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How to save local government without breaking the bank

Local pension pots, business rates, council tax and fiscal devolution – four smart fixes to get councils out of crisis.

By Jacob Taylor

Local government is in deep crisis. The current mix, and level, of funding has fallen far short of rising costs and demand pressures. Some observers now believe that local authorities are consumed by a so-called “death spiral” of escalating demand and permanent service reductions. In the past five years alone, nine section 114 notices (effectively declaring a council bankrupt) have been issued, as compared with just two notices issued in the 13 years of the last Labour government.

Issuing a section 114 notice is the tip of the iceberg – the most extreme example of the failure to properly fund local government. What’s just as significant are the cuts being made by almost every council in the country, irrespective of which party is in administration. In Brighton & Hove, where I’m a councillor, we have just had to find £30m of savings to balance this year’s budget – the largest amount in the history of the local authority. We had to pull every lever available, including a large restructure of the council, to protect front-line services for vulnerable people where possible, while finding money to improve universal services such as bin collections, weed removal and public toilets – which residents rightly expect as a basic offer in a modern and accessible city. For many people, the key public services they interact with are provided by their local council, not national government.

What can a Labour government in Westminster do to put local councils on a more sustainable footing? The primary answer to that question is for national government to increase its core grant funding, particularly to support the spiralling costs of adult social care. However, we know that the demands on Rachel Reeves to increase spending in any number of areas will be huge. That’s why the party should consider a range of reforms that could increase the resources available to local councils without requiring large increases in funding from the Treasury.

The starting point should be council tax, which is both highly regressive and embarrassingly outdated. At present, in many areas of the country, a single person who owns a £3m house can end up paying roughly the same as a family of five renting a moderate three-bedroom property. Part of this unfairness arises from the fact that council tax bands are based upon 1991 property valuations. The government should allow for a proper revaluation, so that current asset values (and therefore wealth) are more accurately reflected in what councils can charge. In addition, the council tax bands could be reformed to be more progressive – including potentially adding a percentage charge to the top bands. There will be some people that lose out with this change, but if structured progressively, millions of people could end up paying slightly less than they currently do, while those with higher value properties pay a bit more.

Government could also implement tweaks to allow councils to charge full council tax to property developers on uncompleted building projects, from the point that the original planning permission expires. Not only would this bring in a little more revenue, it would also incentivise developers to complete building projects quicker – delivering more housing and reducing the number of incomplete building sites in communities.

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Councils should also be given more flexibility in the ways that revenue can be raised. Why shouldn’t local authorities be given the option to introduce a small tourist tax, if they feel it would be appropriate for their area? Large numbers of European cities already do this, and local residents and elected politicians can make up their mind as to whether it would benefit their area or not. Equally, councils could be given more control over the business rates that are charged – varying them to incentivise certain activities and raise more revenue in the process.

A Labour government also needs to recognise the changing nature of retail business in the UK, and adjust taxes accordingly. Online mail order companies do pay business rates on their distribution centres, but this only goes to the local authority where those are based. The government should introduce an online sales tax (as exists in many US states), allowing local authorities to receive some benefit from items delivered to their area. The current government considered this idea and then abandoned it.

A creative and brave Labour government could help to reduce costs, as well as increase revenues. One way to do this would be for the government to nationalise the local government pension scheme. At present, it is estimated that councils (nationally) are overpaying into separate pension schemes by billions ever year. This could be saved by nationalising them into a single government scheme, with reduced costs passed on to local authorities.

Local government matters. It delivers the local services that people rely on and gives them a sense of pride in place. If local government isn’t working, then local democracy won’t work either. An incoming Labour government should increase core government grants to local authorities. But beyond that, some smart reforms to our system would make a big difference to the viability of local services, and wouldn’t cost the Treasury much in the process.

[Read more: Council bankruptcy tracker: authorities under increasing financial strain]

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