Dear Secretary of State,
Congratulations on your recent appointment leading the Department for Levelling Up, Housing and Communities.
You have taken this expanded role at a critical time, with the spending review finalised next month and councils in need of sustainable funding to underpin local strategies to level up and improve outcomes for their communities.
CIPFA is the only professional accountancy body in the world dedicated to strong public financial management and governance. Rooted in local government since 1885, we strive to improve the discipline of financial management across local authorities. Key aspects of this are our work to support the unique powers afforded to chief financial officers to ensure good financial order and the professional standards we set on accounting and borrowing.
It’s been a difficult decade for local government. Amid all the advice and lobbying you’ll no doubt receive, I hope this letter is useful in highlighting some key opportunities as you guide local government through its next phase of development. CIPFA’s view is that targeted disruption and reform, linked to a sustainable financial settlement, would be no bad thing.
At the heart of strong public service is the proper stewardship of taxpayers’ money and ethical behaviour in decision making. You inherit the department’s plans to respond to the Redmond Review of local public audit, but there is a risk that any response will not be quick enough to repair the market. There is rightly a lot of attention on the transactional improvements needed to get us back to the point where local authority accounts are again routinely closed and audited within deadlines, supported by an appropriate market of firms with relevant capabilities bidding for work. We would argue that, beyond this immediate need, there is an even more important medium-term prize where local good governance is engendered by the active involvement of external audit in probity and value for money. The tone of the department, and indeed yourself as secretary of state, will be vital to repairing the damage done over a decade where we have seen local public audit marginalised while broader problems emerged in some authorities such as excessive commercialisation, poor governance and ill-advised accounting treatment.
A global Britain needs all areas of the country to be firing on all cylinders, offering the right conditions to attract investment whether that be for new industries, infrastructure, housing or skills. Tackling relative poverty and the wider determinants of health by combining all efforts of the “local state” is a key opportunity to deliver more effective local government.
CIPFA’s worry is that short-term progress can be made by asking councils to bid for funding “pots”, but in the medium term this creates red tape, burdensome overheads and uncertainty. As far as possible, we encourage you to find a mainstream, or business-as-usual, means for local government to fund policy priorities.
Your department, and predecessor as secretary of state, supported local government with welcome COVID-19 help. But as we come out of the pandemic, what is next? Business rates is arguably the oldest extant tax with the rating system dating back to Elizabeth I. But in an age of increasing digital retail, it might not be the best anchor upon which to create direct accountability between local businesses and councils. Council tax, although only 30 years old, creaks a bit too now that the range of property values locally, and between regions, is so great.
I hope four thoughts are helpful:
1. Form should follow function. The Layfield Report on local government finance in 1976 has still not been bettered. Its message was clear: decide what local government is for, and then design its finances. If local government is to be mainly a delivery arm for central government priorities, then it’s relatively straightforward to modify the present system. But if it’s to be constitutionally free to develop and implement local policy priorities, then please pluralise its resources with access to other taxes. Conversely, there may not be much point to radical finance reform if the parameters of what the sector does remain pretty much the same.
2. Please incentivise councils so that the duplication of costs are, wherever possible, tackled through the economies of scale that reorganisation can bring. Some councils are too large to be local but too small to be strategic. Sadly, the sector and successive governments have not created a shared or compelling view on how regional investment is best brigaded alongside bigger councils to deliver services, but also engendering local community involvement, say through parishes. The evidence from reorganisation is that savings can be made, but government should avoid the creation of unitary authorities that are too small to be viable.
3. A strength of local government is that it is good at medium-term financial planning to achieve value for money. It will also take tough decisions on prioritisation when there is certainty about resources. At present, we are moving from one short-term spending review to another.
4. While the UK state has a strong track record of achieving technical productivity savings on processes or individual services, it is poor at allocative productivity to spend money in the right place to achieve overall optimal cost through prevention. Can the English state be devolved, and local government then reorganised, as has occurred in other parts of the UK?
Linking these four things together, as a finance profession we would argue that local government should welcome radical change to its functions and form in return for funding certainty. A broader range of services on which to pool and prioritise budgets, reorganisation to rationalise present costs and waste, and a wider range of taxes to create resilience and sustainable finances would be a powerful means of re-engineering sub-national decision making for the medium term. In the absence of medium-term reform, short-term pressures abound with an inadequate set of tools to deal with them. We recognise that with greater freedoms comes the need for stronger accountability and regulation where failure occurs.
Again, many congratulations on your appointment and we look forward to helping wherever possible.
Rob Whiteman CBE
Chief Executive, CIPFA