The stench of unfinished business: how George Osborne’s financial reforms pose a threat to local government

A perfectly normal picture of George Osborne. Image: Getty.

The year is 2015. Local government minister Kris Hopkins is asked to explain the growing gaps between council’s spending powers. He answers by claiming the government has been fair to all parts of the country, concluding: “There is no magic money tree.”

Amidst all the unfortunate political developments of the last few years, the entry of this phrase into the popular lexicon is particularly depressing. Deployed liberally by commentators to whom sorcery, macroeconomics and botany are all patently perplexing, its prolific spread belies its analytical redundancy.

Where it does come into its own is as a tool of political doublethink – as can be seen in the matter of council expenditure. Hopkins raised the spectre of mystical foliage, knowing the formulation of local government finance left some authorities languishing under the weight of austerity (Knowsley was over £400 per head worse off at this point compared to 2011) while others had seen their spending power miraculously increase (like Elmbridge in Surrey). But it was wheeled out anyway: relieving the stragglers was unfeasible, anyone saying otherwise was a spendthrift.

Financial inequality between councils was a problem two years ago. Now disparities in their revenues are well into the realm of the ridiculous, and running further apart all the time. The question is: why?

Coalition cuts had been eating away at council budgets long before 2015. But, after the Conservatives gained a slim majority that year, the issue took on a new intensity. This can all be traced back to then-Chancellor George Osborne, two elections and (roughly) four jobs ago, when he came up with a bold scheme to overhaul local government funding.

His plan was to empower councils by allowing them to set and keep 100 per cent of business rates. The only downside to this sweet deal was that the Revenue Support Grant, worth £18bn, would be phased out over the following five years. It was all part of Osborne’s devolutionary bonanza against the backdrop of the fabled Northern Powerhouse.


A few problems stuck out with this scheme. In the short run, it would very likely cement existing inequalities between councils. Poor authorities rely the most on central grants, rich authorities contain wealthier businesses – thus the latter would rake in revenues while the former’s ebbed away.

To tackle this problem, a system of top ups and transfers remained in place to make up shortfalls for poorer councils. But these would be frozen, reducing their value over time and allowing already growing councils to tear ahead. In the longer run, the new setup could spark a race to the bottom as councils competitively cut rates in an effort to attract enterprise, piling further pressure on balance sheets.

Despite these drawbacks, it was a system that would have gone some way towards remedying the UK’s status as one of the OECD’s most centralised nations. But when Osborne eloped to the Evening Standard, he left a most unpleasant stench behind him: the stench of unfinished business.

By June of this year councils found themselves in limbo. Fiscal devolution was missing from the post-election Queen’s Speech (although there have been some pilot schemes), but cuts to central grants remained on schedule. Whether this is attributed to incompetence or pure evil, the result is the same: almost half of councils will receive no central funding by 2020, leading to a black hole estimated at £5.8bn by the Local Government Association.

On top of everything else, Brexit looms largest over particularly impoverished areas. Investment from European structural funds, worth around £8.4bn between 2014-20, have been thrown into doubt. The Treasury has promised to match all pre-Brexit investment agreements on the dubious condition that they are “in line with UK priorities”. Presumably these are only the most important and essential priorities, like shoving hundreds of millions at Conservative authorities to ease the pain of funding cuts as in 2016.

With the poorest councils most reliant on grants, inequality between authorities will deepen significantly without decisive action. Does Theresa May even know all this is going on? Between leaving the EU and trying not to get stabbed in the back, she has plenty of other worries occupying her time. Assuming she finds a spare moment and/or some political astuteness, how might she deal with the impending crisis?

One choice would be to get on with the reforms as they were initially intended: not ideal, perhaps, but at least allowing councils to keep their business rates would get the ball of devolution rolling again. This could be an important precursor to reversing unchecked inequality.

Empowering councils to borrow to deal with their most pressing problems (like housing) or promoting local finance initiatives like community banks would do more to put authorities on an even footing than piecemeal proposals like fiddling about with council taxes (which still disproportionately benefit wealthier areas).

Alternative inspiration could come from abroad. In Sweden, a redistribution grant kicks in whenever a local authority’s takings fall below a set threshold, partly funded by the highest earning areas. In France, large cities are in charge of their own transport provision, funded through specific business taxes. Firms’ contributions therefore give them a direct stake in infrastructural development. The Centre for Cities’ Beyond Business Rates report suggests different areas could use such powers to deal with local challenges – for example, housing in London and Oxford.

A more comprehensive solution would be out-and-out federalism. Highly unlikely, but potentially appealing: just imagine how much more time the Cabinet could spend on not sorting out Brexit if prosperity was a completely devolved matter. Giving regions complete control over their own affairs would at least mean the government could stop bothering with changes which manage to be both trifling and Kafkaesque.

None of these options are perfect. But all have a lot to recommend them, when the alternative is simply forgetting you were in the middle of overhauling local government funding, the Conservatives’ current strategy of choice.

The magic money tree is very much alive, contrary to Hopkins’ claims (and unlike his political career). It is burgeoning in Britain’s richest councils thanks to coalition cuts and two years of haphazard reform. These reforms need to be seriously reexamined, and soon – or the poorest areas will take the biggest hit.

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Was the decline in Liverpool’s historic population really that unusual?

A view of Liverpool from Birkenhead. Image: Getty.

It is often reported that Liverpool’s population halved after the 1930s. But is this true? Or is it a myth?

Often, it’s simply assumed that it’s true. The end. Indeed, proud Londoner Lord Adonis – a leading proponent of the Liverpool-bypassing High Speed 2 railway, current chair of the National Infrastructure Commission, and generally a very influential person – stood on the stairs in Liverpool Town Hall in 2011 and said:

“The population of Liverpool has nearly halved in the last 50 years.”

This raises two questions. Firstly, did the population of the City of Liverpool really nearly halve in the 50 year period to 2011? That’s easy to check using this University of Portsmouth website – so I did just that (even though I knew he was wrong anyway). In 2011, the population of the City of Liverpool was 466,415. Fifty years earlier, in 1961, it was 737,637, which equates to a 37 per cent drop. Oops!

In fact, the City of Liverpool’s peak population was recorded in the 1931 Census as 846,302. Its lowest subsequent figure was recorded in the 2001 Census as 439,428 – which represents a 48 per cent decline from the peak population, over a 70 year period.

Compare this to the population figures for the similarly sized City of Manchester. Its peak population also recorded in the 1931 Census as 748,729, and its lowest subsequent figure was also recorded in the 2001 Census, as 392,830. This also represents a 48 per cent decline from the peak population, over the same 70 year period.

So, as can be seen here, Liverpool is not a special case at all. Which makes me wonder why it is often singled out or portrayed as exceptional in this regard, in the media and, indeed, by some badly briefed politicians. Even London has a similar story to tell, and it is told rather well in this recent article by a Londoner, for the Museum of London. (Editor’s note: It’s one of mine.)

This leads me onto the second question: where have all those people gone: London? The Moon? Mars?

Well, it turns out that the answer is bit boring and obvious actually: after World War 2, lots of people moved to the suburbs. You know: cars, commuter trains, slum clearance, the Blitz, all that stuff. In other words, Liverpool is just like many other places: after the war, this country experienced a depopulation bonanza.


So what form did this movement to the suburbs take, as far as Liverpool was concerned? Well, people moved and were moved to the suburbs of Greater Liverpool, in what are now the outer boroughs of the city region: Halton, Knowsley, St Helens, Sefton, Wirral. Others moved further, to Cheshire West & Chester, West Lancashire, Warrington, even nearby North Wales, as previously discussed here.

In common with many cities, indeed, Liverpool City Council actually built and owned large several ‘New Town’ council estates, to which they moved tens of thousands of people to from Liverpool’s inner districts: Winsford in Cheshire West (where comedian John Bishop grew up), Runcorn in Halton (where comedian John Bishop also grew up), Skelmersdale in West Lancashire, Kirkby in Knowsley. There is nothing unique or sinister here about Liverpool (apart from comedian John Bishop). This was common practice across the country – Indeed, it was central government policy – and resulted in about 160,000 people being ‘removed’ from the Liverpool local authority area.

Many other people also moved to the nearby suburbs of Greater Liverpool to private housing – another trend reflected across the country. It’s worth acknowledging, however, that cities across the world are subject to a level of ‘churn’ in population, whereby many people move out and many people move in, over time, too.

So how did those prominent images of derelict streets in the inner-city part of the City of Liverpool local authority area come about? For that, you have to blame the last Labour government’s over-zealous ‘Housing Market Renewal Initiative’ (HMRI) disaster – and the over enthusiastic participation of the then-Lib Dem controlled city council. On the promise of ‘free’ money from central government, the latter removed hundreds of people from their homes with a view to demolishing the Victorian terraces, and building new replacements. Many of these houses, in truth, were already fully modernised, owner-occupied houses within viable and longstanding communities, as can be seen here in Voelas Street, one of the famous Welsh Streets of Liverpool:

Voelas Street before HMRI implementation. Image: WelshStreets.co.uk.

The same picture after HMRI implementation Image: WelshStreets.co.uk. 

Nonetheless: the council bought the houses and ‘tinned them up’ ready for demolition. Then the coalition Conservative/Lib Dem government, elected in 2010, pulled the plug on the scheme. 

Fast forward to 2017 and many of the condemned houses have been renovated, in a process which is still ongoing. These are over-subscribed when they come to market, suggesting that the idea was never appropriate for Liverpool on that scale. 

At any rate, it turns out that the Liverpool metropolitan population is pretty much the same as it was at its peak in 1931 (depending where the local borough boundaries are arbitrarily drawn). It just begs the question: why are well educated and supposedly clever people misrepresenting the Liverpool metropolis, in particular, in this way so often? Surely they aren’t stupid are they?


And why are some people so determined to always isolate the City of Liverpool from its hinterland, while London is always described in terms of its whole urban area? It just confuses and undermines what would otherwise often be worthwhile comparisons and discussions. Or, to put it another way: “never, ever, compare apples with larger urban zones”.

In a recent Channel 4 documentary, for example, the well-known and respected journalist Michael Burke directly compared the forecast population growths, by 2039, of the City of Liverpool single local authority area against that of the combined 33 local authority areas of Greater London: 42,722 versus 2.187,708. I mean, what bizarre point is such an inappropriate comparison even trying to make? It is like comparing the projected growth of a normal sized-person’s head with the projected growth of the whole of an obese person, over a protracted period.

Having said all that, there is an important sensible conversation to be had as to why the populations of the Greater Liverpool metropolis and others haven’t grown as fast as maybe should have been the case, whilst, in recent times, the Greater London population has been burgeoning. But constantly pitching it as some sort of rare local apocalypse helps no one.

Dave Mail has declared himself CityMetric’s Liverpool City Region correspondent. He will be updating us on the brave new world of Liverpool City Region, mostly monthly, in ‘E-mail from Liverpool City Region’ and he is on twitter @davemail2017.