Brexit. Is the constitution to blame?

Democracy, as we know, can be tricky.  Churchill’s famous quote on democracy is so overused that it has become almost a cliché,  but it is worth revisiting from time to time.  As Leader of the Opposition, he told the House of Commons in 1947; 

“Many forms of Government have been tried, and will be tried in this world of sin and woe. No one pretends that democracy is perfect or all-wise. Indeed, it has been said that democracy is the worst form of Government except all those other forms that have been tried from time to time”.

So systems of democracy, while on paper they may look like carefully-calibrated clockwork, in practice have to include room for flex and compromise, and there is no such thing as a perfect system.  

In the United States, right now, the process of government is locked in a dispute between the President and Congress as a result of which large sections of the Government have been forced to  shut down. This happens from time to time. In a system that separately elects the executive and the legislature, it will often happen that the President and majority in Congress will come from different political parties.  This is deliberate, because the role of Congress is to act as check on the power of the Presidency. Normally the two sides, and particularly the President, trims and compromises to find a way through.  Let us just say this is not the current President’s modus operandi.

The troubles facing Britain over Brexit on the other hand, are not deliberate.  It’s not written into any constitution what will happen in the event of a closely fought plebiscite, the result of which commands no majority in the legislature (even after a General Election) and which the executive doesn’t know how to implement.  It’s hard to see how a written constitution could deal with this situation, although it might perhaps make a ruling on the circumstances under which a plebiscite becomes and remains binding on Parliament.  

Ostensibly Britain gets around the problem experienced in America by making sure the Government is made up from the majority party in the House of Commons.  This ensures that under normal conditions the Government can enact its programme without Parliament getting too much in the way.   The downside to this is that Parliament and Government are elected in the same election and are essentially the same group of candidates, so there is no natural separation between executive and legislature. This means other checks and balances are needed.  An important one is that Government is not supposed to be conducted by one individual with supreme executive power but by a Cabinet of equals. Another is that the main opposition party has official status and certain Parliamentary rights and privileges. 

General Elections in the UK are a subtle dance, because although technically all people are doing is electing their local MP, in reality they are electing the Government.   This makes party politics an essential part of the UK system.  It isn’t just a convenient marketing tool that allows busy people to choose candidates based on easily recognised brands; in the UK, parties are a constitutional necessity.  Without them there would be no reliable way of choosing a Government that would represent the public will.  This gives the larger political parties- the ones that normally form the Government and opposition - extraordinary power. 

Having described what is supposed to happen, it will be obvious that these are normal circumstances.  Let’s start to check off the challenges facing the system as we stand. 

1.   The most politically salient issue of the day has somehow become Brexit.   However both the governing and opposition parties are split on the issue.    The constitutional role of the major political parties makes this a real problem.  In the past Britain has got itself through when one of the main parties is split, but having both split at the same time on the same issue means two things.  Firstly a General Election involving the traditional parties does not resolve the issue of Brexit; secondly, normal party discipline in Parliament and in the wider politisphere cannot work. The two main parties have therefore become largely impotent on the most salient issue of the day. 

2.   Partly as a result of this lack of consensus within parties (especially within the Conservative Party)  Brexit was subjected to a national plebiscite, the 2016 EU referendum.   The result was close but decisively in favour of Brexit.  Realising that there was no natural majority for Brexit in Parliament, the Government looked to take control of the process.  Parliament denied this, principally through a vote that required the Government to bring back the deal it makes with Brussels to a Parliamentary vote.   With the vote on the deal looming, Parliament continues to pass amendments to Government legislation requiring it to bring back proposals to Parliament in various forms.  Parliament is doing its job under the constitution holding the Government to account and stopping it from adopting  over-weaning powers.  The Government is also doing its job because it sees itself as simply trying to implement the result of the referendum, which it is entitled to do. 

3.   Before it voted to take control, Parliament had already agreed that the Government could activate Article 50, which sets a two year countdown to the date on which the UK would leave the UK, and which was activated in March 2017.   Invoking Article 50 put the Government on the backfoot in its negotiations.  With a free hand from Parliament the Government might have been able to manage this, but a deal would now need to satisfy not just Brussels and not just the Cabinet (and Cabinet Ministers can be changed) but also Parliament.   

4.   The Prime Minister called the June 2017 a General Election about Brexit but with the main political parties split,  this was never likely to be the case.  As it happens voters could still have made it a Brexit election by voting in large numbers for parties with clear stands on Brexit.  But General Elections are not single-issue plebiscites, so this was never going to happen.  In fact voters did the opposite- they voted in larger numbers than ever for the two split parties.  Worse, the General Election resulted in the governing party losing its majority, so it now became a minority government dependent on other parties to secure a majority.  To achieve this the Government went into a confidence and supply agreement with the DUP of Northern Ireland whose twelve MPs gave the Government a majority.  The DUP became another party which Government would need to consider in its negotiations. 

5.   Meanwhile the 2016 Referendum starts to recede into the past, which begs the constitutional question, how long does a referendum result stand?  Representative democracy works on the basis of term limits, in the UK five years.  This means that there is a statute of limitations on power and that eventually the losers in a democratic election get another go.  With the referendum result, which was a close one anyway, now more than two and half years old and with the intervention of a General Election, is the referendum result still valid?  There is nothing written into UK law that gives an answer to this so it is a political question which has become a bone of contention between the pro-Brexit and pro-Remain sides.  

6.   Parliament must agree a final deal but with the clock ticking on Article 50 the default position if a deal is not agreed is a ‘no deal’ Brexit on 29^thMarch 2019.  Many people believe a ‘no deal’ Brexit would be painful or even calamitous for the country, including many who otherwise support Brexit. Some Brexiteers are even saying that remaining in the EU would be better than ‘crashing out’ with no deal. There is no majority in Parliament for no deal Brexit, opinion polls suggest there is no majority for it in the country, and there may not be a majority for it in the Government either.  

7.   However the deal the Government has negotiated and which  is now before Parliament is unpopular with all sides.  It is not Brexity enough for Brexiteers and not Remainy enough for Remainers.  Those who would happily move forward on the basis of no deal only have to vote the deal down, but for everyone else (the majority), the triggering of Article 50 means that when the Government’s deal inevitably loses, some other option needs to take its place.  But there is no consensus over what that should be.   

As to what happens next, it is hard to say.  The party system on which UK Parliamentary democracy largely depends is broken, at least for now and perhaps permanently as far as the current parties are concerned.  However it’s not so easy in the UK to throw away old parties and create new ones.  Some people blame the electoral system for this, but actually it has more to do with the power of the parties themselves.  A General Election may well come about if the Government falls, but it is hard to see how it could resolve the issue of Brexit. 

At the same time the Referendum, which was supposed to resolve the issue in the absence of party consensus, has no clear role or status constitutionally.  Legally it was an advisory plebiscite, but politically for Brexiteers it has been made a totemic symbol of popular democracy.   The constitutional position is that a General Election trumps a referendum every time, because you cannot run a complex modern democracy by plebiscite,  but politically the referendum as a form of democracy has itself become a football.  So a second referendum may help, but for some this would be a betrayal.  In any case it needs to ask a question, or more likely a series of questions, that resolves the issue.  

Meanwhile the rhetoric is ramped up with the Government telling us that Parliament is acting unconstitutionally and certain Parliamentarians making the same accusation against the Government.  On balance Government has probably taken too much on itself and has rightly been tugged back by Parliament, but you can see why Government took this approach. But in the process, trust between Government and Parliament appears to have been destroyed. Everyone is invoking the name of democracy and telling each other and their supporters that democracy is about to be denied to them by the other side, which is dangerous rhetoric when the democratic system is under such strain and when demagoguery is already on the march across the globe. 

Remarkably, the country now faces a set of challenges which is larger and more far reaching even than Brexit.  It is about whether its famously unwritten constitution, with its reliance on powerful political parties and its ambiguous cross-fertilisation between executive and legislature, needs fundamental reform.  Ironically many of the traditional defenders of the constitution who have been at the forefront of testing it to its absolute limits.  

Budgeting Tips from Michelangelo

“Every block of stone has statue inside it and it is the task of the sculptor to discover it.  I saw the angel in the marble and carved until I set him free”

Michelangelo di Lodovico Buonarroti Simoni (1475-1564)

The most famous sculptor of all time, Michelangelo, must have known a thing or two about long-term planning.  His works of art often took many months or years to accomplish and were feats of craft as well as works of art.  His thoughts on the subject confirm – as we must surely have known- that sculpting a piece of stone is not a matter of hacking bits off piecemeal in the hope that the result sort of works, but that the artist’s vision coupled with the physical realities of the material are both crucial parts of the process. 

Similarly, there are two ways of tackling a local authority budget in an era of austerity.   Either you can do the incremental hacking, reducing the size of the budget year on year but trying to keep it more or less the same shape,  or you can try and ‘see the angel in the marble’ and reshape the budget over time to create something new and maybe even better.   Not many people would dispute that the second approach is preferable.

It’s not just a question of the budget, of course.   The budget is nothing more than a financial model of the organisation, encapsulating the outcomes you want to deliver and the allocation of resources over time which, if properly managed, will accomplish those outcomes.    As an aside (although really it’s a subject for another piece) it is surprising how often you find that the budget does not model the organisation.  If the same bits of the budget overspend or underspend year after year, that’s a sign that the budget and the real world are out of alignment.   When that happens then either the budget or the delivery model needs to change. 

If a budget is a model of the outcomes expressed through resource allocation then there are three bits every budget process needs to consider.  Essentiallly;

-                What are the outcomes we want to achieve?

-                What is the delivery model that will get out to those outcomes?

-                How shall we allocate resources to achieve the delivery model?

In an organisation with ample funding, this is the order you would logically always do it.

Every planning process starts from ‘now’  - the shape of the block of marble you see in front of you.   Michelangelo would not have been able to get his seventeen foot high statue of David out of a six foot cube however hard he tried.  Even the best have to accept their limitations.

Where to start is a matter of choice: although experience may tell a good sculptor to begin in one place or another.   For most local authorities, after seven years of funding cuts,  the availability of money is the limiting factor, so it might make sense to  start with the budget – as long as you are confident the budget does in fact model reality.  Alternatively – as many authorities are now doing – you could start with the outcomes, throw away all assumptions about the delivery model, and work out what’s the best way forward, ending up with a budget that expresses a new paradigm.   The practical difficulty with this is that the existing delivery model can be hard or expensive to change.   Often the choice of approach is a matter of what works politically.  Whichever corner of the block you chisel at first, the result should be the same, as long as budget, delivery and outcomes are all part of the process.

Whatever way you go it is clearly the wrong approach to keep hacking away without first visualising the angel in the marble. 

Joseph Chamberlain meets Tammany Hall

Joseph Chamberlain is the embodiment of 19^th Century municipalism and his name is often cited as an example to modern localists. As such he needs no introduction. 

In November 1897, at the height of his political career, Chamberlain accepted the freedom of the city of Glasgow and took the opportunity to set out some of his views on local government.  His speech, as reported in the Glasgow Herald, is provided below in full and underlines, if nothing else, that there are few debates new in local government.   Perhaps his most interesting comments which have some resonance today reflect on staff pay. 

No other commentary is necessary, except to say, by way of context, that Chamberlain refers to the first elections for the Mayor and Council of the newly amalgamated five Boroughs of New York City which had taken place the previous week, and which had been a sweeping victory for the Democratic Party political machine and for the Tammany Hall candidate for Mayor, Robert A Van Wyck.  What followed was a national battle between the political machine and reforming progressives, fighting for more democratic values.   As to who won that one, as Chou En Lai might have said, it is too early to say.

------

Joseph Chamberlain to the Corporation of the city of Glasgow, City Chambers, 8th November 1897

“My Lord Provost, ladies and gentlemen. I am extremely grateful to you for the kindly terms in which you have proposed this toast.  It is very easy for me to repeat once more my deep sense of the compliment that has been paid to me today,  and to thank you and all concerned for the manner in which it has been carried out.   But when you ask me to go further and ask me to make two non-political speeches on the same day – (laughter)-   I am sure I shall have your unfeigned sympathy.  Because, after all, if I am anything I am a politician, and to ask a politician to speak and to say nothing about politics is something like asking the Israelites to make bricks without straw. (Laughter).   However, I am inclined to think that the objection to politics on the part of the Glasgow Corporation is one that it is difficult to sustain. (Applause). My learned colleagues of the university will tell you whether I am right, but I think that it is Aristotle who defines politics to be everything which concerns the happiness and good government of the City or State.  If so I think that it will be very difficult indeed for the Glasgow Corporation to prove that it is not an intensely political body.  (Applause).

Sir, I do not think any of us need to be ashamed of being political in that sense, at any rate, and I entirely sympathise with what has fallen from the Lord Provost.  I believe that those who desire to do anything to make better and happier the lives of those around them will find no better opportunity, no better channel through which to secure this result than municipal and local government.  It is through local institutions,- which themselves, no doubt, have been created and sustained by Parliamentary legislation-  it is through the operation of these municipal institutions that after all the greatest practical advantage has accrued to the masses of the people.

Well, we are all well pleased with ourselves in regard to our local institutions in Great Britain,  and I think we have some right to be conceited.   But I ask myself sometimes whether we are entitled to assume that the present state of things is permanent, and whether there are any signs of deterioration, whether it is possible that these institutions may yet be worked to our harm. I am sometimes inclined to ask a question of that sort when we think of the result of a great election, an election to a local institution on the other side of the water.  There in the metropolis, as we may call it, at all events of the greatest city of the United States of America, full of an educated, cultivated, patriotic people, we find, according to American evidence, that the government of nearly two millions of people has been handed over for three years to an institution whose object avowedly is to get the greatest amount of the spoils.  That is a most terrible result,  and it is worth enquiring whether the possibility exists in regard to our own institutions and what are the principles we must hold if we desire to avoid such a result.

Now, I find that the explanations given do not seem to me altogether satisfactory.  It is said that in New York there is a mixed population.  It is quite true that New York, I believe, possesses a larger German population than exists in any German city, except Berlin;  a larger Irish population than exists in any Irish city except Dublin;  a larger Italian and Scandinavian population than exists in all Scandinavian and Italian cities except those of the very first importance.  But that is not sufficient to account for the state of things we are considering.  Many of these strangers, to which the United States has opened its arms with so much generosity, welcoming them to the franchise perhaps a little before they were prepared for it,  many of them are not at all likely to lend themselves to anything of the nature of corrupt administration- the Germans especially.  I could give one instance where they make most admirable citizens.   With ourselves, in many of our larger towns, we have a mixed population,  and therefore there is nothing sufficiently distinctive in regard to the rest to justify us in coming to the conclusion that that is the cause of that great difficulty.

Then it is said that politics are introduced into American corporate life.  That is true, but it requires some explanation.  In the ordinary sense of the word that would not in the least account for what we are discussing,  because politics do not enter in the usual sense of the word into municipal elections in any of the American cities.  This last election was conducted by what may be considered as an independent political organisation existing outside the regular parties in the State.   As you know, in many of our great cities – Birmingham and Liverpool – their municipal elections are conducted upon political issues.  But I believe that the whole source of the weakness lies in the state of things, in the system of administration,  rather than with anything connected with outside political considerations,  and also in a public opinion which tolerates that system of administration.  

I believe that the success of our system here and the failure of the American system is to be found in the different ways in which we treat officials.  Now, by officials I mean everyone who is employed by a Corporation.  There are, in the first place, the higher officials.  When Corporations undertake such business as is now conducted by the great municipalities of England and Scotland,  their higher officials, men [sic] who are entrusted with the management of departments,  with the control of great manufacturing concerns, or with complicated systems of finance, they must be men of special capacity,  special ability, or else there will be inefficient administration and great waste of public money.  You must have, and you can afford to have, the very best men in their respective capacities. (Hear, hear). But if you have such men, three things are necessary.  They must be irremovable, except for some gross and proved offence;  in the next place, they must be selected originally for their merits, absolutely without regard to their political opinions -(hear, hear) – and in the third place, they must be paid the market price for their services. 

Now, I myself believe that as regards the two first of these conditions they would be universally agreed to; but I have seen in some quarters – notably I recollect a speech made by Mr Burns,  the very able and estimable Labour representative for the Battersea Division -  I believe it was Mr Burns, but at any rate it was a Labour representative- in which he said nobody was worth more than £500 a year.  Well, if any idea of that kind ever prevails in the administration of our great Corporations, I warn those who are most interested in their success, and that is the working classes of the country, that inevitably they will fail.  (Applause).  It may perhaps be a natural thing for the working man who is the employer to say that he cannot understand why his servants get a higher rate of payment than he gets himself.  But he should remember that he is not only an employer, but he is shareholder,  and that if we wants a dividend he had better take care that the manager is well paid. 

There is another danger which, I think, is even more serious than any want of consideration for the higher officials and that is, if the higher officials may occasionally be paid less than the market wages,  there is a great fear that the lower officials should be paid more than the market value.  (Applause).  Now, that is a real danger.  There is an idea growing up in the minds of a certain section of the working class of this country that when a man becomes a public servant – a workman, that is to say, employed by a public Corporation – he is to have better pay than his fellow-workman doing precisely the same work under a private individual.  I protest against that doctrine.  (Loud applause).   I say, speaking with all my experience,  it is fatal to good municipal government, fatal to efficiency,  fatal to the ultimate success of the institution which we now regard with so much pride.  What will be the result of the adoption of any such proposal?   I agree that a Corporation, a public body, should behave at least as well as the most liberal of private employers – (hear, hear) – but not one whit better;  because if it does behave better, then what it is doing is to create a privileged class of workmen – (hear, hear) – to whom public office is in itself a distinct advantage, and in that case there would be an inevitable temptation – a temptation to which all the American municipalities have fallen a victim – to make these privileged posts the reward of political service (Applause).

What happens then?  In the first place, a man who gets a post of this kind thinks that he has done all that ought to be expected of him, and the last thing he expects to do then is to give fair value for the money he receives. (Laughter).   In the second place, when you have privileged posts of this kind,  going at the will of a political party, there naturally arises a demand for them, and as the number of political posts will never equal the demand,  the next thing is to put two men in to do the work of one. (Loud laughter).   Now, if you consider for a moment the effect of this you will find, I firmly believe,  the whole secret of the failure of American local institutions, and you will see that if we are ever so foolish  as to abandon the business-like and honourable system upon which our public work is now conducted,  we may fall at last as low as our cousins unfortunately have done. 

I said just now, and I wish to emphasise the idea, that the working classes are the people who are most interested in this business.   After all the worst that can happen to the richer class in a town is that they have to pay a little more in the way of rates and taxes.  Although that may be very objectionable to them, still it is never likely to ruin them.  What happens to the working man is that what he wants done is not done – that his health, his life, his enjoyment, his education all suffers, because the business that is being carried on, principally for his benefit,  is being neglected by the persons whom he has placed over it.   I compared local institutions just now with co-operative associations.  That is the true comparison.  The Corporations are, if you please, trustees or directors, but the shareholder are every ratepayer in the city, and the dividends are what return is made to them in the shape of  those improvements and reforms which conduce to their comfort and their happiness.  If they want to have good dividends they must see that the majority of votes is with them.  Then they should elect directors to control the administration.  If they want to have good dividends, let them see that they put the right men in the directorate, and that the administration is thoroughly honest and thoroughly business-like. (Applause). 

My Lord Provost,  if there is one thing more,  if our local institutions are to continue to be a subject of universal satisfaction,  there should continue to be amongst all classes a spirit of devotion and self-sacrifice which will lead them when they are called upon to take their fair share in municipal duty.   I can remember well the time when people despised municipal and local work.  I myself have been accused of being a parochial statesman.  I accept the charge, if it be a charge, as a compliment,  and I am really not certain as to whether I do not value it more highly  than the other compliment which is now frequently addressed to me of being an Imperial statesman.   But to be both is possible, and both of them are worthy of regard;  and, after all, I am sometimes very doubtful whether any man can be an Imperial statesman who has not learned in the first place to take an interest in that which comes nearest to him, and which some people consider as parochial.   But, this low view of  duty and dignity in municipal life has, I am happy to say, very largely disappeared.   No intelligent person would, I think, any longer sneer at parochial statesmen.   I hope that feeling may continue, because if it should ever be that those who are best qualified to serve should also be too idle or too apathetic to serve,  of course it would be ill in their mouths to complain if the administration were to fall into bad hands. 

My Lord Provost, as your youngest burgess,  I ought to apologise for having been  so presumptuous as to offer these suggestions on municipal government.   But, although I am a young burgess of the city of Glasgow,  I am a much older freeman or burgess of some other municipal cities.  By the way, I am disappointed to hear that  the freedom of Glasgow carries with it no privileges.   I remember that in the old days it certainly carried with it a Parliamentary vote,  which I am bound to say I should be most happy to exercise here in a close election and on the right side.  (Hear, hear).  I am a burgess,  I am proud to say, of several other Scottish burghs.  I remember, among others,  that I share with Mr Gladstone the distinction of being a burgess of the royal burgh of Dingwall.  There I have a very distinct privilege,  because by my parchment certificate, I am entitled to haunt the precincts of the burgh.   (A laugh).   I do not know if that would be much use to me in the present life,  but I might find it a most agreeable change hereafter when my wraith is perceived in the precincts of the ancient burgh of Dingwall.  (Renewed laughter.)   Whether with these privileges or without them,  I am very proud of being a burgess of Glasgow,  and I am glad to say that I am prepared at any rate to take this opportunity of proposing the health of the Corporation.  It is something to be a member of a Corporation which controls such an enormous interest as that of the city of Glasgow.  It is, as I said today, the Second City in the empire, and for a long time past, not in this country alone, not in the United Kingdom alone, but in foreign countries also,  I know that the Corporation of the city of Glasgow has a reputation  which is only equalled by that of my own city, Birmingham. (Hear, hear.)  But there is no doubt that this Corporation has, and deservedly has, a reputation for energy and enterprise and successful administration, and shares with all other Corporations of the country  in the reputation for the personal integrity of its members.  I hope that they may long continue to hold that honourable position,  and I most heartily give you “The health of the Corporation”.”  (Applause)

A partial hiatus

Chubby Cat's blogs will be a little less frequent for a while and will be focused away from the world of local government finance while his possibly fictitious alter ego Alan Finch is on secondment to the Local Government Association.    Thanks to my many readers from around the world for bearing with me.

Stockton: lessons for the UK?

The City of Stockton, California, lies about eighty miles west of San Francisco.  One of the largest municipalities in the state,  its population of just under 300,000 is about the same size as a typical London Borough.  

Other parallels exist.  The size of Stockton’s debts is about $1bn, and like most UK authorities, the lion’s share of this is pension liabilities.  The budget deficit was about $26m last July, and at that stage $90m in savings have already been found. The city-wide budget for 2011/12 was about $600m (*). The budget deficit was about $26m last July, and at that stage $90m in savings have already been found since the crash.  In terms of its size, its liabilities and the deficit it faces, Stockton is the equivalent of a fair-sized unitary authority in England.

Last Monday, which in the UK brought the unfortunate conjunction of Easter Monday and April Fool’s Day,  the City of Stockton’s application for bankruptcy was approved by a federal judge.   The judgement buys the city some time to negotiate with counter-parties to bring the debt down, although creditors concern is that, thus far, Stockton has not promised to do anything about the pensions debt. 

It’s a story that brings home the irony that Stockton City Hall is in North El Dorado Street.  

The tale is important in the US because, although Stockton is not, by a very long way, the only municipality ever to enter bankruptcy, in the current crisis it is the first in a line of similarly large authorities that could go the same way.   The issue is not without controversy. Has Stockton’s capital development programme been too large? Have employee benefits been too generous?  Should tax rates have been increased? The city says its citizens and employees have given enough, and its time for creditors to chip in.

US cities are much more exposed economically than their UK equivalents.  They are far more dependent upon local taxes, largely property taxes which have been hit hard by the credit crunch.  In the UK, authorities still get a large proportion of their funding direct from Government and are at least partially protected from economic factors. 

Ah, there’s the rub.  English local authorities might not be exposed as cruelly to taxbase changes as cities in the US,  but government grants have been reduced over time on a similar scale.   The difference is that in the UK this has been a managed process, not dependent upon the overnight impact of economic downturn on local economies but fed through over time and – although I know some will disagree with this - distributed more or less evenly across the country.

But it is also the case that changes in the way English authorities are funded will make authorities much more reliant on tax income in future.  The Business Rates Retention and New Homes Bonus systems both take us in that direction.  Unchecked, the system will gradually make authorities whose local economies are growing richer relative to all the others and it remains to be seen the extent to which the regular resets of the business rates scheme addresses this issue.  

This is not necessarily bad news for English authorities.  We have lobbied for many years for more fiscal autonomy and that long-term aim shouldn’t change just because current economic forces are against us.  We need to bear in mind that more financial freedom comes with responsibilities as well as powers and anything that encourages better financial governance is good news in my view, never more so than when finances are tight. 

The way in which the change of emphasis from government funding to local tax is significant. At the moment, the government seems to want to hand the risks down to local government but keep a lot of the powers for itself.  The benefits and risks of both business rates and council taxbases rest largely with local authorities, but the government retains substantial control over setting the rates of tax for each.  In the case of business rates it sets the rate itself; in the case of council tax it does everything it can legally and politically to restrain local increases.

This is important because the way we manage our liabilities in local government in this country relies on the idea that local authorities have tax raising powers but that the Government is the lender of last resort.  It’s a finely balanced system in which we treat local authorities as kind-of financially independent and kind-of supported by the government.  Were this not the case, actuaries would have to take a different view when it came to the time they allow to recover those pension fund deficits. It is a typically British compromise that kind-of works, but could easily be disrupted. 

So we do need to think about a ‘whole system’ approach to financial reform.  At the moment, as far as I can see, there is no formal system of bankruptcy that applies to local authorities in England.  If a local authority fails – and it’s supposed to be prevented from happening by various checks and balances – then the current system allows the Secretary of State to intervene under the ‘best value’ provisions.   The trouble is this is a blunt edged threat.  The Secretary of State cannot intervene too readily because, while intervention might solve a governance problem, it doesn’t directly address the political and financial issues.  It is question either of the Council sorting out the problem itself or the Secretary of State doing it. No Minister is going to be too eager to take that one on. 

The approach to constitutional matters in this country has always tended to be to make things up as we go along.  At the moment there are no English local authorities saying they face immediate insolvency unless they can renegotiate their debt or liquidate some of their assets, so there is no immediate problem to solve.  The question arises if the 'kind-of this and kind-of that' system breaks down and other agencies start to take a harsher approach to the future financial viability of authorities.  In the longer run, perhaps we will need some clarity – as in the US- over what happens when an English authority gets itself in a pickle.

(*) The current exchange rate is about 2 pounds Sterling to every 3 US dollars. 

The Chancellor's Budget; why bother?

In the lead up and the immediate aftermath, there was a lot of talk about whether the annual set-piece Budget statement by the Chancellor should be scrapped.  The argument is that it destabilises the economy, encourages speculation and is never the Government’s finest hour in terms of attempts to spin.

There would be something in this were it not for the fact that much of what was in the Budget this time had already been pre-announced in one form or another.  The main exception was the Help to Buy scheme, which was such a rabbit out of the hat that it seems to have surprised quite a few Government Ministers, including the Chancellor, who found themselves unable to explain it in detail.

If the rush to meet the deadline for the Budget has led to poor policy-making (a pasty, anyone?), then that is probably the best reason of all not to have it, but as far as the rest of the Budget Statement was concerned, one gets the impression that those commentators calling for its demise were probably speaking more out of ennui than anything else.

But there is a good reason to have a annual Budget Statement from the Chancellor and it is to do with a couple of things we seem not to give enough attention to these days; accountability and governance.  Our public finances are built on the back of an agreement between the Government and taxpayers and it is important that Government sets out, at least once a year, how it intends to change the terms of that contract.

Politicians of all stripes have had quite a lot to say recently about the moral issues in the tax system – it is our moral duty to pay our taxes and Government’s moral duty not to overtax.  With all that moral high ground being fought over, why then should the Chancellor not take a measured moment to set out clearly and simply for us all how he wants things to change?  The hoo-hah is the price we pay for getting this important policy debate out in the open and properly aired. 

As taxpayers we adopt a number of different relationships with Government, each of which is complex in its own right and overlaps and entwines within itself.      

The Taxpayer as Consumer is happy to pay his taxes as long as he gets something in return;  we want our bins collected and our streets cleaned, hospitals to be ready to receive us when we are ill and the police and fire service to turn up in an emergency.  It might not always be a pound for pound exchange of value, but the important part of the contract is that it is something for the money.

The Taxpayer as Benefactor recognises that there are people less fortunate than herself, and while we also get some comfort from living in a society in which we know we will be looked after if we fall on hard times ourselves, we don’t necessarily support care for people with physical or learning difficulties, or support overseas aid because we can see ourselves needing the same one day.  We do it because that is the kind of society we want to live in.

The Taxpayer as Citizen pays taxes to get the benefits of living in a free society, relatively safe from harm and to project the interests of the community or the nation state more generally outside its borders.  The benefits are less tangible, but this part of the contract is no less important; because it supports the rule of law it is probably the part that gives us confidence that the rest of the contract will be honoured.

The final relationship, the Taxpayer as Investor is perhaps the one that has tended to receive least attention over recent decades. In the Nineteenth Century, when our infrastructure was being built, there was constant tension between people who wanted sanitation and lighting in our cities and those who wanted cheap rates.  Recently things have been more ambiguous; the Private Finance Initiative usually seemed to be more about the Taxpayer as Consumer than the Taxpayer as Investor, although in fact it was about both.  

But it is to the Taxpayer as Investor that the Chancellor is seeking to appeal with the Help to Buy Scheme.  As he said during the budget statement;

“Because it’s a financial transaction, with the taxpayer making an investment and getting a return, it won’t hit our deficit”.

OK, so at one level perhaps this is a bit of political flummery designed to put across the message that the scheme has no whiff of Plan B about it, and to lance the accusation that it might actually make the deficit worse. The inference that there is no long-term cost to this scheme – in fact an implied benefit- may not be right. You have to ask if it’s such a great investment, why isn’t the private sector already doing it?

But more importantly it is asking the UK taxpayer to see things slightly differently in our relationship with the Government.  Given that the Budget also included announcements of further cuts and benefit changes, this is asking us all to see ourselves less as consumers and benefactors and more as investors in the UK's future, putting our money at risk to help boost the economy. Others better qualified have commented on the pros and cons of this particular approach, but there it is nevertheless, in the Chancellor’s own words.

The Government’s contract with the taxpayer is important if we want people to have faith in the public finance system and be more or less happy to keep paying.  We have seen what can happen in countries where a culture of tax avoidance is more prevalent than it is here.  If the Chancellor of the Exchequer in the UK has one role, it is to ensure that taxpayers can have ultimate faith in the way the public finances are governed. Is it not important that we get a chance once a year to hear from the Chancellor’s own lips and in summary his thoughts on such matters? 

Scotland the brave

I have spent the last few days in Scotland, where on Wednesday First Minister Alex Salmond announced the date of the independence referendum; 18^th September 2014.   The main reaction seems to have been a certain resignation and weariness at the idea of a 546 day campaign, which some seem to feel has been cynically designed by the SNP to bore those least fervent for separation  into a state of torpor. 

As a visitor, Scotland certainly does not appear to be a country bursting with revolutionary fervour.  Admittedly the friends I spoke to may not be typical Scottish voters- as business people they are mainly concerned that they will still have access to the much bigger and more lucrative markets of England and the rest of Europe if the accident of independence should come to pass. It underlines how important it is for the SNP to be able to confirm that an independent Scotland would lose none of its economic leverage and would be, for example, a member of the EU.

Fortunately, the question of whether Scotland should be independent or not is not one in which I will have a say, which is lucky because if I was Scottish and living in Scotland, I am really not sure how I would vote.

As a local government man, I have great sympathy for any people wanting to make their own decisions locally.  In the case of Scotland, the political culture has always been distinctive and, if anything, has grown apart from the rest of the UK over recent years.  The Conservative Party, which has spent most of the last hundred years governing the UK, now barely exists in Scotland.  According to one theory, the long, slow death of Toryism in Scotland dates back to the formal merger of the Scottish Unionist party with the Conservative Party in 1965, which is seen as the moment when Scottish Conservatism lost its soul and became simply a branch of a tree with its roots in London.  It was an historic mistake, which the party might well want to dwell upon before it reacts to criticism from Conservative local government leaders on the subject of cuts.

One Scottish friend has a theory that David Cameron will deliberately undermine the unionist campaign because he realises that getting a Conservative majority in a UK without Scotland will be a lot easier than it is now.   Perhaps, but to me that under estimates the visceral adherence to the union that lurks in the hearts of many Tories, and also ignores the fact that Cameron himself is of Scottish descent.   For Machiavellians, you might equally argue that it would be in the interests of the SNP to undermine their own campaign, because who in an independent Scotland would need the SNP?

Indeed there is also a strong thread of Unionism in Scottish politics. Lots of Scots describe themselves as being British, which you might argue is simply a fact of geography for mainland Scots – they won’t ceased to live in Britain just be leaving the UK – but actually underlines the fact that in three hundred years of political union and four hundred years of a shared monarchy, the Scots, the English and the Welsh have been through a lot together.    

It is disappointing that in a country which should have a strong grip on the importance of devolution and subsidiarity, the draft constitution currently circulating does not have more to say about the importance of local government to a strong, independent Scotland.  Bearing in mind that the adoption of a final constitution will have to wait until independence is declared,  I suspect that if I was Scottish that would weigh heavily upon me.  Would I be voting for a transfer of some last remaining powers from Westminster to Holyrood and no further?

Scottish practicality might yet be the factor that saves the union.  As another friend put it to me, the scale of what would need to be done in order to set up an independent Scotland are an enormous challenge and have not really been thought through.  There would need to be a cast-iron case for doing it as far as many Scots are concerned, not just a romantic ideal of an independent nation. At this moment in the history, with so many ifs and buts to be resolved around the economy, the future of public services, security and Scotland’s role in the greater Europe,  this may be the time when Scots say that in regard to independence we’ll get back to you later on that question.

Ultimately the union potentially means much more to Scotland than it does to England. There is no Union Street in central London, but there is one in Aberdeen, which I joked with a friend would have to be renamed Alex Salmond Boulevard  in the event of independence, and there is also one in Glasgow,  which it easier to imagine being reborn as Donald Dewar Street.   A real son of Glasgow. Dewar’s image seems to be everywhere in that city, which, it must be remembered represents about half the nation’s population.  It might be significant in the end that Donald Dewar, currently regarded at least in Glasgow as the true father of the nation, apparently always opposed independence.