There is no doubt that local government is complicated. All the more so when you have one hand tied behind your back. We expect councils, in legislative terms, to be the Swiss Army Knife of delivery; adult social care, education, waste and environment, public health, you name it.
Now, with Whitehall picking at the barely healed scab of local government reform, some of the most effective and efficient councils in the country are having their grants withdrawn in what could be construed as a blatantly partisan attack.
Westminster seems to forget that not all of the proverbial car is the engine
Take Wandsworth Council. It was once the engine of the Thatcher revolution: a council so well run that it even pips the Ayn Rand-esque City of London as the borough with the lowest council tax in the country. A mix of favourable demographics, lean operations and support from Whitehall means it is an area that rewards the ambitious ‘go-getters’ who work in our capital with an incentive to stay where their productivity can remain high. Close to work, surrounded by hospitality and culture, more short-term in their consumption, so that money flows through businesses rather than into ISAs.
However, the Government’s new Fair Funding Formula will spell the end of Wandsworth’s dry run. This new formula means that the £84 million that the council received as a top-up from Westminster will be removed. This is the same story for all well-run councils. Conservative-run councils in Westminster, Windsor and Maidenhead, and Chelsea & Kensington are in the cross-hairs, with Labour-run Hammersmith & Fulham teaming up with them, as they find themselves as collateral damage.
Ordinarily, this would be tolerable as the council could draw on reserves to weather the storm. However, due to the profligacy of the previous Labour leadership of the council, this is not possible. Under the previous administration, the decision to draw down on reserves would have exhausted the inherited £206 million reserve fund to zero by 2028 had the Conservatives not regained control. There is now a £54 million structural budget deficit that needs to be filled, on top of the loss of the grant.
Residents can expect unprecedented cuts. Never before has just a handful of well-run councils been targeted for such massive reductions in funding. It seems as though these councils are under attack for doing what all local ratepayers and residents want to see, which is efficient, low-tax council services. So too are these residents under attack from the Government. They represent our most productive countrymen and women, who are being punished for daring to live in their postcodes of choice. On top of the upcoming ‘Mansion Tax’, and now rumours of an exit tax, the Government is endeavouring to indirectly pile on a wealth tax.
As Adam Smith Institute research last month showed, we have the fewest millionaire households since the Great Financial Crash. Whilst some of this is owing to migration (and given the tax they pay, who can blame them!), most of it owes to deflation. As evidence from the 2017 capping of the State and Local Tax (SALT) deduction in the United States, property values fell by between three and five per cent in affluent areas. Applying this to London’s already torpid property market, we can expect even fewer millionaire households by the end of this sorry ordeal.
To any fair-minded observer, these councils (and their residents) are subject to a pure, socialist redistribution of funding. While the Government claims this move eliminates an unfair subsidy, we must examine where these funds will actually be redirected: Labour-led Birmingham, where council-run bin strikes remain unresolved (in contrast to Kensington and Chelsea, where residents enjoy twice-weekly bin collections); Manchester (enough said); and structurally indebted councils like Haringey, Newham and Enfield, all set to receive additional taxpayer money.
With well-run councils having almost half of their controllable spending slashed, they are also having their ownership of business rates cut too. Under the Business Rates Reset, associated with the Fair Funding Formula, Kensington and Chelsea collect £309 million in rates, but are only allowed to keep £6.7 million. This means that local businesses are funding services elsewhere, and now the grant is being removed, we will see an increase in rates for these areas regardless of how well run the councils are.
This is not sustainable. We already know that the new government values regionalism over localism, but Westminster seems to forget that not all of the proverbial car is the engine. The Government should reconsider its grant changes so that it incentivises and rewards good governance, rather than relying on the tax hammer that is doing so much damage to our country.
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