Councils need radical thinking at a time of crisis

By Professor Richard Murphy | 12 April 2022

Local authorities face another crisis as 2022 develops. After a decade of austerity and then the onslaught of COVID, now there is a deliberately created poverty crisis for local authorities to deal with right across the UK.

It can be argued that the inflation the UK is currently facing is not the responsibility of the Government. Instead, it is quite easy to show that the increases in oil, gas, domestic energy and food prices are almost entirely due to a speculative activity in commodity and financial markets. The result will be a massive increase in profits to be enjoyed by a very small part of any community. In contrast, poverty will increase for, in my estimate, at least half the UK’s households as they struggle to make ends meet.

If it is easy to point out that the inflation we are suffering is not the Government’s fault, the failure to address the issues arising from that inflation are its fault. The Government is choosing not to impose windfall taxes on those enjoying speculative gains from worldwide shortages. Simultaneously, it is refusing to increase financial support to those already in poverty, and those who will fall into it. Significantly, with inflation now expected to reach 9%, the apparently generous current settlement for local authorities has turned out to represent a major erosion in its purchasing power. Just as significantly, the Government has undermined the integrity of local taxation by using it to deliver a poorly targeted support mechanism for those in need of help with their energy bills.

What can the leaders of local government do in the face of these multiple crises that have been imposed upon it, all of which will be compounded as cuts in disposable income lead to job losses and business closures in most communities? I suggest that radical thinking is required. The moment when token gestures might do has gone and local authorities of all political persuasions now need to cooperate to tackle the crises they face.

The response has to relate to finance. I suggest that the time has come for local government to pioneer new sources of funding and demonstrate their credibility to central government at a time of national crisis.

In particular, in a country where there are £8.4 trillion of financial wealth, and national income is well over £2trn a year, it is not possible to argue that there is a shortage of money in our society. Wealth, in particular, has grown in value by 84% (or £3.8trn) over the last decade, whilst property has increased in value by £2.1trn (61%) while wages have effectively stood still, only increasing by inflation for most people, or 31% over the same period. Savings have grown disproportionately in that case.

Nor can it be claimed that there is a shortage of what is described as ‘government’ or ‘taxpayer’ money to pay for government services when over the last two years the Government has, as a matter of fact, required that the Bank of England create £400bn of additional, new, money using the quantitative easing (QE) process to make settlement of the costs arising from the COVID crisis without ever having to ask for additional funding from taxpayers or the financial markets.

Increases in wealth, which are the savings of only some in society as they are unevenly distributed, and money creation plus taxes on wealth could in that case provide the funding required to meet social need at present, although money creation is not possible for local authorities.

In this case there are four things that local authorities could be doing. First, they could be petitioning for increases in council tax, provided by higher or additional bands, to reflect increasing property worth.

Second, they could be petitioning to reduce council tax burdens on those likely to have the most punishing cost of living increases at present.

Third, councils must look at how they can increase the prosperity of their region, working in particular on the ideas implicit in the circular economy, or doughnut economics as espoused by Kate Raworth. The Preston model is an obvious example to work from.

Some boldness, initiative and a little risk is involved in all these proposals. But if a moment when mass poverty that might well induce a recession is not the occasion for risk taking, what is? Council leaders are only in their roles to effect change. This is the moment to deliver it.

Richard Murphy is professor of accounting practice, Sheffield University Management School, a chartered accountant and an economic justice campaigner


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