The Local Government Resource Review – shouldn’t we start talking about it?

July 29, 2011

Why aren’t we all talking about the Local Government Resource Review (LGRR)? The what you say?

The LGRR, according to the Coalition’s Terms of Reference:

“considers the way in which local authorities are funded, with a view to giving local authorities greater financial autonomy and strengthening the incentives to support growth in the private sector and regeneration of local economies.”

The main point is to reduce Councils’ dependence on central government grant funding and provide greater autonomy. So, localism, tick. The main constraint is that, if you upset existing grant arrangements without adding new money, some Councils will lose out. Major political risk, tick.

Make no mistake then, as dry as it sounds, this review could generate shockwaves of CSR proportions. And it’s imminent. Recommendations are expected in July, legislation in Autumn and implementation in 2013/14. There have even been bold claims of grant-free Councils by 2015.

Then why isn’t everyone talking about it?

Well for starters, the detail. Quite frankly, when the Formula Grant hits the agenda even the keenest FD must confess to a repressed yawn. Second, other priorities. The CSR is quite enough to contend with right now. And third, the timetable. Terms of reference were only published in mid-March so the media and the sector simply haven’t had time to process it and mobilise an effective response or lobby.

But the LGRR is coming and we must quickly recognise its potential impact and consider the key questions it raises.

A common expectation is that the current Formula Grant, which pools and re-distributes business rates based on need, will form a baseline funding level. Beyond this, going forward, Councils will receive a stake in any local business rate growth. But how much of a stake? Too big an interest would impoverish Councils with a lower and potentially diminishing business base. Too little would not generate innovative growth incentives. Next question, then … how would the remaining receipts, or even deficits, be re-distributed? Will there be a new mechanism? Will this be more transparent, needs-based, sub-national or politically owned, and what protection will transitional arrangements afford grant-heavy Councils? And, finally, how much freedom should Councils have around revenue-raising?

How each of the above is set up will result in hugely different outcomes for different Authorities. Nick Clegg’s proclamation that there will be ‘no losers’ is a distracting political platitude – put it this way, there will certainly be ‘winners’. And if we want to be one, we really must wake up to its threats and opportunities.

This is a genuine opportunity for localism. If it is not to be abused, there must be engagement with citizens to understand what greater financial freedom should mean – presumably not stacks of debt with no return! If the opportunity is not to be missed, we must also start to think of our business base as existing customers in a wider market. We must ‘know’ those customers and that market. And we must be smart in how we use that information to design effective incentives and influence behaviour. Most of all, though, we must realise that this is so much than a technical finance issue, it is a chance to take more control over our local future.

What is the LGRR, then? Well it could be many things, from another damp squib, to financial gerrymandering, to a triumph for local freedom. It ought to be within our power to decide. As Councils and citizens, we really should start talking about it now.

Alastair Thompson, Senior Consultant, and Ebony Brooker, Manager,

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