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Caroline Spelman: Giving local government the freedom to innovate and prioritise

Speech to New Local Government Network conference on local government finance

"Thank you for inviting me to speak today and particularly to the organisers, NLGN and Neil Stewart Associates.

I think we would all agree that any discussion about local government finance has to be seen in the context of the Lyons Report.

So, I'd like to start by setting out our thinking on the Lyons Report.

There is much in Lyons with which we agree. The report confirmed what both Labour and my own Party have been saying about the failings of local income tax as an alternative system.

In particular the report confirmed that Local Income Tax is not necessarily a fairer system, and it simply transfers more of the tax burden onto the working population without addressing the driver of council tax inflation in the first place.

I would add that the degree of equalisation required with Local Income tax also means it ceases to be really 'local' in any meaningful way, and the variability of the income base will make long term financial planning very difficult for Town Halls - both of these are true of a local sales tax as well.

The upshot is that Council Tax is the best, or 'least bad' system on offer. As Ruth Kelly rightly said "no tax is ever going to win a popularity contest".

But Lyons did identify problems which have to addressed - not least the level of it, and the impact that has on people with fixed incomes like pensioners.

Lyons rightly focuses on the issue of council tax benefit and the appalling take up rate.

In the words of Age Concern:

"Council tax benefit is still the most unclaimed benefit of all, with up to 2.2 million older people missing out on up to £1.4bn each year."

One reason could well be that the application form is 40 pages of intrusive questions which actively deter a proud generation of pensioners .

Another reason could well be the term 'benefits' - it has a particular connotation which will put off the elderly.

Sir Michael Lyons advocated the use of the word 'Entitlement' which confers greater dignity.

We need urgent action to make sure pensioners get the council tax reduction they are entitled too.

Lyons advocates a council tax reduction being made automatic, but the public experience of automated tax credits has been poor and such a system would have to be robust to avoid the trauma of overpayment and claw-back which has marred the tax credit system.

Improving take-up of council tax benefit would be a step in the right direction, but there remains the rest of the council tax paying population who are struggling with bills which have doubled in the last ten years.

The fact is public tolerance for council tax rises is running out and certainly on my part we are opposed to measures which will take it up further.

And that is a further reason why introducing charging at a time when people are smarting from above inflation council tax increases is unrealistic.

The Burt Review in Scotland surveyed opinion and found that most people did not believe that any additional charging for local services would result in a decrease in council tax and nobody believed increased charging would bring about improved services.

We also disagree with Lyons' preference for not just 'a revaluation', but rolling revaluations. Annual revaluations will amount to a tax on home improvements - and when council tax was designed it specifically sought to avoid that.

I strongly believe there is no fundamental need for a council tax revaluation at this time.

The fact that current valuations are based on 1991 house prices is not a problem - the issue is not whether there was been house price inflation nor whether there is a north-south divide.

The purpose of a revaluation is to correct grossly disproportionate movements in comparative house prices compared to the 1990s snapshot.

In England, relative regional property price disparities are actually back at the same ratio as they were in 1991 - negating the need for expensive, disruptive revaluation and questioning the need for annual revaluation when they typical pattern of a house price surge begins with a boom in London which rolls out into the wider regions over a period of more than a year.

Revaluation itself doesn't come cheap - before the Government decided to delay revaluation the bill for a revaluation scheme was £178 million and rising.

And where it did take place in Wales, average bills went up by 9.1%, a figure which will be increased as transitional relief is phased out.

I don't believe a similar exercise in England is justifiable or affordable which is why we oppose it.

But in my view it's not enough just to oppose measures which will drive council tax higher, we need to carry on finding ways of mitigating the cost pressures.

Local Government has already been exceptional in that regard. It is worth saying that local government is the only part of government which has delivered on its Gershon savings.

That's no mean feat - and it seems particularly unjust to me that despite local government being one of the most prudent sections of government, decisions taken very often in Whitehall mean councils have no choice but to bring in inflation-busting council tax rises.

I want to change that so that council tax is more genuinely a reflection of the decisions taken by local councils and the spending priorities of the local community.

We've set out some ideas which will help that.

We want to see a significant reduction in the scope and cost of the bureaucratic tiers of local government inspection - we have previously pledged to abolish CPA and Best Value, and I suspect that its replacement - Comprehensive Area Assessment - will be similarly bureaucratic.

We want to phase out ring-fenced funding so that councils have more flexibility to direct funds to where local communities most want it spent.

And we want to bring an end to insidious practice of central government offloading unfunded cost burdens onto local government - something which has done more than almost anything else to drive council tax up.

I also believe we need to bring more clarity and objectivity to the way in which grant funding is allocated.

There is also considerable scope in enhanced two tier working. One of the only good things to come out of the Government's divisive invitation to restructure was the innovation shown in the enhanced two tier bids, and I think there is much to be gained from sharing best practice throughout local authorities.

None of these represent a silver bullet for the problem of council tax levels - but they are the beginnings of a general move on our part to bring council tax down to a sustainable level, and back under the dominion of local government.

If the political parties are serious about localism then we need to give local government greater discretion on how revenue is spent and greater local accountability for how much is raised.

As you may be aware, our big idea is for a complete step change in the way public money is spent locally.

This has been set out in the Sustainable Communities Bill, which for the first time will make transparent how much public money is spent in the locality.

As an MP I still find it astonishing that there is no single mechanism for finding out how taxpayers' money is being used in my constituency.

But not only would the amount of public spending be transparent, but the local authority would be granted discretion to change the way it would be spent.

So in effect, a local community could say "actually we don't want this money spent in a certain way, we would rather it was used to do something else."

I genuinely believe that the Bill gives real expression to localism and we will continue to explore other ways of devolving power to local government in a genuine push for decentralisation.

There are other challenges any party going into government has to address - perhaps paramount is the crisis in social care.

As you will know, the shortfall this year is £1.8bn. Across the country 90% of county councils had to exceed their budgets to fund social care.

One of the reasons is that over the past decade funding to the NHS has increased by 90%, but to local authorities who have to pick up the bill for social care it has increased by just 14%.

When looking at funding we have to move away from the notion that health care and social care are separate, or as David Cameron describes it:

"the artificial and damaging barrier between the NHS and social care services".

The impact is felt by families caught between meeting the costs of bringing up children and paying the top up fees for parental care.

Across the Shadow Departments we are spending a lot of time analysing the challenges of social and healthcare.

At our last Party conference we spent a morning discussing it on the platform with local authority leaders and social care practitioners.

There are no easy solutions, but I know we need more joined up, flexible and compassionate approach from central government.

Demographics, population movements, housing problems and NHS cuts all add to the challenge.

Some councils are doing really pioneering work at overcoming the challenges presented to them.

There are an increasing number of local authorities who have opted for the 'care trust model' where budgets are pooled between the NHS and the council and the aim is to provide a seamless service for the patient moving between the community and acute services.

A remarkable reduction in hospital admissions has been achieved using this vehicle but more importantly the patient doesn't not experience that drop down in care as he or she passes across the departmental divide.

That just shows me that so often it's the case that local government can actually teach national government rather than the other way round.

So perhaps one of the best things national government can do is to step back, and give local government the freedom it needs to innovate and prioritise.

That is why we are actively encouraging councils and groups to come forward with examples of new ways of improving the services they provide and even new services - not because we want a one size fits all approach because that is unlikely to work optimally everywhere - but because we want the cross-fertilisation of good ideas and the flowering of best practice which has hitherto proved difficult to achieve in an over-sized state."

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