Local government – 20 years of bad decisions and here we are

by | 14 Feb 2024

The inevitable clash between central and local government over the ill-conceived Council Tax freeze was entirely predictable. Conflict for the foreseeable future is too - unless we finally act to reform local democracy.

It took well under 48 hours from me writing that the Scottish Government “better be planning a clever way out of their Council Tax freeze, at the very least as a contingency” before it became increasingly clear that this is going to be a predictably giant political headache for this administration.

Is this serious, why is it happening, why didn’t the Scottish Government see this coming and what can be done about it? Let me try to provide you with some answers to these questions.

First, is it serious? Yes. I am a long way away from being uncritical of local government which can be just as arrogant, centralised, wasteful and manager-led as the Scottish Government – but that does not mean I’m going to equivocate on local government finances. They’re grim. Not England grim, but moving rapidly in that direction.

There is a lot of shenanigans going on around the various calculations of whether local government is being treated fairly by the Scottish Government but it can’t hide the fact that no other major area of government has had its funding slashed so much in the last decade. Nor is it anything other than clear that, over this period, new responsibilities and burdens have been dropped on them. As well.

This combination of underfunding and dumping more responsibilities on them without additional funding has, after ten years, really left local authorities in a perilous financial state. I had a specific council’s plans for budget-saving cuts leaked to me two weeks ago and it is really brutal. For many communities, things like access to a swimming pool or a library are going to become something their parents tell them about, like when you could smoke on airplanes.

So this is a serious issue and the Scottish Government’s spin isn’t going to change that. Why is all this happening? The proximate cause all comes down to terminally bad policy-making, but we’ll get to that. The more fundamental cause comes down to three things.

Thing one – the continual underfunding of local government. This is not only a Scotland problem and not only an SNP problem because everywhere you look governments that can pull more money and more power towards themselves do it. There aren’t many non-centralising governments.

But Scotland is already horrendously centralised and the SNP is woefully centralising. This means not only that funding keeps getting cut (local government almost always comes bottom of the winners and losers table at a Scottish budget) but that central government maintains its rather arrogant and patrician attitude towards local government.

There is a culture in Scotland which assumes that all the money is Holyrood’s and if they give you some you ought to be grateful for whatever you get. The idea that public funding is not something wholly controlled from the top is alien to us.

Desperate for something to announce in an otherwise empty conference speech they went for pathetic, cheap tax bribes which weren’t properly considered, weren’t properly costed and weren’t properly negotiated

Thus local government is overwhelmingly reliant on hand-outs and only about 20 per cent of its funding is its ‘by right’ – and taking that small amount of autonomy away from local government is what the Council Tax freeze is about. That’s thing two; its not just lack of money, it’s lack of control, lack of power.

Centralised funding diminishes and the local authorities get strong-armed out of doing anything about it, leaving council’s skint and powerless to do anything about it. Which takes us to thing three – the fact that local tax in Scotland is dreadfully unfair.

Remember, the Council Tax was introduced by a Tory Secretary of State who was very hostile to local government and was seeking revenge for the role of local authorities in scuppering his beloved Poll Tax. Everyone knows our local government set-up is a problem and that its system of taxation is barely justifiable. Every political administration of the devolution era has promised to do something about it.

But none of them do, because in truth they don’t care enough and they don’t want to roll their sleeves up. That’s why when you ask them ‘do you think it’s fair that poor people have to pay five times as much in Council Tax than rich people are we’re all paying tax on the basis of house prices from 1993′ they say ‘no, that needs reformed’. Then they hum and haw and do as little as they possibly can.

Labour imposed more and more ring-fencing on local government, reducing local control over resources further. The SNP rightly reversed this and promised a Council Tax replacement, but the price for this was an enforced Council Tax freeze (a fairly generously funded one – at first). But it didn’t replace the Council Tax and the enforced tax freeze became a tourniquet, tightening and tightening and cutting the lifeblood of funding from local government.

That was the Salmond era, and Sturgeon came in also promising Council Tax reform but Sturgeon, more than any other leader I can remember, was contemptuous of any decentralised control. She presided over the least generous treatment of local government in the devolution era and ducked the promised replacement for Council Tax (in that most Sturgeon of ways, adding a band at the top which was the least she could do to say she did something).

So here we are – desperate local authorities are about to rebel. But how did the Scottish Government not see this coming? Beats me – someone ought to lose their job over this. Everything about the genesis of this policy is truly, truly terrible. Desperate for something to announce in an otherwise empty conference speech they went for pathetic, cheap tax bribes which weren’t properly considered, weren’t properly costed and weren’t properly negotiated.

This is as bad as it gets in public policy. Everything about this is as amateur hour as its possible to get. When I suggest someone should lose their job, there really isn’t any excuse for this, right up to the top. Running government like this isn’t within the broad ballpark of acceptable.

If there is one thing this Council Tax freeze debacle confirms its that Scotland’s democracy could do with a hefty dose of growing up

Every inch of pain the Scottish Government receives over this is not only deserved but entirely self-inflicted. But that doesn’t help us, so what do we do about it? Since it’s a three-part problem I’d suggest a three-part solution.

First, there needs to be a deal cut with our existing local authorities. They themselves are far too centralised and Scotland is woefully in need of proper local councils. But the existing ones also need to be more powerful and much more self-reliant.

So that’s the deal – local authorities would accept proper decentralisation to create a new layer of genuinely local democracy (at the town level) and in return they’d get financial autonomy. Common Weal went through a long process of devising an effective version of the former and proposed the creation of development-focussed councils (as opposed to administratively-focussed) and called them Development Councils.

There are then different ways to achieve the second part, but the easiest is just to make a significant cut in income tax at the national level to about the size of the local government block grant, remove that grant altogether and then allow local authorities to replace that money with local tax-raising. That gives them their funding by right, but they’ll then be wholly answerable to their electorate for their decisions.

(Just a wee note – you can’t actually remove all the central government funding because there needs to be some form of redistribution mechanism to support local authorities in poorer areas which have lower tax take, but central government’s role should be restricted to that.)

But you certainly don’t want to replace income tax (very progressive) with Council Tax (dreadfully regressive), so you need to replace it. There is a very good care for maintaining a tax on housing and property (which I won’t rehearse here), but that tax should also tax land. That’s why Common Weal proposes moving to an entirely proportional Property Tax system which taxes you as a proportion of the current value of any property you hold in land and buildings.

Is that sufficient? To fund the whole of local government only from a property tax puts an awful lot of weight on that tax, so I’d suggest not. There are then lots of options, but a local income tax would be a good bet, along with properly devolved business rates. There is a case for making the local income tax consistent (you can set variable local income tax but it is a lot harder to administer).

So the local income tax rates could automatically be set at the same as the national rates (basically an assigned tax) and local variance would be in the property tax and potentially the business rates.

Like I say, there are other ways to do this. But this should be our destination – local authorities which raise their own finance insulated from the centralising tendencies of central government, but in turn forced into a more decentralised system themselves, funded by a basket of taxes of which a new property tax should be central.

It would force everyone to grow up – First Ministers would no longer be able to pull nursery school-level stunts like the Council Tax freeze and local government would no longer be like a whining child asking for more screen time. Both would be kept off each other’s territory and left to answer for their own actions without the public being caught in between in a fight for your affections.

Because god knows if there is one thing this Council Tax freeze debacle confirms its that Scotland’s democracy could do with a hefty dose of growing up.

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