In a new report the think tank urges the Government to abolish the ultra vires principle – in place to ensure that councils do not stray beyond their powers – and allow them to implement actions unless they are expressly forbidden by law.

With parliament shortly to consider legislating for a General Power of Competence for local authorities, NLGN’s report sets out a series of innovative activities that councils could consider adopting and makes recommendations on how the reform should be enacted.

In the context of local authorities losing a third of Central Government funding over the next four years, the research argues that councils must be freed to develop new revenue streams and income, and allowed to work more innovatively in partnership with the private sector, local community groups and other public bodies to drive out savings and re-design services.

The research analyses possible new ventures and activities for local authorities to consider, including

• offering banking, insurance and credit services to local businesses and residents;
  
• grouping together in innovative partnerships to drive efficiencies and generate income or to devolve powers and responsibilities to the neighbourhood level;
  
• trading and selling a wider range of products and expertise (such as recruitment services, energy, communication and business services) to the private sector as well as other public agencies;
  
• varying charging rates for planning and licensing fees to reflect local circumstances and costs;
  
• adjusting tax rates and reliefs to incentivise behaviour on recycling, business development or property usage.

In legislating for change, the report calls on the Government to consider a series of additional freedoms to make the reform meaningful. These include allowing councils to act as they like in the interests of their local communities as long as their action is not specifically illegal, permitting local authorities to flex and vary taxes within the existing tax regime and carrying out a thorough examination of current laws to remove inappropriate legislation.

Report author and NLGN’s Head of Research, Nigel Keohane, said:

‘This power has the potential to be a major piece of reform that heralds a new era of localism. For too long, democratically-elected councils have been restricted in what they can do and vulnerable to legal challenge for adopting innovative responses to local challenges.

‘In the difficult financial landscape ahead, local authorities need full discretion to engage in new ways with their community, to save money through efficiencies and to develop income to safeguard frontline services.

‘To work it will require a leap of faith from national politicians to give local areas the necessary latitude for innovation to thrive. It will then rest on the ambition and aspiration of local communities to determine how best to improve the lives of their residents.’

The Local Government Pension Scheme has 3.9 million members drawn from the full range of local government employment and maintains a £100 billion fund to supply its members’ pensions. The typical benefits received by LGPS members are comparatively low by comparison with other public pension schemes. For the LGPS as a whole, the average annual pension is £4,000. The scheme has been generally well-managed over the past decade and has experienced positive cash flows and increases in funding level. However it still possesses significant funding deficits, estimated at £20 billion at the last valuation in 2007, due in part to a central Government-mandated ‘contributions holiday’ by councils in the 1980s.

NLGN is proposing that one way for local authorities to mitigate the effects of impending fiscal consolidation is to divert a proportion of their ‘deficit recovery contributions’ towards revenue service provision in the short term. The constitutional permanence of local government means that greater flexibility can be found in the repayment of the deficit than is currently employed. It calculates that if councils cut their deficit recovery contributions by only 10 per cent in 2014-15, they would free up over £200 million for provision of otherwise threatened services. Due to the impact this would have on the future contributions needed for deficit recovery such actions should only be taken where there is agreement from local council taxpayers.

The think tank also makes recommendations about the reformation of the LGPS as part of a formal submission to Lord Hutton’s Review on Public Sector Pensions:

• The Public Service Pensions Commission should consider the LGPS separately from the unfunded public service pension schemes, in light of its differing regulatory scheme, funding history, and membership composition. Given its history of conscientious fund management, the LGPS should be extended greater individual discretion over the shape of future reform;

• A full consultation with LGPS stakeholders in local and central government, public sector workers’ unions, and the actuarial and investment sectors should be held as part of the Commission’s deliberations;

• In the same vein we encourage all participants in such a discussion to continue to take an open-minded approach to the reform process. This is essential to ensure any reform of the LGPS is both sustainable in the long-term, and fair to both scheme members and the taxpayer;

• The system of LGPS regulation currently in place should be reaffirmed by the Public Service Pensions Commission to give councils the flexibility to manage the ongoing costs of the LGPS alongside the effects of the titanic financial and social pressures resulting from the Government’s spending retrenchment;

• Local government pension fund managers should continue to prepare and publish regular and transparent funding status reports and a strategy for reaching full funding. This will ensure public confidence in the good management of the fund, and facilitate the strategic use of fund assets to solve short-term revenue problems, without jeopardizing the path to full funding.

“It is possible for councils to close their LGPS deficits in a long-term, sustainable way that is equitable to their workers and council tax payers. This can even be done in a way that frees up money to help mitigate the effects of the tsunami of funding cuts facing local services in the short-term. All of this is possible, but only if councils prepare cogent, transparent and well-structured long-term plans for the future of their pension funds, in collaboration with LGPS stakeholders.“

Government plans to offer council tax incentives for house building have been welcomed by the New Local Government Network (NLGN).

The think tank has previously advocated financial incentives to encourage planning development and welcomed the Government decision “to use the carrot and not the stick to reward growth”.

Under the New Homes Bonus scheme the government will match the council tax raised on each new house for six years.

However NLGN questioned whether the additional money councils will receive – for every new home built the government will match the council tax raised on each new house for a period of six years – will be substantial enough to encourage significant growth.

It instead urges Housing Minister Grant Shapps to examine whether there should be a greater level of incentive for areas that have acute housing needs.

Head of Communications, James Hulme said:

“The UK faces a critical housing shortage and today’s announcement will go some way to empower councils to bring in new developments and pay for the infrastructure associated with new house building. NLGN has previously advocated financial rewards for communities that allow energy generation plants and we feel that the carrot and not the stick approach is better way of gaining consensus”

“We are however concerned that the incentives set out today might not be sufficient to encourage councils to undertake new house building projects, especially those in the South of England where many of the most acute housing problems exist. A higher level of incentive for areas requiring the most urgent housing growth could be needed to make today’s announcement a success”.

Mr Parker joins NLGN from the Institute for Government where he is a Fellow. He was previously Head of Public Services for the think tank Demos and has worked on public services policy for the CBI, where he led programmes on local government and public sector employment reform. He has also worked as a journalist for the Guardian and LGC, where he contributed articles on public management and politics. He will take up the post in September.

Commenting on his appointment, Mr Parker said:

“NLGN has a well-deserved reputation for leading the debate on localism and I’m delighted to be part of taking this agenda forward. The new political landscape has created tremendous opportunities to embed localism in the way the UK is governed – freeing councils from central bureaucracy and putting communities in control. It’s a time for ambitious thinking, and with our strong networks and rigorous research, NLGN is in an ideal position to shape the debate over public service reform, decentralisation and democratic renewal.”

Mr Parker also set out his thoughts on the future for local government:

“Local government needs new ideas and new ways of working as it faces up to an unprecedented financial challenge. Many local councils have a fantastic record of delivering high-quality, value for money services and providing strong political leadership. With more freedom from centrally-driven targets and fiscal restrictions, they can do even better. There is a new spirit of decentralisation in Whitehall, and NLGN will keep up the pressure for localism to be delivered in practice.”

Chair of the NLGN Board, Iain Roxburgh said:

“Simon joins NLGN with an excellent track record in bright and innovative thinking, especially around public service reform and localism. As an organistion, NLGN has grown significantly over the past few years and I am sure that Simon’s considerable experience will help to build on this success”

“I also pay tribute and give thanks to Anna Turley and her Senior Management Team who have managed NLGN so ably whilst we recruited for a new Director”.

Simon Parker replaces previous NLGN Director Chris Leslie, who was elected MP for Nottingham East in May 2010.

The New Local Government Network (NLGN) report, Capital Momentum: financing options for locally driven capital investment, argues that new funding strategies will be needed to save some of the £12billion of building projects under threat from Government spending reductions. With housing, transport and education likely to be worst hit councils should think now about how vital schemes could be funded through alternative sources. NLGN calls for local authorities to utilise the estimated £97bn in the Local Government Pension Fund to continue investment in infrastructure projects.

Whilst there remains a deficit in the LGPS, NLGN argues that devoting some of its funding towards building projects would offer a stable and long-term investment for the pension fund whilst also supporting local job creation and the wider local economy. Report author, Tom Symons, points towards the need for pension portfolios to have a diverse range of investments following nosedives in traditional forms of investment, such as the FTSE 100, over recent years.

Currently there is no mechanism for local government pension funds to invest directly in pooled infrastructure provided by English local authorities and related sub-regional and regional agencies. In March 2010, just 0.7 per cent of the UK’s total pension fund assets were invested in infrastructure, indicating the scale of untapped potential that exists.

The report also warns the Government not to curtail the ability of local authorities to raise money through the Public Works Loan Board, as has happened under previous economic downturns. The report argues that this form of ‘prudential borrowing’ is vital to ensuring that infrastructure projects are well resourced.

NLGN also argues that in the future it may be necessary to use US-style municipal bonds for projects with a defined revenue stream, such as leisure centers or transport projects. If restrictions were placed on council borrowing by central Government, off-balance sheet ‘revenue bonds’ could be one of the few remaining ways of financing such projects. However, the report also concludes that municipal bonds would not currently represent an economically sound form of borrowing for local authorities while there are no limits on borrowing from the PWLB.

On the reforms proposed, Tom Symons, Senior Researcher at NLGN said:

“There is a real risk that future economic growth will be undermined by infrastructure that is unable to meet the demands of a modern, globalised economy. This provides a key imperative to find or design mechanisms that can sustain investment throughout a period of national fiscal consolidation.”

“Pension funds present enormous potential to invest in infrastructure. Just 1 per cent of the Local Government Pension Scheme1 would produce close to £1bn of investment opportunity for local capital projects. To bring this funding in, we need to adopt new investment vehicles that can operate at a scale, size and geography that creates the delicate combination of risk, return and social benefit that is required to incentivise a pension fund to invest.”

Publishing a on the future of public service inspection, NLGN warns that wholesale abolition of assessment regimes could risk “throwing the baby out with the bathwater” and instead suggests that inspections of key services should move to a ‘risk-based’ weighted approach that would offer intensive support to underperforming councils but much more infrequent and lighter inspection to those performing well.

Having only been in place since 2009, CAA has been criticised for being too expensive and overly burdensome. A number of local authorities have publicly announced that they will limit the amount of time afforded to collating data for the inspectorate. Government plans to scrap CAA may lead to local authorities only being held to account through elections and through more transparent listing of their spending and decision making.

Under NLGN’s model, citizens would be encouraged to take a greater role in service provision and in holding their public services to account. They would be able to petition the LGA if they feel that the quality of a specific local service is declining or is not up-to-standards and if the internal procedure of the council or service is not satisfactory. Citizens would also be given access to more transparent information on how council money is spent, as a means of strengthening local democracy, and be invited to act as “bare-foot” assessors of local services.

The report also points towards a redefined role for the Audit Commission, which would focus more on financial auditing functions and on being a gate-keeper for other inspectorates such as OFSTED and the Care Quality Commission.

The local government family, led by the LGA, would take on a greater role in supporting underperforming councils and providing peer-led reviews.

Author of the report and NLGN Researcher Olivier Roth said:

“Each year local authorities spend around £150 billion of public money and it is therefore fundamental how we assess our public services and allow citizens a fair voice in monitoring them. We should enhance the role that citizens can play in holding their local public services to account through transparency and increased citizen engagement. Transparency and clear accountability must sit at the heart of the response, so that citizens have the necessary tools with which to hold elected politicians and officials to account. Effective assessment can underpin local democracy.

“One of the lessons of CAA is that adversarial and external inspections can only take improvement so far. For improvement to be real and lasting, it has to be embraced by the organisation attempting to improve. It is local government that possesses the experience, the skills and the mindset to identify possible improvements, and to find the right solutions to enable them. The assessment process should be owned by the local government family, as it possesses the required democratic legitimacy, buy in, and know-how needed to implement real and substantial changes.”

At the report launch, Cllr David Parsons praised the report as “a timely contribution to the debate on the future of audit and inspection.” Gareth Davies affirmed the report’s thesis that “independent local audit is fundamentally important” and Dr. Ita O’Donovan declared that we need to be “much more imaginative at the local level” as we decide upon the future of audit and assessment.

Local councils could be hit with funding cuts of at least a third from central government according to new research from the think tank New Local Government Network (NLGN).

Analysing figures from the recent Budget, NLGN is predicting that this could leave councils with a funding reduction of over £12 billion, which could lead to services being cut or charges for local services increasing.

The report, Scanning Financial Horizons, warns that councils must be given greater financial certainty from Whitehall and greater flexibility to raise local revenue if it is to cope with the cuts. NLGN recommends the introduction of new “Place Agreements” of shared public spending across the local state and for local authorities to have full discretion over Council Tax levels as well as the ability to retain a slice of business rates locally to incentivise economic growth.

The Chancellor George Osborne has already announced reductions of £1.165 billion to local authority budgets for this year but NLGN predicts that these will be “relatively small compared with the tsunami of funding cuts that will hit councils over the course of this parliament”.

Scanning Financial Horizons also publishes polling evidence showing that councils are already preparing to cut the range of services they provide whilst the public are not prepared to accept service cuts. In a survey of council Chief Executives and Finance Directors the report finds that the majority are expecting to cut their budgets by between 20-25% and almost a third anticipating the gap to be wider than that.

Those surveyed also said that environmental services such as street cleaning and waste collection were most likely to be cut alongside cultural services such as parks, museums and libraries.

In a separate poll of public attitudes to service cuts, conducted by Populus, the results showed widespread opposition to local service cuts, particularly to areas such as waste collection and social care. The survey showed a lack of support for any cuts to local services and a preference for increased taxation rather than service cuts to maintain local service levels.

Author of Scanning Financial Horizons, Nick Hope said that councils are due to face unprecedented fiscal challenges over the next few years:

“A tsunami of funding cuts will hit councils over this parliamentary term. If demands on local government expenditure were to remain static in this period then meeting them would be tough, but demands on expenditure such as in social care are likely to grow, making the scale of the challenge even greater. Local government will have to climb up a downward moving escalator if services are not to hit rock bottom.

With some areas of Government spending protected, our research indicates that the burden of cuts placed on councils will be substantial, meaning that local authorities are having to explore tough choices about how finances are allocated and how to cut services and increase charges.

Our research shows significant public opposition to reduced services, meaning that councils may be stuck in an impossible position of having to match high public expectations without the financial means to do so.

A full and public debate should take place and the fundamental role and purpose of the local authority should be reassessed, in order to redefine and renegotiate the relationship between councils and the public. Local communities must arrive at a feasible new service settlement about what councils can provide and what citizens and community groups could take on themselves, with proper support, in the future.

Radical efficiency options are being explored by many councils, but they must be given additional fiscal tools, such as greater funding certainty and financial flexibility from the Treasury, if they are to minimise the impact on frontline services.”

‘NLGN wholeheartedly endorses and welcomes the announcement from the Government that local areas are to be encouraged to come together and collaborate to drive enterprise and business growth in their areas. LEPs can become an engine room for economic growth in their local areas building on the excellent work done already through Multi-Area Agreements and other partnerships.’

‘It is crucial that LEPs possess strong lines of accountability to their local areas through democratically-elected leadership alongside strong and energetic business leadership. NLGN’s research and Forum for local partnerships has demonstrated the benefits that this type of strategic leadership can have in driving local enterprise, on the skills and jobs agenda and on planning, infrastructure and transport. To unlock the potential benefits, it is vital that these local partnerships have the necessary tools and status to carry out their activities.’

‘We also welcome the new £1 billion ‘Regional Growth Fund’ and its positive signals to support private enterprise. However, Ministers should be mindful of the dangers of future funding decisions in economic development and growth being drawn upwards into remote corridors of Whitehall.’

‘We look forward to seeing the full detail of the Government’s plans in the upcoming White Paper and having the opportunity to respond.’

“This is the toughest budget for decades and lays out the scale of the task facing local government in balancing the books. The scale of the cuts poses a serious challenge to councils’ ability to deliver services that meet the expectations of citizens over the coming five years and beyond.”

This budget creates a burning platform for our local public services. They must be radically re-engineered in order to meet these savings without jeopardising front-line services. But local government cannot do this alone. If we are all in this together, local authorities will need greater flexibility from the centre and across other public services. This would enable it to cut out duplication and waste, and to respond better to the needs of individuals and communities.”

On Local Government Efficiency

The Budget does not mention the Total Place initiative, which opened up many of the avenues for savings and efficiencies that can be utilised to make the savings Whitehall requires, so we would like CLG and the Treasury to commit to ensuring that those lessons are not lost and that the potential of Total Place is taken forward across the public sector.

On Council Tax freeze

The Government must clarify quickly how the council tax incentive is to be administered and be sure that the compensation paid to participating local authorities continues to support lost revenue in the medium term. Otherwise this move is a further restriction of local financial autonomy in a time when greater freedom to raise money is required.

Local Economic Growth

NLGN welcomes the Government’s commitment to a review of Local Government Finance. We also look forward to the White Paper announced on incentivising local economic growth which will set out the future role of Local Enterprise Partnerships and introduce a new business rate incentive.

On Prudential borrowing

The ability to raise money for investment in a prudent manner is vital to local government’s freedom to invest for local communities. NLGN calls upon the Treasury to clarify the oblique reference in the Budget to “monitor lending from the Public Works Loans Board more closely” for reasons of risk. There is no indication that borrowing via the PWLB is inherently less transparent or risky than any other method open to local authorities, and a more restrictive framework could undermine opportunities for innovative and sustainable capital investment and enterprise.

Regional Investment

NLGN welcomes the Government’s commitment to support private sector enterprise and investment in regions that are particularly reliant on the public sector. These areas will face significant challenges as funding is reduced over the course of the next parliament. As part of this, we are glad to see that the Government is committed to progressing a number of key local and regional transport projects, and to introducing a Regional growth Fund to facilitate capital projects.

NLGN’s latest paper, Making Sense of Entitlement, argues that the use of entitlements and guarantees to citizens replicates many of the problems of traditional performance targets and restricts the ability of services to focus on the needs of their local communities. It concludes that users would benefit and better outcomes could be achieved more efficiently if public services were subject to less central instruction, as long as the necessary safeguards of transparency, scrutiny and accountability to local citizens are in place.

Entitlements offering public service users a number of guaranteed commitments from public services were a prominent feature of policy under the previous government. They included:

• Maximum waiting times in the NHS
  
• Free care at home for older people and the disabled
  
• ‘September Guarantee’ offering all 16 and 17 year old school leavers a guaranteed place in education or training
  
• One-to-one tuition for all school children falling behind in English and Maths

NLGN’s report highlights the considerable evidence that uniform entitlements distort the priorities of frontline staff away from providing the best possible service, towards fulfilling specific entitlements at the behest of civil servants in Whitehall. Entitlements such as the NHS waiting times are also vulnerable to manipulation, for example holding A&E patients in ambulances so as to process them within the four hour maximum wait.

As such NLGN recommends that:

1. 1) Priorities and policy aims should be formulated on the basis of a negotiated agreement between central government and the local authority based on policy objectives and the needs of the local community. Drawing on the findings from the Total Place pilots, NLGN proposes that such a ‘Place Agreement’ should define clear service outcomes to be achieved locally and include additional devolution of funding and powers to meet these objectives.

2. 2) To provide the necessary safeguards, both central and local government should ensure that public service outcomes are clearly transparent and accountable to citizens. This should be done through a series of measures including e-transparency, an assessment system focused fundamentally on the citizen, and greater scrutiny from the local government family. Such a system will be the focus of NLGN’s forthcoming report in July 2010 on the ‘Future of Assessment’.

3. 3) Where the Coalition Government chooses to maintain or introduce future entitlements, that these should be broad and outcome-focused, rather than narrow and procedural, to allow local bodies flexibility to meet the needs of their community. The Policing pledge commitment to spending time on the beat working to agreed neighbourhood priorities is a positive example.

4. 4) Local authorities should be given greater responsibility for services such as healthcare and policing – strengthening joined up working and giving a cohesive democratic mandate to locally-responsive priorities.

Luke Hildyard, the report author said:

‘Fears of public services suffering as a result of the abandonment of entitlements are unfounded. Equivalently resourced services ought to be capable of producing better outcomes if they are subject to less central instruction, not worse. Provided the necessary safeguards of transparency, scrutiny and accountability to citizens are in place, public service users will benefit if the coalition’s move towards a more devolved, locally-focused system of public service management leads to the scaling down of uniform national guarantees’