the world, limited by a petrified Treasury...

Councils should levy what they need for such services as they supply, and answer for it to their electors. They did so before the myth of "local overspending" was disseminated by the Thatcher government, now repeated by Brown and Cameron. Where overspending occurred in London in the late-1960s, the Tories swept to power in 1968 - even capturing Lambeth and Camden. The franchise can bite if allowed to.

Today's Guardian article describes a genuine tussle going on within government between the Conservatives and Lib Dems on local government finance. This is healthy and what one would expect in a coalition.

I am pleased that this long-held Lib Dem policy aim - to give more financial independence to democratically-elected councils is still in play and edging closer to being delivered.