Three reforms needed to tackle the crisis in local government finance

Birmingham Town Hall. Image: Very Quiet/Wikipedia Commons.

New research published in the Times on 8 February highlighted the scale of the funding crisis facing many councils across the country, with nine out of ten councils expected to be millions of pounds over budget by the end of the year. This followed the decision that week by Northamptonshire County Council to issue a Section 114 notice, meaning that it will introduce no new spending except on statutory services for vulnerable people – the first such notice issued in nearly 20 years.

In part, the situation in Northamptonshire is a result of poor financial management and political leadership. But this failure – and the struggles that other councils face – also reflects a decade of relentless tightening of local government finances. Many cities have seen cuts of nearly 50 per cent to central government funding since 2010, considerably more than the cuts that other parts of government have faced.

Moreover, it highlights the limitations of a local government funding system dependent on central government for income and for balancing the books, rather than being able to grow their income independently. If the only tool a city has to balance its budget is a knife, then all we’ll see are cuts.

Offering piecemeal bailouts or fiddling around the edges of the system, as the government has done in recent years, is not the answer. For cities to have stable finances and prosperous local economies, they need the tools to raise revenues with taxes that support sustainable economic growth.

So what should the government do to make the local government system stable and sustainable?

1. Revalue and devolve council tax

Regressive both nationally and locally, the failure to revalue council tax since 1992 means that it does not reflect the wide differences in economic gains seen across the country since then. Relative winners are homeowners in the South with more valuable homes and higher salaries, while those in the North where wages and assets have not grown so much carry a disproportionate load. For example, a £1m home in London is taxed to nearly the same amount as a £100k home in Sunderland. As a tax on home values, it fails on its terms.

To address this problem, there should be annual revaluations, and local authorities should have the power to introduce new bands and vary rates freely. This would support new development, and would enable local leaders to address budget issues by raising revenue rather than by simply cutting.


2. Reform the business rates system to make it more responsive to local economic conditions

This is the only tax of its kind in the UK where the amount raised is determined before the rate is decided. As such, even if the number of companies paying rates increases, the amount of business rates raised does not go up.

As our recent briefing on business rates devolution shows, one damaging effect of the current system is that it favours building more floor space in large developments – often in out of town areas – over improving and expanding the value of office space in city centres, where higher knowledge firms often seek to locate.

This has implications for economic disparities across the country. Cities in the North with an already large share of low skilled jobs are incentivised to attract more big new distribution sheds, when they really need to secure more high skilled jobs to grow their economies. Introducing annual revaluations would make the business rates system more reflective of increases in rents, not just increases in floor space. This would sharpen the financial incentives for cities to invest in and support the transport networks, high quality office space, and public realm that high-knowledge firms and workers are looking for.

3. Pooling finance at city region level

In UK cities, people live and work across multiple local authority boundaries. Over 50 per cent of people commute into a different local authority to work.

And different areas play different roles within cities, some more commercial (most often those in the centre) and others more residential (more likely the surrounding areas). This affects the levels of council tax and business rates raised across different authorities within the same city, and creates a divide over where business rates are raised and where the workers contributing to these rates use services.

Pooling at the city region level would help to improve the stability of local finances by diversifying and broadening the tax base. Doing so would also improve how big decisions are made within a city region about where to build commercial or residential space. Under the current system, councils within a city are understandably driven to boost their local tax base through new development. Pooling would help to secure higher absolute levels of council tax or business rates revenue across a city by putting it where it is most needed at that more representative scale.

In the current system, other councils may manage to avoid having to follow the example of Northamptonshire. But without this fundamental reform, we will see more cities cutting down on the activities they fund – which will be bad news for their economies, and for the people living in them.

Simon Jeffrey is a researcher and external affairs officer at the Centre for Cities, on whose blog this article first appeared.

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It’s not all cool bridges and very real concerns: In defence of Teesside

Just one of the many interesting bridges you’ll find in Teesside. Image: Stephen Jorgensen-Murray.

The latest entry in our ‘In Defence Of’ series...

I have to start this with a disclaimer: I’m not writing this from anywhere in Teesside. I’m writing this from Germany, where I live and work. Some of you may remember being told by Norman Tebbit, that instead of complaining that we can’t find jobs, we should get on our bikes (or, more recently, by IDS to get on a bus), and I did. I’m paid well here, to do a job that doesn’t really exist in Teesside. And yet, every time I go home to visit my family, I almost wish I’d stayed.

This isn’t going to be a very straightforward take – I’m hoping to pay my respects to Stockton, Middlesbrough and Hartlepool as well as my native Billingham – but Teesside isn’t a very straightforward place. What county is it in? Cleveland, Stockton-on-Tees, Durham or North Yorkshire depending on how old you are and where you’re standing. I always had great fun ordering online and trying to guess which of the unfamiliar options on the dropdown menu would get my parcel to me.

But regardless of where you draw the lines, Teesside is still there.

Our accent is similarly hard to pin down: Geordie, Mackem, Yorkshire, even Scouse, depending on who’s imitating us. I’ve been pegged as Irish, American and South African by determined people in the past. Our slang is stolen from Scotland, Northumberland, Newcastle and Yorkshire, and, not satisfied, some words are purely our own. Hoy, shan, howay, dinner nanny. We have as many words for classless people as the Romans did for murder.

But regardless of how it sounds to you, Teesside still talks.


On a map of the UK, Teesside sits as an isolated blob of civilisation between the Dales and the sea. Half-urban, half-rural, half-seaside, half-inland, half industrial estate and half nature reserve. A Labour heartland with a Tory mayor. Places that sprang up fully formed in the ICI rush of the 1950s, but that still have Viking place names.

We’ve been portrayed in fiction by Richard Milward, in song by Maximo Park, in statistics by Lady Florence Bell and in cinema by Sir Ridley Scott (our chemical works and power plants inspired the look of Blade Runner). More recently, we’re being portrayed in documentary in The Mighty Redcar, and in the media as an area of left-behind, white working class racists who all voted Leave. But while most of the area is whiter than the average, Middlesbrough mirrors the UK average for racial diversity and has been assigned to resettle more refugees than any other town in the UK – and more than its cut-back council can look after.

And when you look at the numbers, the proportion of the population of Teesside who voted to leave the EU is much less than many other areas. (And yes, of course I voted Remain from my now slightly more precarious home in Frankfurt, joining 100,000 other Teesside Remainers.)

We’re pitied for the loss of the Teesside steelworks and derided for blaming the EU for it (when of course it was our own government’s sabotaging of EU attempts to block Chinese steel dumping that drove that knife in). Even the people who profess to be on our side take our angry, uneducated racism as fact, baking it into the premises of their arguments, which consist of addressing our “racist but real concerns”, and how to reach us.

But whether you understand us or not, whether you miss the point or not, we’ll continue to exist, long after we’ve been forgotten again.

Billingham town centre. One of the first pedestrianised town centres in the UK. Image: Stephen Jorgensen-Murray.

Still, while we’re in the spotlight, why not see what we have to offer? Come to see our rather wonderful collection of interesting bridges. See where the first public steam train ran, from Stockton to Darlington. Visit Mima, the modern art gallery in Middlesbrough and the 1960s utopia of Billingham’s pedestrianised town centre. Feel slightly uncomfortable around all the things that are named for Captain Cook (though the replica of the Endeavour at Stockton riverside is impressive regardless on your thoughts on its captain – and it’s the best you’ll see until they work out whether they’ve found the real one yet). Wander Middlesbrough’s thriving student/hipster district on Linthorpe RoadD – despite being a punchline during my youth, Teesside University has become a respected institution. Visit Billingham’s Folklore Festival in August, where as schoolchildren we’d watch troupes of folk dancers from across the world open-mouthed, and get their autographs afterwards as though they were celebrities.

Fried chicken, white sauce and cheese make the Teesside parmo. Perfect. Image: Stephen Jorgensen-Murray.

Try a parmo. Try the Billingham Catholic Club’s real ale, and stay for the bingo, which is called by a man with the most acrobatic mental arithmetic skills I’ve ever seen. Try a lemon top ice cream from Pacitto’s in Redcar and wonder why no one else has ever done this before. Lemon sorbet and vanilla ice cream! Together at last!

While you’re at the beach, take a ride on the Saltburn Cliff Lift, the oldest operating water-balance cliff lift in the UK. Pretend Saltburn is sort of in Teesside while you’re enjoying the view. Look out on beaches black with sea coal, washed up from undersea seams and nearby coal mines. Visit the golf course by Seaton Carew to catch a glimpse of a curlew or two, and watch the young seagulls pick up golf balls to crack them open by dropping them from a great height. Visit Seal Sands, whose owners can be observed lazing on the estuary banks whenever the tide is out. Or visit Saltholme, the RSPB nature reserve, where you can see avocets, Britain’s weirdest-looking and most beloved seabird.

Nature coexists with industry on Teesside. Image: Stephen Jorgensen-Murray.

Go white water rafting, bell boating or paddleboarding at the Tees Barrage, where there are so many seals that they’ve had to put up guards to keep them out of the way. The Tees used to be too polluted even to support salmon and trout, and now we have too many of one of Britain’s largest native mammals. The return of the seals to the Tees was the first documented case of seals returning to an industrial area. You’d be surprised at how well nature can thrive in the shadow of industry, colonising the quiet fields and marshy ponds on private land that are never disturbed, haunted by sika deer and shelducks, redshanks, knots, stonechats.

Teesside has plenty to offer. What it doesn’t have is the jobs to keep its younger generations from having to get on their bikes and leave. We aren’t aliens, or Jacob Rees-Mogg’s army of goblin henchbrexiteers. We’re just like you, but with more seals and fewer employment opportunities.