Fair funding: eyes on the prize

By John Sellgren | 16 May 2018

In the days when schools had mottos rather than mission statements, mine was, in translation, ‘not without dust the prize’. This was a reference to games played in a sandy arena where victory could not be gained without getting dirty. This set me wondering whether this is a suitable epithet for the Fair Funding Review and the wider debate about local government finance following the demise of the Local Government Finance Bill.

Reviewing the submissions made in response to the recent consultation shows early signs of battle lines being drawn. While all can unite on the need for a shift in the quantum of resources, the various sectional interests are already advancing arguments about the mechanism of distribution.

The competitors in these games seem to be limbering up to kick sand in each other’s eyes. Lord Porter was candid in writing to the secretary of state on the matter of fair funding last summer by accepting there would be winners and losers but advocating that through a rise in the quantum this would be cash neutral to individual authorities.

He was spot on in the assertion that the prize in these games is a significant rise in the quantum of resources.

So what about the quantum? There is an evident consensus in the sector that this needs to address the current funding shortfall in key pressure areas, most notably adult social care. If this is not done then as the London councils have pointed out a better system for distributing insufficient funding is not a reform of local government finance. The sector is therefore and quite rightly resisting taking on further functions until it has assurance about the adequacy of funding for existing services.

The wider reform of local government finance still seems like a lost utopia with a tight focus in the current debate around the redistribution of the repatriated share of business rates. However some, notably the core cities and London, continue to remind government about the sector’s aspiration for far more wide-ranging fiscal reforms.

While they have both advantages and limitations property taxes have formed the enduring part of the local government finance system and indeed this is the case in most advanced economies. All those sound minds who have considered the issue of local government finance reform, Layfield, Lyons, Singh, the London Finance Commission and many others, have made proposals to give councils tax raising powers beyond property but all have seen property taxes playing a key role in funding local services.

At their core property taxes are a tax on a local and immovable commodity which makes them unarguably a local tax. However, does the sector do enough to make the case to maximise the potential of property taxes to fund local service delivery?

A recent study by academics at the University of Ulster undertook a financial appraisal of all the business improvement districts (BIDs) in the UK. This shows that for a relatively small amount of business rate yield BIDS have been able to lever significant additional and largely local investment. This study also shows that over time businesses have become more willing to contribute further funding to BIDS through the business rate levy as they have seen the bottom line benefits which early investments have brought.

In the report made last year the London Finance Commission recommended that councils should benefit from the yield of the full suite of property taxes, not just council tax and business rates. The commission made the point that drawing on a broader tax base at local level would give councils the ability to make investments in local infrastructure and services with the wider economic and social benefits which such expenditure would bring.

In its response to the fair funding consultation the core cities make a similar argument about the impact of investment in local facilities to drive economic growth and improve social wellbeing. This argument about the more widespread local use of property tax revenue does not just apply in urban areas. Reinvesting a larger proportion of locally retained business rates which could be used to provide higher speed broadband or more affordable homes would be as transformational in a rural area as in an urban one.

In a race where it may seem that the athletes will gain the prize by kicking the dust in the face of their competitors, none may gain true victory. The prize must surely lie in ensuring that the quantum of funding is large enough to deal with the current fiscal gap but must go beyond this by giving councils and local partners funding with which to invest for the future and leverage additional investment.

The repatriation of business rates is a once in a generation opportunity. If this was used solely to close the current funding gap it may be looked back on as a lost opportunity to make at least some progress to the wider reform of local government finance which is so long overdue. That would be a prize worth the dust.

John Sellgren is the suspended chief executive of Newcastle-under-Lyme BC. An internal disciplinary process is still ongoing

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