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By Professor Stephen Glaister, director of the RAC Foundation.

The ways in which English Local Authorities receive their money – Local Government Finance – is horribly complicated. Almost nobody understands it in detail and few people care. And the current policy of devolution is going to make the muddle a whole lot worse.

We should give the subject more attention: it directly affects the levels of local services we all worry about: from library provision, through street cleaning and refuse collection, schools and housing to the number of potholes we have to endure and the amount there is to spend on adult and child social care.

The Public Accounts Committee is a powerful (and once much-feared) cross party committee of backbench MPs. Their role is to scrutinise the way government spends national taxpayers’ money, acting on behalf of Parliament and us all.  It applies “value-for-money criteria which are based on economy, effectiveness and efficiency.” On Tuesday 5th February it published an informative little report that illustrates the fundamental inconsistencies in current policy on devolution. It is an overview of funding for local transport.

The days when local people decided on the level of service they would like and then voted to pay their local authority the necessary money directly are long gone.  Much of the money now comes from grants from central government via departments such as the Department of Communities and local Government and the Department for Transport.  And government capping of local domestic taxes limits the freedom councils have over the income they are supposed to be able to raise from the people who use their services.

This degree of centralised control over local community income and spending is quite unlike anything to be found elsewhere in the developed world. It is Coalition Government policy to further devolve things from central government to the people. The trouble is that, in practice, the temptation is always to devolve the responsibilities and statutory duties without devolving control over the cash that must go with them. This can create misalignment of incentives, lack of transparency and poor accountability for national taxpayers’ money.
Tuesday’s report makes some worrying observations. For instance the Department for Transport gives grants according to a formula for the purposes of roads maintenance and other transport projects. But there is no attempt to prevent local authorities choosing to spend the money in any way they choose. Worse, they seem to have no way of keeping a record of how the money is actually spent. Nor are minimum quality standards set down. In practice it seems inevitable that the pincers of reduced total income and ballooning statutory obligations (environmental and social services particularly) will force many councils to spend less and less on roads maintenance, whatever local people would prefer.

So what national objectives is this ‘transport grant’ supposed to be meeting?

We have long-established, legally constituted and democratically accountable local authorities.  Now, through a somewhat mysterious process the government has encouraged the creation of Local Enterprise Partnerships. These vary in geographical scope and typically cover several local authorities; some overlap and some areas are not covered at all.  It is unclear how professional or administrative support is to be provided. It seems that the nitty-gritty of financial audit, accountability for funds and democratic accountability will reside with existing local authorities, but how will these channel though to the Local Enterprise Partnerships? Then, on top of all this it is intended that there should be thirty-nine new non-statutory ‘transport bodies’ to execute transport policy at the local level. The Public Accounts Committee also had a view on this.

When launching the report the committee Chair remarked:

“We are not convinced that government has thought through the risks of devolving more control over the funding of major transport projects to a local level. For example, the Department is confident that local bodies will naturally cooperate to fund and implement projects. We believe this confidence may well be misplaced.

“The risk is that local transport bodies, under severe financial pressure, will not take sufficiently strategic and joined-up decisions, threatening national or regional transport funding objectives.”

This is surely a realistic assessment. Shortages of money and special parochial interests will cause endless strife in and amongst disparate bodies that may have different party political loyalties, and little dedicated professional support and no democratic mechanisms for resolving disputes.

The Committee also raised an issue that has not been satisfactorily addressed since the Coalition Government closed the Regional Development Agencies: “We asked how large infrastructure projects which span the boundaries of several transport bodies would go ahead and who would consider these wider regional or subnational needs. The Department considered that common sense would prevail and maintained that there were examples where local bodies had come together to pool funding across boundaries.” This is a serious worry. Central government is responsible for the strategic road and rail infrastructure. Local authorities look after the infrastructure in their own back yards. But there are major items of Regional importance which now risk falling between the two and which will cover too big a geographical span to be dealt with by the new transport bodies.

During the evidence sessions another enormously muddled subject was raised: the extent to which it is right, or even legal, for local authorities to seek to make good their failing general budgets by increasing car parking charges. They can make charges for their on-street street parking as part of a policy to manage traffic and, generally, any net revenue must be spent on transport purposes. But they cannot increase on-street parking charges with the primary objective of raising revenues: that would be a tax without a mandate on one particular activity.

But Local authority charges for off-street carparking is not restricted in the same way: it is just like any other provision of off-street parking (by the public or private sector). It was revealed in the Committee’s evidence session how much pressure has been applied by central government on local government to raise additional funds by increasing parking charges in order to make good reducing central grant: another example of the chaos and obscurity that surrounds the funding of local government.

The overall conclusion is clear. Devolution is fine, but the money must go with the duties and powers. If government continues to try to pass on one without the other democratic and fiscal accountabilities become broken And over many decades and all over the world we have learned through bitter experience that bodies responsible for cash and executive decisions must have a proper legal constitution and be subject to effective, independent audit. Otherwise things inevitably end in tears.

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There was grim news the other day from Birmingham City Council as it announced £600m of savings would have to be made between 2012 and 2017. This is likely to result in the workforce shrinking from 19,000 full-time employees to just 15,000.

The Council leader, Sir Albert Bore, said Birmingham would have to “start decommissioning services” and foresaw that the financial crisis would lead to “the end of local government as we have known it.”

Amongst all the bad news for city residents and council staff, a big question mark hangs over the future scope and scale of the road maintenance programme.

Birmingham is one of a small band of authorities that have contracted out their roads programme, in this case to Amey, in what are essentially PFI deals. The company’s website explains the scope of the project:

“Amey is responsible for improving and maintaining Birmingham Highways infrastructure, including 2,500km of road network, nearly 100,000 street lights and over 850 highway structures and bridges across the city. Additionally, we deliver a wider Corporate Social Responsibility (CSR) element within the contract that aims to benefit the local community through various initiatives.

“The contract has a 25 year service delivery period which includes the improvement and repair of roads in Birmingham, maintenance of footways, bridges, street lighting and traffic signals along with the upkeep of street scenery, such as safety barriers, seats and trees.”

The key point lies at the start of the second paragraph. Amey has, presumably, a legally binding contract with the council to carry out the work for a quarter of a century. Which means that if it keeps its part of the bargain then the city has to keep paying up, no matter what other demands there are on its financial resources. On the one hand this would appear to be good news for road users – and the businesses which depend on a smooth running transport network – in the West Midlands, and there are positive reports from councillors about the success of the deal. But on the other hand it raises questions over the nature of long-term contracts in times of shrinking public budgets.

The RAC Foundation has long argued for more long-term certainty around road provision and management, and the government is considering introducing five-year funding and spending plans for the Highways Agency-managed roads, just as there is for railways (the High Level Output Specification and Statement of Funds Available). One of the reasons a broader horizon is needed is exactly to counter the hand to mouth existence created by varying political pressures now being seen in Birmingham. However if all services are outsourced on a contractual basis then where exactly do councils make cuts? Just one more thing to consider in tough times.

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