Neither one nor the other

Radical proposals for the restructuring of local government finance prompted criticism from both the public and private sectors this week, leaving the government facing an attempt to compromise.

Labour?s bold election manifesto to modernise the UK is proving almost too great a challenge in relation to local government. Plus, in an effort to please both business and local councils, it is pleasing no-one.

Accountants said the proposals to change business rates, capital finance and improve local accountability are just a rehash of the last government?s structures and show Labour is more bark than bite.

Even the opposition is torn, with some claiming the proposals give the government enough rope to hang itself, and others believing it?s a blatant theft of Conservative policies. Labour said the proposals to modernise local government will radically change the relationship between local councils and businesses and between central and local government.

Proposals to return the power to vary uniform business rates (UBR) to councils were toned down after an outcry from the business community and a scheme to offer partial powers was suggested. The government says partial powers would allow councils to take more responsibility and wean them off their dependency on central government. The abolition of universal capping, changes to council tax and a simplification of capital allocation are key issues of the consultation papers.

Local government was disappointed with the proposals, and said they do not go far enough to encourage local responsibility. The Local Government Association said it wanted more discretion to vary UBR, and felt let down by proposals to give it only partial power.

Yet the Confederation of British Industry and British Retail Consortium?s initial alarm has been replaced with cautious acceptance. But ideally both would prefer no changes.

Both the private and public sectors recognise the proposals will lead to a mutually beneficial relationship between local authorities and businesses, but admitted this will be a major challenge for all involved. While the Greater London Group and the Institute of Revenue Ratings and Valuation agreed key issues of local government financing have been ignored or pushed aside, most accountants welcomed the proposals.

Tony Travers, head of the GLG at the London School of Economics, said Labour was ridiculous to call the proposals radical. ?Given the amount of nasty things said by the government when it was in opposition, the proposals can easily be seen as a disappointment,? he said. ?The proposals won?t lead to a shift back to local control UBR and capping remains.

?At best, the proposals can be seen as paving the way towards a system to make it easier in the future to reform local government financing,? he added.

Neil Kinghan, the LGA?s FD, said the proposals were a half-way shop. ?Although we welcome the proposals they don?t go far enough. Proposals to give local authorities more responsibility are vital to modernisation. We welcomed the end of capping and the proposals to return the power to vary UBR but wanted more discretion than the paper suggests,? he said.

The LGA continued to press for full control of UBR to be returned to local authorities. Stuart Reid, head of policy and research at the IRRV, agreed.

?The government pledged to make council tax fairer but is too nervous about raising taxes. Yet it wants local authorities to be more responsible and raise money instead of being so dependent on central government,? said Reid.

?In which case, we should consider raising taxes on the environment, parking, income and sales – but this is ruled out by the terms of reference of the review,? Reid added.

But Mark Bradshaw, director of operational resources at the BRC, continued to deny a full return to local authorities would be beneficial. ?The proposal?s recognition of current UBR advantages to provide certainty and predictability were a relief,? he said.

?If powers had been returned to local authorities it wouldn?t have kept UBR level across the UK, it would have created wild fluctuations between areas, as happened before 1990. Businesses need certainty to plan ahead.?

Kinghan argued the proposals posed no threat to business. ?Businesses have no reason to be alarmed because the proposals have lots of safeguards, too many actually, and businesses shouldn?t be alarmed by the prospect,? he said.

CIPFA and the LGA said the review will probably go a long way to achieve best value, further develop public-private partnerships and offer simplification of the current capital controls system.

Maureen Wellen, CIPFA?s capital matters expert, said the time was right to examine alternatives in the capital control system. ?Basic control mechanisms and professional codes of practice already exist and could be adapted to develop a robust new system.?

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