A shake up in the shires: the future of two-tier working

January 19, 2012

Simon Parker, Director, NLGN

Over the past month or so, the government’s plans to reform the business rate have started to come under close scrutiny. Some have pointed out the danger that a council’s needs might grow faster than its business rates base, others have argued that the incentive will be too small to make much difference. What has been less remarked upon is the government’s proposals for two tier areas – which could have a significant impact on the way English shires are governed.

Counties and districts will have to share the proceeds of business rate growth, and the government says that the split should be something like 80/20 in favour of the lower tier. This is not the first time the government has indicated that it sees the lower tier as the key driver of growth. Community infrastructure levy funding and new homes bonus cash are also going primarily to the district level.

The rate changes mean that counties will become top up authorities – big, stable organisations providing strategic services such as social care. Districts will effectively become free councils, able to raise all of their money from council tax and rate retention. Lower tier authorities will also be free to ask Whitehall for permission to partially ‘opt out’ of their county, for instance by pooling some of their rates within a LEP.

There is a strong logic for empowering districts in this way – they are responsible for planning, and the whole point of the business rate change is to incentivise local people and their councillors to accept more development. The incentive has to be as close to communities as possible so local people can see maximum benefit. With an average of one councillor for every 2,500 residents, there is also a democratic argument for a lead district role.

The problem is that while economic growth might happen in towns and cities, it does not occur in isolation from the strategic work of counties. A chunk of CIL payments, for instance, will have to be spent on roads and school infrastructure, and those are both county responsibilities. Will counties have the incentive to spend time and effort on high speed broadband, for instance, if they only see 20% of the business rate benefit?

The danger is that we will see a reprise of an old argument in the shires, where county councils argue that they need a bigger share of the money to fund their infrastructure responsibilities. Districts tend to respond by suggesting that some of the proceeds of local development often get ‘filtered off’ by the county to support other services.

The answer, of course, is that district and county councils will have to develop more collaborative ways of working, but with the districts in the driving seat. If they want to fund new schools and highways, districts may effectively commission their county partners to deliver them. Most districts want growth and recognise that they need county-level services to deliver it.

So new collaborative forms of working will have to emerge – for instance the joint investment funds being developed in Kent and Cambridgeshire, where districts will pool business rate growth with county support to fund shared priorities. These mechanisms might well be crucial to managing strategic infrastructure and business investments – think of Northamptonshire’s support for motor racing at Silverstone.

County-wide LEPs will become increasingly important fora, as counties and districts negotiate how to invest their pooled resources and who gets the returns. Smart analysis will be critical to understand how an investment in one district might have spill over benefits for others.

In the longer term, the decision to prioritise district councils throws interesting light on how the shires might look in future. The business rate reforms represent both a vote of confidence in the future of districts and a threat to their long-run sustainability. This is hardly the act of a government that is planning to sweep the lower tier away in a tide of unitarisation any time soon – in fact, ministers have created a situation in which districts could become far more significant economic and democratic players.

But the flipside is that districts will take on a lot more risk – with most of them effectively independent of central government funding, which means that if the local economy tanks their budgets could take a hammering.

This will accelerate the process of organic reorganisation that is already taking place on the ground as districts share services and management teams. It probably also increases the chance that a handful of districts will become technically insolvent and need some sort of bail-out. The long term result will be a redrawing of the district map as councils merge and federate.

It is generally a mistake to look to coalition ministers for strategic vision – there is no grand plan in Eland House for the future of two tier working. Instead, ministers like to make disruptive changes to the rules of the game and see what happens. Expect at least a bit of a shake-up in the shires.

Article originally appeared in The MJ


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