OPTIONS PAPER 6: EMPOWERING LOCAL GOVERNMENT

Local government is the foundation stone of our democracy. It is closest to people’s daily concerns and probably the best understood. This report asks if it is time for a renewed social contract between local government and people; and what might be the elements of such a social contract. 

Local government has been deliberately and catastrophically hollowed out which has resulted in many councils being on the brink of collapse. Local authorities have suffered a 50% cut to their budgets since 2010. Fourteen councils have issued Section 114 notices, effectively declaring themselves bankrupt.  

This usually results in unelected officials taking over and selling land, farms and buildings like libraries and locally owned theatres, draining reserves and the ability in the future to provide services. 

A new government provides an opportunity to take a breath and review the state of local democracy and decision making. It is time to think what the future of local government should look like.  

It is generally recognised that we have a highly centralised state with powers and resources taken from local people by central government. Local government has had its financial and decision-making powers so diminished that it can barely even provide the basic statutory duties, never mind the services that make community life exciting and pleasurable. Libraries have been closed; investment in the arts, environment and community organisations has been cut; much to the incomprehension and fury of residents.  

There has been a power struggle between national and local government that has resulted in the desecration of local democracy. National government has increasingly taken upon itself powers and responsibilities for running services that should be the remit of local government, including education through the establishment of academies.  

The crisis in local funding has resulted in dangerous levels of debt amounting to almost £100 billion. The high-profile problems in councils like Birmingham and Nottingham are not unique and many local authorities are facing similar challenges. Two thirds of many councils’ discretionary spending is on social care for adults and children, leaving little for all the other services that local people expect. 

In October 2024 groups representing all 350 local authorities wrote to the Chancellor saying that any reduction in funding would be disastrous and action was needed to stablise resources to protect services. The letter stated that councils faced a funding gap of £2.3 billion in the coming year. The Chancellor was urged to provide a substantial and sustainable increase in funding. 

At the same time as decimating local government, the previous government took steps to devolve powers to metro mayors, including increased budgetary responsibilities and control over some local transport. The investment at this strategic level appears to be broadly popular and the Labour government is increasing mayoral powers and budgets. The metro mayoral model has worked well providing a visible head to coordinate local councils. London is an exception with an idiosyncratic structure that urgently needs review from the voting system to the lack of a proper scrutiny power for local government. 

The structural landscape is complicated with several layers of councils and no consistency over the regions. Whilst there is an argument to say that not every region should be governed in exactly the same way, for example the people of Bristol rejected the mayoral model, there are however, too many layers in some areas which duplicate and confuse powers. 

The immediate and urgent question is how to fund local democracy. There have to be some quick measures put into place to deal with the emergencies in some councils, but in the long term a new settlement is needed which has cross party support so that it is not easily undone by a future government. We suggest some solutions to both problems. 

Option 1: Reform the council tax 

A reformed property tax which is based on a redistributive system is a fair way of funding local services. 

Reform of the property tax could come in stages. The first step should be to increase the number of bands in the council tax which would bring in additional funds from some of the wealthier residents. 

A review of council tax should be carried out. It is an anachronism that when local authorities build new housing the value has to be assessed using the formula from 1990. Council tax values should be assessed every three years to keep them up to date and to be seen to be fair. 

Councils should be able to vary tax bands so that those with the most expensive properties contribute more. A super-bank from wealthy areas could be redistributed. One of the problems at the moment is that the amount people pay, bears little relation to the services they receive as most funding is swallowed up in statutory duties like child protection and adult social care. Increasing budgets could allow more flexibility and accountability to provide arts, community and other investments. 

Option 2: A new financial settlement 

Central government has a crucial and essential role in overseeing a fairer distribution of funding to local government which has, traditionally, been deeply inequitable. 

The challenge would be radical reform rather than piecemeal. We need to find a fairer way of generating funding for every local authority. Financial settlements must be for at least three years and preferably for five years to enable a move away from short-termism. 

One suggestion made to the Commission was for central government to redistribute two percent of income tax to local councils. 

Business rates urgently need to be reformed to encourage expansion of retail and hospitality and other enterprises. 

Option 3: New income ideas 

The financial crisis being faced by local councils is forcing them to consider new ways of raising income. Having to ask permission from central government to increase council tax above 5% hobbles their ability to raise money from local taxation. It could be up to local people how much tax they pay to support local services.  

One of the funding options being proposed is road pricing. As national income from fuel duty and road tax reduces due to the increase in electric cars, local income could come from a levy on road use that might also help to reduce congestion and pay for road repairs. A levy of 1p per mile for all cars, including electric cars, increasing to 4p per mile for lorries could be imposed, assessed annually at the MOT and paid in the same way as road tax. 

A tourism tax has been discussed for some years as it works well in other countries. A tax on short term rentals, common in other countries, could be imposed. Such income could be shared across geographical areas. 

Option 4: Energise local democracy 

Local councils need to be given additional powers so they can co-ordinate local services like health and transport and can incorporate planning, particularly on large developments with these services. This will mean they can represent local people better. Devolving power might mean that there will be increased differences in the quality and type of services but that should be seen as a positive. One principle that should be stressed is that the provision of services should not be a source of profit; local services should always be driven by the public good. 

Long term planning for local development should include the power to assess and decide on services such as schools, buses and links to the NHS. It is not possible to agree to the building of perhaps thousands of additional homes within an authority area when the council has no power to decide on the need for more GPs, clinics, school places and transport links. While the increased strategic power for mayors is welcome, decisions should also be devolved to the lowest possible level so that democracy is more dynamic and clearly understood. 

Elected leaders in local areas are best placed to develop economic growth, invest in education, public health, social care and other plans for local people. Examples from across the world show that devolved powers produce long term benefits and engage people in planning their services. 

Option 5: New powers 

Central government has taken upon itself powers that for generations had been the responsibility of local governments.  

The most egregious example is schools. Local people should be given back more power over their schools, and councils should have the power to coordinate services in primary and secondary education. This would complement the new government’s commitment to improving and increasing cultural and arts education. If academies are to retain some independence, their budgets could be top sliced so councils could share the money more equitably to support children with special needs and to do extra activities such as music and drama. Councils must be permitted to set up schools, and academies should be allowed to return to local control. 

New powers would facilitate inclusive growth that could complement tackling climate change through green energy schemes, better land use and home building. 

Option 6: Better scrutiny  

The abolition of the Audit Commission in 2015 was a mistake and a new body that provides scrutiny and standards urgently needs to be set up. A new organisation, independent of government, should carry out financial and effectiveness audits and publish the results. This body could coordinate local councils and provide expert advice so that unrealistic capital investment schemes are a thing of the past. It should provide training and guidance to councillors and leaders.  Such a body is needed to measure performance and to teach and share best practice. 

Consideration needs to be given to the training, remuneration and responsibilities of elected councillors. A council leader may be paid £40,000 and a councillor only £10,000 but are often required to work full time, and by contrast the chief executive may be on a salary of £250,000. 

Communities need to be reassured that their council is working efficiently and effectively for them. 

Note:

The Commission launched an inquiry into empowering local government at the beginning of 2024, but it was interrupted and delayed by the general election. We held a series of seminars with key experts and notes from the meetings are on the website. We benefited from written submissions from a range of organisations and individuals. This paper is a distillation of some of the ideas the Commissioners discussed which is felt merits consideration. 

2025