The Budget reaffirms the need for fiscal freedom

By Bob Neill | 14 March 2017

  • Bob Neill

Last week’s Budget confirmed two things: first, that the chancellor is a pragmatist prepared to listen and make sensible adjustments based on the evidence in front of him. Second, that the arguments those with an interest in local government finance have been making over the years, especially around further fiscal devolution, should be redoubled. Allow me to explain.

Business rates have been a political hot potato for too long. This outdated model based on a notional estimate of rental values is easy to criticise. It is also easy to collect and, by 2020, will be the chief source of income for local authorities.

With budgets as tight as they are, it is no wonder there is a reluctance to rock the boat too much.

I have made no secret of my view that, in the short-term, a sliding scale of transitional relief is required to avoid the cliff-edge confronting many small, independent businesses (as we did with stamp duty) and in the long-term, a proper structural review is needed of the whole system to ensure it keeps pace with modern business practices.

Although I am partly disappointed no such shake-up was announced, I welcome the conciliatory approach the chancellor has taken.

The additional support which will be given to SMEs that find themselves over the threshold for relief is a step in the right direction and it makes good sense to earmark £300m to allow local authorities to provide discretionary help to individual hard cases in their area. The devil will be in the detail of the formula by which this is distributed to councils.

That said, will this £435m mitigation package really stretch that far across the whole of the UK? Probably not. The answer must be to go back to the drawing board, looking again at the logic, and fairness of a tax on bricks and mortar in an increasingly online economy.

Passing reference was given to finding a better means of taxing the digital part of the economy, but the sustainable solution must be to devolve a much wider suite of taxes to local government, along with further responsibility to enable local leaders to determine how they raise revenue in their area. In practical terms, this poses a number of questions, notably, is a single national valuation fit for purpose or would we do better setting rates locally to reflect local pressures?

It also reaffirms the need to look again at other taxes which can be localised in a cost-neutral way, the obvious choice being property taxes like stamp duty. That is further down the track but it is important that we look seriously at those options now.

My original premise holds true with the announcements on social care too. The chancellor has taken on board the concerns many of us have raised around the acute cost pressures all authorities currently face and the additional £2bn to help councils over the next three years fund adult social care will go some way to address these.

Local authorities must be put at the heart of that process. Anyone who has had some involvement in this area will know the health service has a silo mentality which often leads to an unwillingness to let go of the reins and share decision-making with their local authority partners. By comparison, local authorities have a culture of engagement and joint working which has developed over many years. The former must learn from the latter.

Clear direction must be given from Whitehall, enforcing a duty to co-operate between social service providers and clinical commissioning groups, as there is between local authorities in planning matters.

I was delighted to see that a memorandum of understanding has been reached on further devolution to London. This is a quiet nod to the groundwork laid by the London Finance Commission, sending positive signals that further powers will be granted across a range of areas, including criminal justice, health and social care, as well as to finding a new approach to funding infrastructure.

With this Budget the chancellor showed practical, costed and evidence-based cases will get a fair hearing. I suggest local government strikes while the iron is hot.

Bob Neill MP is former local government minister and now chairs the Commons Justice Select Committee

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