It is hard to imagine a Government nowadays taking enough interest in local government to commission a wide-ranging inquiry into its future role and funding. That is exactly what Gordon Brown did when he was chancellor – in advance of a General Election that never happened – tasking former Birmingham City Council chief executive Sir Michael Lyons with the job.
Brown was looking for a long-term solution to the issues facing local government. The resulting 407-page report, launched in 2007, laid out the concept of place-shaping, a roadmap to financial reform and a new relationship between Whitehall and town hall, based on clear responsibilities and greater devolution.
In turn Sir Michael said councils must ‘embrace the wider place-shaping role, further strengthen engagement with those they serve, and establish themselves as unequivocal champions of value for money’.
Given the current financial predicament facing councils, it is hard to avoid the question: would we be in this position if the Lyons recommendations had been fully implemented?
The MJ recently convened a panel of experts who agreed most of the proposals in the report have yet to see the light of day, although some key reforms have been enacted.
As Rob Whiteman, chief executive of the Chartered Institute of Public Finance and Accountancy, said: ‘This was perhaps the most important review in my professional career. The first thing that strikes me is that there was a review at all.’
The Lyons inquiry attempted to create a path towards a new constitutional settlement between central and local government, defining the functions and funding needed.
Sir Michael still believes ‘a pathway for more radical change is still needed’.
To Sally Burlington, deputy chief executive of the Local Government Association and a former member of the Lyons Inquiry team, there has been an impact. ‘Place-shaping was coined by Sir Michael in the report, and we still use it. We draw on a lot of concepts in the original report which are very much part of our lexicon – the phrases, analysis and wording are still with us.
‘We talked a lot about convening and the modern approach to service delivery especially in health and care and SEND. We talked about co-production, now more common in service delivery.’
For Martin Reeves ‘everything has changed and yet nothing has changed. In the intervening years, we have seen recession, Brexit, a pandemic and wars and local government continues with ‘a lack of change around business rates, council tax, devolution and very little fiscal devolution’.
‘For the local government sector in many ways nothing has changed. We’ve never seen such an existential threat to sustainable funding and yet no central/local relationship,’ he suggested.
Whiteman is strident: ‘Had the full set of measures been implemented we wouldn’t be in the pickle we are now.’
To Kingston LBC chief executive Sarah Ireland ‘the review is a missed opportunity’ but it is not too late: ‘Much of it is still relevant’.
On funding, Burlington said: ‘We’ve seen partial localisation of business rates and that’s a significant change considering how difficult it is to change any tax system.’
She added: ‘The overall funding situation facing local government has got worse with an even tighter control of performance which doesn’t feel like it’s reduced despite the Audit Commission no longer existing.’
Whiteman said: ‘Local government is in a bit of a financial mess so tourist taxes and business rate localisation [proposed in the review] all seem very relevant.’
He added: ‘For children and adult services it seems a different world now as they’re such a major financial pressure, more so than then.’
Sir Michael recalled Greg Clark, later local government secretary, said he thought the review was an important piece of work. Sir Michael told The MJ panel: ‘Some of it was picked up under the Coalition, like business rate localisation… but there’s no appetite for making council tax fairer because of its impact on London.’
However, he stressed there are losers in the current system, especially the poor, and the burden is getting bigger. ‘There’s also an argument for the part assignment of income tax [to local government].’ He argued: ‘The Office for Budget Responsibility should oversee financial reforms in local government.’
Whiteman also called for an ‘independent arbiter’ for finances, as distribution has become ‘so politicised’.
Burlington added: ‘We need a single pot of money, not different pots, and multi-year settlements [proposed in the review]. The wicked issues are as intractable as ever and statutory duties take up more and more resources.’
Support for fiscal reform was universal. Ireland said: ‘We’ve become more of a safety net for the vulnerable with some places having huge demand and others less, though the funding isn’t equitable and equalisation is overdue’.
While David Phillips, of the Institute for Fiscal Studies, added: ‘The need for council tax reform is greater with a reduction in help for the poor. The system of equalisation has been allowed to atrophy.’
Reeves suggested: ‘Structural inequalities have got worse since Lyons; we need to reshape the economic future and stop chasing pots. Place-shaping has tended to focus on physical change like regeneration rather than funding.’
There was scepticism about the pace of devolution since the report. To Whiteman ‘there are traces of devolution but substantial devolution feels further away than it did then’.
He argued for devolution by default: ‘Everything should be devolved unless the state reserves it… the abolition of the Audit Commission has led to a weakness in public audit with the debate skewered by a few councils. The vast majority of councils are well managed but the argument for devolution has been undermined by the actions of a few.’
What about the postcode lottery? In his review Sir Michael said ‘people would welcome greater – but managed – difference if this accorded with local needs and priorities.’
Reeves told the panel a good mix was ‘variation with managed differences linked to strong local politicians’ and ‘choices must not be absent from the Oflog datasets.’
So should there be an updated review? Whiteman proposed: ‘We should encourage the Government to set out what they think the outcome would be if they do another review: set out a radical direction then ask for a review on how to do it.’
For Burlington, it is the art of the possible. ‘Do we go for a grand vision or focus on what can be done?’ To Reeves ‘local government is determined to create the conditions that lock in opportunities and that’s what we should argue for – how do we create a fairer society?’
Ireland added: ‘We need a conversation about what local government can do, bearing in mind social services is sucking up the money. There are lots of opportunities as we showed during Covid.’
Sir Michael proposed an emphasis on the positive saying: ‘Let’s assume we have a Government which recognises how broken things are. The first starting point is where local government is strong already such as in promoting economic growth, tackling homelessness and social care.’
He recommended an approach to government as a partner offering help. ‘I believe the argument must be that local government will help you, and leave the finances issue under the table,’ he said, adding: ‘In other words: ‘Don’t scare the horses.’
The view from Andy Haldane
Andy Haldane, chief executive of the Royal Society of Arts, has thought long and hard about the financially precarious situation local government finds itself in. The former chief economist of the Bank of England and head of the levelling up taskforce was co-chair – alongside Bristol Mayor and Core Cities chair Marvin Rees – of the Urban Futures Commission He spoke to The MJ and Sir Michael Lyons in advance of the round table and was clear the financial picture for councils now was ‘more precarious and less fair’ than in the days of the Lyons Review, writes Heather Jameson.
‘Further bites have been taken out of local government,’ Haldane told The MJ, ‘and the costs are plainly still being felt. One of the places this has manifested itself is local government focusing on services at the expense of wider investments, the cost of which is being felt in the place. Investment in social infrastructure and public realm seems to be the poor relation.’
That is why the final report of the Urban Futures Commission, launched in September, was not just about finding a fair funding formula, but a ‘more root and branch’ solution to funding based around place-making and covering economic, social and environmental goals – the fabric of place. ‘We were clear: you have to build a national growth strategy from the bottom up,’ he said.
That would require a significant rebuilding of people capacity and big financial investment, which could only come from the private sector. And a broader ‘prosperity mandate’ would need to be enshrined in statute for local government.
‘We need to intensify the debate about local taxation as well as local spending powers,’ Haldane explained. But it is perhaps not as much of a closed door as it once was.
Directly-elected mayors are now in a position to trailblaze, to ask for a range of powers that would likely be granted. And, Haldane added: ‘There’s more scope to think about what taxation they may require.’
However, he recognised the ask from local government needs to be more than calling for handouts. Levelling up secretary Michael Gove, he suggested, would be far more ambitious for the sector, given the chance.
While he admitted the commission was ‘core city-centric’ he added that ‘the model I had in mind was thriving cities as a conduit for thriving city regions… [making sure] the potential was unlocked on the periphery,’ he said. ‘That’s why intra-city connectivity is so important.’
When it comes to taxation, the RSA chief suggested change was ‘essential’. ‘Could something less crazy be done in housing taxation?’ he asked. ‘Good heavens, yes!’
He is less optimistic about the prospect of land taxes. When dealing with the Government, he claimed the first question you need to answer for the Treasury is: ‘What’s in it for us?’
Finally, there is the issue of accountability, an ‘essential’ part of the puzzle that needs to be fixed. For any fiscal devolution, Government will require checks and balances, as well as clear explanations of who is responsible for what.
But, with financial pressure intensifying, Haldane was clear. Something needs to happen to resolve local government funding.
Round table participants
Sally Burlington, deputy chief executive, Local Government Association, former member of the Lyons Inquiry team
Sarah Ireland, chief executive, Kingston LBC
Sir Michael Lyons
David Phillips, head of devolved and local government finance, Institute for Fiscal Studies
Martin Reeves, chief executive, Oxfordshire CC
Rob Whiteman, chief executive, Chartered Institute of Public Finance and Accountancy
Heather Jameson, editor, The MJ (chair)