In the very near 10 years that I have been working with local authorities there has been a consistent feeling that local authorities should have more powers to do things themselves. The argument goes a bit like this:
There are lots of very good reasons to agree with these arguments. Britain does in general have a much more centralised system of power than other similar countries such as those in Europe and the USA. Local authorities do not always have the best incentives to encourage businesses to grow and thrive in their areas as they do not usually get to keep all the business rates that would result in this (perhaps one of the many reasons behind Britain’s low growth). Local authorities are perhaps better placed to understand local needs than people who spend most of their time in Central London. Local elections continue to suffer from low turnout and voter apathy – perhaps people would care more about these if they had more of an impact on people’s lives.
So, should we therefore move much more towards a system of local authorities being able to levy their own taxes and make their own decisions? I would argue that if this is what we want we also need to consider what happens in the small number of cases where a local authority has got into serious difficulties. If we want more localism we can’t choose to just have this when things are fine, we would also need to have it when things are going badly. If a local authority does not want Westminster to set the rules, but expects Westminster to foot the bill when it is really in trouble, is this really a fair system?
Currently in every instance of a local authority issuing a Section 114 notice or otherwise getting into serious financial difficulties central government has intervened in some way: commonly by lending money to the local authority to enable it to still function, but also by directly appointing commissioners, instigating reorganisations or putting in place other restrictions. Local authorities benefit from this both for the individual local authorities involved and in the wider confidence in the sector brought about by the implicit support of the UK Treasury.
If local authorities do not want as much intervention from central government what other options are open to them when they can’t pay their bills? One is to raise council tax by more than 4%, as is currently being actively considered in Thurrock, Slough and Croydon. This might well not be felt to be very fair on the residents of these areas, but it is also more localism because the local authority is paying for its own costs more. Bailing out these Councils is also not fair on all the other residents of the UK, who didn’t get a say in voting for the Councillors.
If local council taxes cannot or will not be raised by enough to fill the gap, without central government intervention it is hard to think of another solution that does not involve the local authority either no longer undertaking their essential functions or defaulting on their debts. ‘Going bust’ in the common parlance. Closing the schools, not fixing the traffic lights, and stopping the provision of adult social care, taxi licencing and all the other services that are essential to society being able to function is not really a credible option. Whilst a UK local authority going through insolvency and defaulting on its debts would require a change in the law, it is certainly not a theoretically impossible concept and it has happened in other countries. Like a person who goes bankrupt, a municipality can continue to exist after bankruptcy – it’s mainly its creditors that lose out because they won’t get their money back. The biggest creditor to local authorities is central government, however. Should the PWLB lending facility be disbanded, local authorities will be more reliant on issuing bonds and receiving loans from the wider market (like they do in other countries). If we want local authorities to be less reliant on central government this would certainly be a step in this direction.
Suggested reforms of business rates, whilst welcomed by many, has also been met with concern mainly form the authorities in less prosperous regions on the UK that would lose out. If local authorities are more reliant on raising their own money it is certainly conceivable that this will lead to wealthier regions of the UK having wealthier local authorities and poorer regions having poorer local authorities. If we think this is unfair and we want a more redistributive system then this means more central government intervention and less localism. The current levelling up agenda involves more redistribution from wealthier areas to poorer ones, so it is going against the localism tide.
To be clear here I am not calling for local authorities being allowed to go bust and for the PWLB lending facility to be abolished. I think most local authorities in the UK do not want these things to happen. What I am saying is that there are difficult choices involved in giving local authorities more autonomy and that the bad needs to be considered with the good. If more localism is what we want it has to be all weather localism.