The state and local government

By presenting Mayors as a decentralising measure, Gordon Brown would finally have a substantive policy response to the English Question, which has arisen as a result of (asymmetric) devolution to Scotland and Wales. Mayors might not answer the West Lothian Question – a reference to the ability of Scottish MPs to vote on English matters – but by enabling England to be administered in a far less centralised fashion they would significantly improve the way England is governed, something which is likely to be of greater concern to the public.

They also argued that:

If the government is bold it will make mayors a centrepiece of its forthcoming Empowerment White Paper, which at a stroke would make politics matter in places far removed from London. If local government is smart it should back them, since once in place mayors have the potential to unleash a further devolutionary momentum’.⁵⁴⁷

The White Paper Communities in control: real people, real power published on 9 July 2008 indicated that the government ‘want to make it easier for people to demand that their local leaders move to establishing a directly-elected mayor through a referendum’ and that they will consult on: ‘permitting on-line petitioning as well as traditional paper petitions to demonstrate support for a referendum’; and ‘reducing the threshold for a petition to trigger a mayoral referendum from five per cent of voters – perhaps to two, three or four per cent.’ ⁵⁴⁸ The White Paper also proposes removing the ‘stipulation that no referendum may be held for 10 years if a referendum is lost’ and moving to ‘a system where a new referendum may be held after four years in these circumstances.’⁵⁴⁹ And – to ‘make the move to a directly-elected mayoralty more attractive to local politicians’ – ‘directly-elected mayors…would chair the Local Strategic Partnership and, be the new Crime and Policing representative…’.⁵⁵⁰

Hence, as Professor George Jones and Professor John Stewart predicted in June 2008:

The government…is contemplating favourable financial resources or additional powers for authorities which adopt the model. Such an approach is wrong, in principle, treating local authorities differently according to their decisions on internal management – best described as bribery – to get what the government wants.⁵⁵¹
Jones and Stewart also note that: ‘It is strange that the IPPR, advocate of community empowerment’, argues that US-style directly-elected mayors ‘should be imposed not merely on local authorities but also on their citizens’. And they refute the assumption of the NLGN, IPPR and the New Labour government that ‘there must be individual leadership rather than collective or team leadership’ because ‘collective leadership can explore policy from different perspectives, and consider possible impacts of policy in a variety of contexts, spotting pitfalls ahead and the consequences for different people and groups’. Jones and Stewart also show that the New Labour think-tanks and government’s assertion that US-style directly-elected mayors ‘lead to better performance than other authorities’ is false: since they ‘produce no evidence comparing them’, and the government’s own Audit Commission comparisons of performance – the Comprehensive Performance Assessment (CPA) – indicate that there is nothing special about performance in authorities with US-style directly-elected mayors. For example, analysis of the CPA scores of London, metropolitan and unitary authorities shows that three of the nine authorities with US-style directly-elected mayors are four star – 33 per cent – while the other authorities without such mayors have 35 per cent with four stars.⁵⁵²

However, despite their rigorous analysis, Jones and Stewart are silent about the way in which New Labour’s community empowerment rhetoric deflects attention from its neo-liberal agenda: that is, to maximise US-style executive mayors with cabinets – the optimum internal management arrangement for privatised local government services. Similarly, as noted in Chapter l, the December 2008 Communities in control: Real people, real power Changing Council Governance Arrangements – Mayors and Indirectly Elected Leaders consultation paper – despite the grandiose exhortations throughout to ‘strengthen participatory democracy’ and ‘deliver genuine empowerment to local people’ – is mainly about making it easier to introduce US-style executive mayors.⁵⁵³

The Birmingham Mail 2007/08 petition campaign for a referendum on a US-style executive mayor - even though Chris Game was their “expert” adviser⁵⁵⁴ - failed to force a referendum to be held: because they only collected 10,000 signatures within the year instead of the 35,000, as shown in Table 7.2, required under the present regulations.⁵⁵⁵ The latter
made under the Local Government Act 2000 provide that in order to trigger a governance referendum petitions must be supported by a number of electors that is greater than or equal to five per cent (known as the threshold) of the number of local government electors for the council’s area shown in the electoral register…[and] any signatures over a year old are invalid’.⁵⁵⁶
Table 7.2 also shows that – even with the two per cent threshold under New Labour’s current proposals – the Birmingham Mail would still have been 4,000 signatures short of the required 14,000 signatures: but with on-line petitioning this threshold would be much easier to achieve.
Table 7.2: The effect of reducing the threshold across a range of electorate sizes for mayoral referenda petitions

Local Government electors	5%	4%	3%	2%
700,000	35,000	28,000	21,000	14,000
500,000	25,000	20,000	15,000	10,000
300,000	15,000	12,000	9,000	6,000
150,000	7,500	6,000	4,500	3,000
100,000	5,000	4,000	3,000	2,000
50,000	2,500	2,000	1,500	1,000

Source: Department for Communities and Local Government, 2008d, p. 14
The Tory green paper published in February 2009 proposed compulsory referendums on US-style executive mayors in Birmingham, Leeds, Sheffield, Bradford, Manchester, Liverpool, Bristol, Wakefield, Coventry, Leicester, Nottingham and Newcastle upon Tyne:
We will legislate to hold a referendum in England’s twelve largest cities on having an elected mayor. In these cities, a mayoral system will be established unless voters reject that change.⁵⁵⁷

This proposal – together with one to ‘make the police accountable to a directly-elected individual who will set policing priorities for local communities’⁵⁵⁸, which would open the way for political groups, such as the fascist BNP, to hijack local oversight of the police⁵⁵⁹ – was included in the Conservatives’ 2010 general election Manifesto and the Queen’s speech on 25 May 2010. But was ‘unlikely to be welcomed by Mike Whitby – the Conservative leader of Birmingham City Council’ – who ‘has opposed calls for a referendum on whether to introduce a mayor’.⁵⁶⁰ Whereas Nick Hope and Nirmalee Wanduragala – who acknowledge that ‘the mayoral agenda has stalled’ in New Model Mayors (NMM) published in January 2010 by the NLGN – state:
We…welcome the recent consultation by the Government into the option of directly elected mayors for city-regions and the announcement from the Conservative Party that they will legislate to hold mayoral referendums in England’s twelve largest cities. However, we are disappointed that the Government consulted on ways to make it easier for people to demand that their local leaders move to establishing a directly elected mayor through a referendum, but dropped these proposals from their legislative programme.⁵⁶¹
Though at no point does NMM mention that the Tory proposal is for compulsory mayoral referendums in the 12 largest English cities – no doubt because its co-authors also ‘suspect…the existing political structures will prevent further change from occurring voluntarily’.⁵⁶² Moreover, compulsory mayoral referendums are now the agreed policy of the Tory-LibDem coalition government.⁵⁶³

NMM’s proposals centre around two key elements: ‘the addition of ‘primaries…. to select mayoral candidates’ and ‘additional powers and tools for all elected mayors’ plus ‘additional powers’ for ‘city-region mayors’⁵⁶⁴: which, as Table 7.3 shows, recommends ‘a devolution of power to mayors…a “gold” tier for local authority mayors and a “platinum” tier for city-region mayors….to incentivise individual councils to adopt the mayoral mode’.⁵⁶⁵ NMM also urges the government ‘to implement the reforms on mayoral referendums as set out in the 2008 Local Government White Paper in full at the earliest possible opportunity’ (see above)⁵⁶⁶; and suggest it ‘legislates for the creation of city-region leadership options at the earliest opportunity’.⁵⁶⁷
Table 7.3 NLGN’s recommended powers for ‘gold’ and ‘platinum’ tier mayors

	Platinum (City-region)	Gold (upper tier)	Gold (districts)
The financial flexibility to balance budget over the 3 final years of a term, instead of being limited by in-year balancing	YES	YES	YES
The creation of a single capital investment pot for the area, so that all relevant monies are pooled and control over spend maintained by the mayor	YES	NO	NO
The power to introduce a supplementary business rate of up to + or – 4p, with any extra funds raised to be spent on economic development within the locality as deemed best by the mayor	YES	YES	YES
Permission to use TIF mechanism through the establishment of an ADZ[a]	YES	NO	NO
Ability for mayor to appoint or dismiss Chief Executive, giving the council an advisory role but the final decision to rest with the Mayor	YES	YES	YES
The automatic right of the mayor to chair or to appoint a chair on his or her behalf of the LSP[b]	NO	YES	YES
Similar transport powers to those that the Mayor of London currently enjoys, in particular to have a say in local transport provision within the authority’s boundaries through chairing (or the nomination of chair) of the local transport body	YES	NO	NO
The introduction of a new post of Police Commissioner, with the Mayor taking up this position or appointing a councillor to this position	YES	YES	NO
The power of appointment for the position of PCT Chief Executive and in addition power to nominate one person to sit as a non-executive member on the board of the PCT[c]	YES	YES	NO
Alignment of PCT priorities with local Mayoral health priorities	YES	YES	YES
Responsibility, powers and funding for 14- 19 and adult skills	YES	YES	NO
The formation of a statutory Employment and Skills Board, chaired by the Mayor or a representative of the Mayor, to devise strategy	YES - with statutory powers	Seat on board rather than chair	Seat on board rather than chair
Fast-tracked to a devolved commissioning model for welfare-to-work provision	YES	NO	NO
A seat in the second chamber of the Houses of Parliament	YES	NO	NO

[a] The Tax Increment Financing (TIF) model is currently widely used in America to allow local authorities to regenerate areas and pay for infrastructure by borrowing against future rises in tax revenue that are expected to arise from the development. In 2009 the British Government announced its intention to explore the Accelerated Development Zone (ADZ) mechanism of TIF. Under an ADZ, local authorities or sub-regions would be allowed to issue bonds and pay them back using the increased tax base resulting from the improved infrastructure. The 2009 Budget announced that the Government would explore the use of ADZs, requesting councils and sub-regions to put forward proposals for pilots as part of the exploratory process, with further announcements in the Pre-Budget Report (PBR) 2009. Despite responses from around 80 local authorities no further development has been seen in this area. The PBR 2009 simply stated that the Government ‘will continue to examine the framework that would be needed to implement tax increment financing and consider the primary legislation that would be needed if schemes were to be introduced’.

[b] Local Strategic Partnership

[c] Primary Care Trust

Source: N. Hope and N. Wanduragala, 2010, pp. 51-52

Hence to ‘reinvigorate democracy, increase interest in local issues and politics, and improve the representativeness of our leaders’, NMM proposes US-style “partisan open primaries” for the selection of candidates to be US-style executive mayors in which: ‘All people in the area regardless of party affiliation can take part in the selection of candidates in one party’s open primary’.⁵⁶⁸ This proposal is therefore consistent with the NLGN’s attacks on representative democracy, councillors and political parties since it was formed in 1996 (see Chapter 1). That is, instead of addressing the need to restore representative democracy in local government and in the Labour Party, which is the pre-condition for defeating the neoliberal clique who now control it, NMM’s proposal would further increase the marginalisation of members. Nor would you expect NMM to do so: since all the supporters of primaries it cites – Theresa May, as Chairman of the Conservative Party in 2003, David Cameron Leader of the Conservative Party in 2009, Tessa Jowell MP, Minister for the Cabinet Office in 2009 and David Lammy MP, Minister for Higher Education in 2009 – support the neoliberal policies of the private contractors who fund the NLGN. Following the Conservatives’ open primary in Totnes, moreover, there are plenty of other non-Tories hailing such wheezes as the definitive answer to the expenses controversy, and much more besides, such as David Miliband; and Labour MP Tom Harris (who wants to use some kind of mass national primary to select Labour’s next leader). But, as John Harris notes, such ‘anti-politics merely opens the door to millionaires and careerists’:
If primaries are pushed from Westminster constituencies, through mayoral contests and up to the election of national leaders, the importance of money will grow and grow….the US…primary system at least partly explains why, at the last count, at least 40 of America's 100 senators were millionaires. Donation-heavy incumbents are the sole candidates in the vast majority of congressional primaries - and if they are challenged, lobbyist-funded war chests of $500,000 plus are not uncommon….Even if British queasiness about mixing politics and cash led to some spending and donation caps [as NMM recommends P.L.], we would still move into an expensive new age of cold-calling, multiple mail-outs and unprecedented political advertising….courting the more reactionary parts of the press would often be crucial, and debate would always be in danger of being reduced to the currency of name and face recognition: as one British academic recently told me, ‘it's big money, or it's Arnold Schwarzenegger’ (or rather, Esther Rantzen).⁵⁶⁹
The detailed arguments against US-style local authority executive mayors provided in this chapter therefore apply even more to NMM’s proposals to further increase their powers and select them by “partisan open primaries”. That is, if implemented, NMM’s proposals – despite its “community empowerment” rhetoric – would:

• 
  Further increase cronyism, patronage and the potential for serious corruption by concentrating more power in the hands of one person.
  
• 
  Further remove the working class from this layer of local democracy by opening ‘the door to millionaires and careerists’ (John Harris).
  
• 
  Further increase privatisation of local government services by giving the mayor an ‘automatic right’ to ‘appoint a chair on his or her behalf’ of the Local Strategic Partnership, who would be unelected and is even more likely to be a privateer.
  
• 
  Further create an arena focused on personalities not politics (John Harris)
  
• 
  Further reduce voter turnout and support, as the aim of the New Labour and NMM proposals is ‘to incentivise individual councils to adopt the mayoral mode’, by ‘treating local authorities differently according to their decisions on internal management – best described as bribery – to get what the government wants’ (George Jones and John Stewart).
  
• 
  Further reinforce the undemocratic mayoral voting system by moving into ‘an expensive new age of cold-calling, multiple mail-outs…unprecedented political advertising’ (John Harris) and compulsory referendums.
  
• 
  Further increase the possibility of the disastrous experiences in Stoke-on-Trent and Doncaster (also not mentioned by NMM) by increasing the financial and strategic powers of individual US-style executive mayors who - unlike collective leadership - cannot ‘explore policy from different perspectives, and consider possible impacts of policy in a variety of contexts, spotting pitfalls ahead and the consequences for different people and groups’ (George Jones and John Stewart).
  

These are the reasons why Chapter 14 of this study provides an alternative ‘socialist decentralisation’ (James Harvey and Katherine Hood) model for ‘local democracy’ and its finance – without US-style executive mayors and US-style primaries and based on direct provision of services and collective leadership by all councillors – instead of NMM’s and New Labour’s neoliberal ‘local governance’ model of individual leadership for outsourced privatised services.

Chapter Eight

Local government finance
This Chapter discusses local government finance during the three New Labour governments and the prospects for the future. Local government expenditure, as shown in Chapter 5, rose to 30.6 per cent of total government expenditure in 1964/65, peaked at 31.5 per cent in 1969/70, fell to 22.9 per cent by 1984/85; and was still only 27 per cent in 2007/08 for England, Wales, Scotland and Northern Ireland.⁵⁷⁰ To put local government finance into perspective, it also needs to be emphasised, as shown in Chapter 6, that only a small proportion of public spending in their area is controlled by local authorities. Most is spent by various unelected quangos, private contractors involved with the private finance initiative (PFI), and so-called third sector enterprises, such as local community and voluntary groups, registered charities, foundations, social enterprises and co-operatives. Moreover, New Labour accepted the recommendations of the Julius report: which proposed a considerable extension of the ‘outsourcing’ of services. Though, as also shown in Chapter 9, the banks are increasingly unwilling to finance PFI schemes because of British finance capital’s crisis. The first section therefore analyses local government income and expenditure (including the problems of the council tax); the second section examines the central state’s Comprehensive Spending Review and its impact on England, Wales and Scotland; and the third section discusses how local government came to have a significant part of its funds in Icelandic banks and their British subsidiaries, which have since collapsed. Orthodox reform proposals and socialist alternative systems of funding are discussed in chapters 12 and 13.
Income and expenditure
Table 8.1: Current and capital spending by local authorities in England and Wales, 2006/07 (£ billion)

	Net current expenditure	Capital expenditure
Education	38.0	3.442
Highways and transport	5.3	3.480
Social services	18.1	0.364
Housing	15.0	4.507
Police	11.7	0.531
Fire and rescue	2.2	0.126
Other services	13.3	3.858
Total	103.5	16.307

Source: Department for Communities and Local Government, 2008c, data for Chart K.2a, p. 3

Table 8.1 shows the total revenue (that is, current expenditure on pay and goods and services) and capital spending (that is, expenditure on buildings, computers, and vehicles etc., which are long-term assets) in England and Wales during 2006/07. Table 8.2 shows that about 60 per cent of English local authorities’ gross income in 2006/07 came from the central state, and the remaining 40 per cent from local sources, including council tax, charges, rents and capital receipts. Moreover, central state grants to local government, as a percentage of total revenue, have doubled since the 1930s (see Table 8.3). However, since 2003/04 – using a narrower definition – 75 per cent of revenue expenditure was funded from central government grants and 25 per cent from local taxes (see Table 8.4).

The 75 per cent of the expenditure that local authorities do nominally have under their control comes from central government and is mostly earmarked for particular purposes. This comes either directly, in the form of grants, including the dedicated school grant, the revenue support grant, and other specific and special grants, which accounts on average for around half their revenue; or indirectly from the national non-domestic rates charged on commercial properties, which, though collected by local authorities, is pooled centrally, then redistributed back to local authorities on a per capita basis, and on average accounts for around 20 per cent of local government revenue. The only sources of funding that local authorities do more or less have under their control is the council tax, and various fees charged by local authorities for such things as parking and local authority owned leisure centres, and also rent from the dwindling stock of council housing (though around 35 per cent of this goes to central government – something that does not apply to privatised social housing). These sources of funding on average account for about a third of local government revenue.

Table 8.2: Local authority income by source for England, 2006/07

	£ million	%
Grant income:
Revenue Support Grant [a]	3,378	2
Redistributed non-domestic rates	17,506	12
Police Grant	3,936	3
Specific and special grants inside Aggregate External Finance (AEF) [a]	41,771	30
Other grants inside AEF [b]	38	0
Housing subsidy [c]	150	0
Grants towards capital expenditure	5,427	4
Total grant income	85,204	60
Locally-funded income:
Council tax [d]	23,608	17
External interest receipts	1,481	1
Capital receipts	3,671	3
Sales, fees and charges	11,544	8
Council rents	6,160	4
Total locally-funded income	46,464	33
Other income and adjustments[e]	10,245	7
Total income	140,758	100

[a] There was a large switch between Revenue Support Grant and Specific and special grants from 2006-07 due to the introduction of the Dedicated Schools Grant (DSG) as a specific grant.

[b] Includes Standard Spending Assessment Reduction Grant, Central Support Protection Grant, City of London offset, Transitional Reduction Scheme Grant and General GLA Grant.

[c] Excludes council tax benefit grant and rent rebates granted to HRA tenants.

[d] Includes council taxes financed from Council Tax Benefit Grant but excludes council taxes financed from local authority contributions to council tax benefit.

[e] Includes European Union, private developers and reserves.

Source: as Table 8.1 (Table 2.1a)

Table 8.3: Central state grants to local government as a percentage of total revenue 1933/34 to 2006/07

1933 - 1934	1943 - 1944	1953 - 1954	1963 - 1964	1973 - 1974	1983 - 1984	1988 - 1989	1991 - 1992	1997 - 1998	2001 - 2002	2005 - 2006	2006 - 2007
31	31	37	36	40	40	34	38	46	59	61	60

Source: 1933/34 to 2005/06 J.A. Chandler, 2009, Table 4.3, p. 57; and Table 8.2 for 2006/07

Table 8.4: Financing of revenue expenditure since 2003/04^[a]

	Revenue Expenditure (£ million)	Government grants (£ million)	% of total	Redistributed non-domestic rates (£ million)	% of total	Council Tax (£ million)	% of total
Outturn
2003/04	75,244	41,777	56	15,611	21	18,946	25
2004/05	79,303	45,258	57	15,004	19	20,299	26
2005/06	84,423	45,839	54	18,004	21	21,315	25
2006/07	88,449	49,093	56	17,506	20	22,453	25
2007/08	92,386	51,658	56	18,506	20	23,608	26
Budget
2008/09	98,455	51,902	53	20,506	21	24,759	25
2009/10	102,823	55,985	54	19,515	19	25,633	25

[a] Sum of government grants, redistributed non-domestic rates and council tax does not normally exactly equal revenue expenditure because of the use of reserves.

Source: Department for Communities and Local Government (2009e) Table 3, p. 7.

The funding settlement for the year beginning in April 2008 included a government pledge to cap council tax rises if they get near 5 per cent. The Local Government Association suggested that rises of 4 per cent to 4.5 per cent would be needed to avoid reducing services. If council tax continues to rise at this rate then by 2010 the average Council tax will be almost £1,500.