RESOURCES AND SERVICES OVERVIEW AND SCRUTINY

JOINT BUDGET MEETING

Lyons Inquiry- Interim report

Sir Michael Lyons initial inquiry the ‘Balance of Funding’ review has been extended to include a review of local government function. In December Sir Michael published an interim paper summarising his findings so far and requesting views from a range of stakeholders. This interim report is lengthy so I have summarised the main points as follows;

  • That there is a strong rationale for devolution and decentralisation to ensure a better fit with local priorities
  • He states that local government has a major and unique role to play in ‘place-shaping’ by delivering the vision for its communities and making decisions and trade offs on their behalf.
  • He believes that the pressure of delivering to national standards may be diverting local government from its strategic ‘place-shaping’ role. He may therefore be recommending less central government control and a greater ability for local government to decide its own priorities; we will therefore see a change to the inspection regime.
  • He believes that growing pressures and expectations are unsustainable and the next part of his review will consider ways to manage these better including a debate about what people are willing to pay for

In particular the first part of the Lyons inquiry looked at potential changes to the ways in which local government is funded including council tax and business rates, the benefit system and revaluation. The review carried out surveys and consulted with a wide range of stakeholders including a large public sample. Following on from this review the government chose not to continue with the planned property revaluation in 2007 however the Lyons inquiry believes that as the last property values were compiled in 1991 this revaluation will be necessary if council tax is to remain credible. Other interim findings are;

  • There is weak public understanding of how local government is funded and confusion over how the responsibility for delivery of local services is shared between central and local government.
  • The UK is distinct from other countries in terms of the low proportion of taxes raised locally, reliance on a single local tax, breadth of national standards and the high level of equalisation between areas.
  • Council tax has many benefits; it is easy to administer with high collection rates. Revenue to local authorities is fairly stable and predicable, payment is linked to residency encouraging a sense of ownership within communities.
  • Council tax can be seen as both a property tax and a local service charge. Sir Michael recognises this hybrid role and will look further at the perception of ‘fairness’ and the nature of the objectives the tax is trying to meet.
  • The inquiry sets out the main concerns about council tax as; the above inflation increases, high visibility (council tax is the most visible form of taxation in England) making increases more apparent, the gearing effect in which, because council tax provides and average 25% of local authority funding, a 1% increase in costs leads to a 4% increase in council tax and the complex formulae used to calculate the revenue support grant.
  • Sir Lyons found that one of the most important issues was the notion of fairness and people’s perceptions. His studies have shown that public opinion believes that the fairest way to tax people is to link to ability to pay. However people did not favour the addition of a local tax to council tax which had been recommended in the balance of funding review, CIPFA also stated that this would be complex and require significant time to implement. It is therefore now unlikely that a new local tax will be recommended.
  • Of all means tested benefits council tax benefit has the highest number of eligible persons but also the highest number of unclaimed benefit particularly amongst older people.
  • The government is interested in introducing a tax on planning gain and is currently consulting on this. In the meantime the government has introduced the LABGI (local authority business growth incentive scheme) to offer some financial reward for growth in the business rate base. The Lyons inquiry will look further into incentive funding.

I believe these are the key issues arising from the extended Balance of Funding review 2004. The inquiry is continuing to consult until the 13th March 06 and the findings due to be reported to ministers in late 2006.

Joy Cooper

060130 – Joint Scrutiny Summary Lyons Inquiry