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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What other British cities can learn from the Tyne & Wear Metro

A Metro train at Monument. Image: Callum Cape/Wikipedia.

Ask any person on the street what they know about Newcastle, and they’ll list a few things. They’ll mention the accent; they’ll mention the football; they’ll mention brown ale and Sting and Greggs. They might even mention coal or shipbuilding, and then the conversation will inevitably turn political, and you’ll wish you hadn’t stopped to ask someone about Newcastle at all.

They won’t, however, mention the Tyne and Wear Metro, because they haven’t probably heard of it – which is a shame, because the Metro is one of the best things the north-east has to offer.

Two main issues plague suburban trains. One is frequency. Suburban rail networks often run on poor frequency; to take Birmingham for an example, most of its trains operate at 30-minute intervals.

The other is simplicity. Using Birmingham again, the entire system is built around New Street, leading to a very simple network. Actually, that’s not quite true: if you’re coming from Leamington Spa, Warwick, Stourbridge, Solihull or a host of other major minor (minor major?) towns, you don’t actually connect to New Street – no, you don’t even connect to the ENTIRE SYSTEM BUILT AROUND NEW STREET except at Smethwick Galton Bridge, miles away in the western suburbs, where the physical tracks don’t even connect – they pass over each other. Plus, what on earth is the blue line to Walsall doing?

An ageing map of the West Midlands rail network: click any of the images in this article to expand them. Image: Transport for the West Midlands/Centro.

But Newcastle has long been a hub of railway activity. Tragically, the north-east has fewer active railway lines than any other region of the UK. Less tragically, this is because Tyne and Wear has the Metro.


The Metro was formed in 1980 from a somewhat eccentric collection of railways, including freight-only lines, part of the old Tyneside Electrics route, underground tunnelling through the city centre, track-sharing on the National Rail route to Sunderland, and lines closed after the Beeching axe fell in the early 1960s.

From this random group of railway lines, the Metro has managed to produce a very simple network of two lines. Both take a somewhat circuitous route, the Yellow line especially, because it’s literally a circle for much of its route; but they get to most of the major population centres. And frequency is excellent – a basic 5 trains an hour, with 10 tph on the inner core, increasing at peak times (my local station sees 17 tph each way in the morning peak).

Fares are simple, too: there are only three zones, and they’re generally good value, whilst the Metro has been a national leader in pay-as-you-go technology (PAYG), with a tap-in, tap-out system. The Metro also shares many characteristics of European light rail systems – for example, it uses the metric system (although this will doubtless revert to miles and chains post-Brexit, whilst fares will be paid in shillings).

 

The Metro network. Image: Nexus.

Perhaps most importantly, the Metro has been the British pioneer for the Karlsruhe model, in which light rail trains share tracks with mainline services. This began in 2002 with the extension to Sunderland, and, with new bi-mode trains coming in the next ten years, the Metro could expand further around the northeast. The Sheffield Supertram also recently adopted this model with its expansion to Rotherham; other cities, like Manchester, are considering similar moves.

However, these cities aren’t considering what the Metro has done best – amalgamated local lines to allow people to get around a city easily. Most cities’ rail services are focused on those commuters who travel in from outside, instead of allowing travel within a city; there’s no coherent system of corridors allowing residents to travel within the limits of a city.

The Metro doesn’t only offer lessons to big cities. Oxford, for example, currently has dire public transport, focused on busy buses which share the same congested roads as private vehicles; the city currently has only two rail stations near the centre (red dots).

Image: Google.

But it doesn’t need to be this way. For a start, Oxford is a fairly lateral city, featuring lots of north-south movements, along broadly the same route the railway line follows. So, using some existing infrastructure and reinstating other parts, Oxford’s public transport could be drastically improved. With limited engineering work, new stations could be built on the current track (blue dots on the map below; with more extensive work, the Cowley branch could be reinstated, too (orange dots). Electrify this new six-station route and, hey presto, Oxford has a functioning metro system; the short length of the route also means that few trains would be necessary for a fequent service.

Image: Google.

Next up: Leeds. West Yorkshire is a densely populated area with a large number of railway lines. Perfect! I hear you cry. Imperfect! I cry in return. Waaaaaah! Cry the people of Leeds, who, after two cancelled rapid transit schemes, have had enough of imaginative public transport projects.

Here’s a map of West Yorkshire:

Image: Google.

Here’s a map of West Yorkshire’s railway network:

 ​

Image: West Yorkshire Metro.

The problem is that all of the lines go to major towns, places like Dewsbury, Halifax or Castleford, which need a mainline connection due to their size. Options for a metro service are limited.

But that’s not to say they’re non-existent. For example, the Leeds-Bradford Interchange line passes through densely populated areas; and anyway, Bradford Interchange is a terminus, so it’s poorly suited to service as a through station, as it’s currently being used.

Image: Google.

With several extra stops, this line could be converted to a higher frequency light rail operation. It would then enter an underground section just before Holbeck; trains from Halifax could now reach Leeds via the Dewsbury line. The underground section would pass underneath Leeds station, therefore freeing up capacity at the mainline station, potentially simplifying the track layout as well.

 

Image: Google.

Then you have the lines from Dewsbury and Wakefield, which nearly touch here:

Image: Google.

By building a chord, services from Morley northwards could run into Leeds via the Wakefield line, leaving the Dewsbury line north of Morley open for light rail operation, probably with an interchange at the aforementioned station.

Image: Google.

The Leeds-Micklefield section of the Leeds-York line could also be put into metro service, by building a chord west of Woodlesford over the River Aire and connecting at Neville Hill Depot (this would involve running services from York and Selby via Castleford instead):

The path of the proposed chord, in white. Image: Google.

With a section of underground track in Leeds city centre, and an underground line into the north-east of Leeds – an area completely unserved by rail transport at present – the overall map could look like this, with the pink and yellow dots representing different lines:

Et voila! Image: Google.

Leeds would then have a light-rail based public transport system, with potential for expansion using the Karlsruhe model. It wouldn’t even be too expensive, as it mainly uses existing infrastructure. (Okay, the northeastern tunnel would be pricey, but would deliver huge benefits for the area.)

Why aren’t more cities doing this? Local council leaders often talk about introducing “metro-style services” – but they avoid committing to real metro projects because they’re more expensive than piecemeal improvements to the local rail system, and they’re often more complex to deliver (with the lack of space in modern-day city centres, real metro systems need tunnels).

But metro systems can provide huge benefits to cities, with more stops, a joined-up network, and simpler fares. More cities should follow the example of the Tyne and Wear Metro.