Budget 2012 and the Local Finance Bill: the case for redistribution?

23rd March, 2012 3:41 pm

Budget 2012: it’s hardly going to down in history as a landmark Budget for local government. No big giveaways and no big hits. You may think that Labour councils would be breathing a collective sigh of relief. Afterall, friends in Manchester will be welcoming the announcement of the City Deal for Greater Manchester, which intends to give new powers, including the ability to ‘earn back’ tax generated by investing in infrastructure to boost local growth. DCLG think this could amount to as much as £30 million a year of tax. These City Deals are being negotiated with eight core cities – six of which are Labour controlled councils*. Good news.

But it’s not the Budget that Labour local authorities are concerned about. It’s the financial reforms that are proposed in the Local Finance Bill. The government’s political principles behind the reforms are intended to make local authorities less reliant on state funding and give them more financial autonomy. But if you turn this on its head, actually what you are look at is moving away from, and reducing the levels of redistribution that takes place. Redistribution is a vital part of the finance system for some Labour authorities.

One of the deals in the Bill is to enable local authorities to retain a proportion of the business rates generated in their area. Although the government states that there will be no overnight winners and losers from this; put in very simple terms, councils will get more money from business rates paid by new business and will get less money should businesses close down or move away from the council area. Whilst you can argue that this gives councils the incentive to encourage local economic growth, we know that it’s not that simple.

Some Labour council areas, like Greater Manchester, will be very positive about the potential for growth, but there are other councils that fear they will lose out. And it is easy to see why some Labour councils have cause for concern. When you look at the government distribution of cuts so far, for example in the Grant Settlement for 2011-12, it is clear that the impact has been very uneven. Councils in the north, metropolitan councils and districts have been hit very hard; the bottom 5th of councils in terms of deprivation had the largest cuts.

The measures in the Finance Bill could have a similar effect. The deals are going to benefit those councils where times are already good and there is a risk that the richest councils remain rich, with the greatest ability to attract business and gain additional resource, and the poorest councils remain poor, with limited ability to invest in economic growth locally. And this brings us back to why redistribution is so important.

The principal factors in redistribution are the level of deprivation in an area and the relationship between the ability to raise finance locally, balanced against the demand for services. That is, those areas that have high deprivation and demand for services and limited ability to raise finance locally benefit from funding through redistribution from more prosperous areas. What this tends to have meant is that it has been Labour authorities that have been in receipt of redistribution. When you look at this deal on business rates in the Bill some Labour authorities could potentially lose out. Particularly in metropolitan centres in the north east and north west where redistribution is needed most.**

Some Labour authorities in these areas, with high deprivation and limited ability to generate new business, could be facing a real problem if the redistributive element of funding is cut. These councils will be carefully considering what this looks like for their position and how they are to move forward.

In the short term, councils need to be aided in finding a path through; innovation and risk taking should be supported. In the longer term however, the Party needs to develop a strong policy approach to local economic growth. Some on the Left have already started to look at this – Labour’s Business for example – but it needs to go further. Crucially, Labour in local government needs to be engaged – the area where Labour have power to take local economic policy forward now.

*Leeds, Liverpool, Newcastle, Nottingham, Manchester and Sheffield.

**Looking at employment figures, for instance, the 2010 English Indices of Deprivation tell us that of the top 20 most deprived areas, 18 of them are in the North East and North West. Of these 18, 17 of them are in Labour local authority areas. Regional Economic Performance Indicators published in May 2011, show that places like the North East and North West, predict that as a percentage of the adult population those expecting to start a business within the next 3 years fall below areas in other parts of the country – particularly London.

Laura Wilkes is a Policy Manager at Local Government Information Unit. She writes here in a personal capacity.

  • GuyM

    Anything that means less redistribution subsidy to prop up public sector non job dependent areas is a good step in the right direction.

    I see no reason why people in my area should be endlessly taxed to allow certain northern councils hide from economic realities.

  • Cllr Richard Livingstone

    Laura

    The problem with your argument is that it doesn’t address the issue of the councils who are amongst those hit hardest by the cuts but are well positioned to make gains from the retention of business rates.

    The 2012/13 settlement marks a 25% real terms cut in its total general revenue account budget that Southwark Council has faced since the General Election.  With further cuts coming down the track it is very difficult for Labour authorities like ours not to support something that enables us to at least cushion the impact of those. 

    Why should the benefits from developments like the Shard not contribute towards addressing the needs of a borough that still has severe deprivation in many areas? 

    These developments only breed resentment in areas of high need if it is not clear what benefits they are bringing to the local communities that they most impact on.

Latest

  • Featured News Labour plans to cap rents to give “Generation Rent” a more secure future

    Labour plans to cap rents to give “Generation Rent” a more secure future

    Ed Miliband has announced plans to cap private sector rents as part of a package of plans to help those living in the expanding private rented sector. The plans are pretty similar to those unveiled before last year’s European and Local elections (which I praised at the time). They’re also similar to the rent pledges pushed by Shadow Housing Minister Emma Reynolds back in February (which may suggest that the media gives a disproportionate amount of coverage to policies announced by party […]

    Read more →
  • News Tory Minister Eric Pickles compares Labour’s rent plans to bombing of cities

    Tory Minister Eric Pickles compares Labour’s rent plans to bombing of cities

    The Tories spent most of Friday falsely accusing Ed Miliband of saying something that he clearly didn’t saw over Cameron and Libya. And yet this evening one of their own Cabinet ministers has done something far worse of their own free will. Eric Pickles has compared Labour’s plans to make the private rented sector more affordable to the “bombing” of cities: Rent control appears to be the most efficient technique presently known to destroy a city except for bombing http://t.co/RYjvDO2MhD […]

    Read more →
  • Comment Europe Could Matteo Renzi be a model for a Miliband government?

    Could Matteo Renzi be a model for a Miliband government?

    With the general election drawing ever closer, it is important for the Labour leadership to examine the record of those centre-left governments across Europe that have managed, in the face of considerable economic difficulties, to put their social-democratic principles into practice. Doing so would not only provide a Miliband premiership with worthy models to emulate, but would also enable it to chart a progressive course in office, one that will allow Labour to realise a broad range of social justice […]

    Read more →
  • News John Biggs confirmed as Labour candidate for Tower Hamlets Mayoral by-election

    John Biggs confirmed as Labour candidate for Tower Hamlets Mayoral by-election

    After Tower Hamlets Mayor Lutfur Rahman was barred from office and booted out by the courts last week after being found guilty of corruption, it was confirmed that a by-election will take place for the role. The date of that by-election is June 11th, and Labour’s candidate – as expected will be John Biggs (the Labour candidate in the 2014 Mayoral race). Responding to the news, Biggs said: “I am delighted to have been confirmed as Labour’s candidate. Tower Hamlets must now […]

    Read more →
  • News Scotland Gordon Brown warns of second Scottish referendum risk

    Gordon Brown warns of second Scottish referendum risk

    Gordon Brown has been hitting the campaign trail hard in Scotland over the past few days, and he’s in Elderslie today, backing Shadow Foreign Secretary (and former Brown aide) Douglas Alexander in his Paisley and Renfrewshire East seat. Few would have expected that Alexander’s seat would be on the line a few months ago – or that Brown would play a potentially crucial role in this election – but that’s where things stand today. In a speech this morning, Brown was […]

    Read more →
Share with your friends










Submit