The Lyons Inquiry into Local Government

Final Report Briefing Note

What was the Lyons Inquiry set up to do?

In July 2004, Sir Michael Lyons was asked by the Deputy Prime Minister and Chancellor of the Exchequer to look at changes to the local government system - in particular to make recommendations on council tax reform, to assess the case for giving local authorities more powers to charge for services and other options enabling authorities to raise supplementary revenue.
His remit was extended in September 2005 to cover local government's role and function, and in December 2006 to consider the implications of the Barker, Eddington and Leitch reports. He has published two interim reports: Consultation Paper and Interim Report (December 2005) and National prosperity, local choice and civic engagement (May 2006).

How has Sir Michael approached his remit?

Sir Michael interpreted his remit broadly, viewing the overall aim of the Inquiry as being reforms which improve the well-being of all our communities.
He instigated a wide-ranging debate engaging directly with people who use, pay for, and work in or with local government. More than 3,000 individuals and organisations took part, providing written submissions or attending the various events held up and down the country. Further details of stakeholder engagement and research undertaken for the Inquiry, is provided in Annex H to the final report.

What are his overall conclusions?

Local government is an essential part of our system of government. Its place-shaping role - using powers and influence creatively to promote the well-bring of a community and citizens - is crucial, particularly to improve satisfaction and well-being through local choice and flexibility, and economic prosperity through close working with business.
Central and local government need to work more closely together as part of a single system. Local people need to greater clarity about who is responsible for what, and should have a greater say in setting local priorities to enable authorities to manage pressures on public expenditure and improve satisfaction.
There is no golden key to reform - a mosaic of reforms is needed in the short term to address the most urgent problems, paving the way for more radical reforms in the longer-term. Sir Michael concludes that council tax is not 'broken', but that it is under too much pressure, is seen as unfair, and has some limitations in that it is not a naturally buoyant source of revenue.

Developmental approach: Short-term reforms

Changes in behaviour and attitude from central and local government: central government needs to resist the temptation to seek to control local government behaviour through 'soft controls', guidance and other forms of influence - local government needs to strengthen its own confidence and capability, engage more effectively with local people, make best use of existing powers and stop asking for central direction.
Increased local flexibility: less ring-fenced funding, supplementary business rate, a power to charge for domestic waste to manage pressures.
Address fairness concerns: council tax benefit to become an automated rebate to deliver the 1.8bn currently going unclaimed, mainly by older people; raise savings limits for pensioners to 50k, to help 370,000 pensioner households.
Improve transparency: end capping, provide an independent voice to scrutinise funding decisions and promises; greater clarity on bills to show contribution from national taxation.
Improve incentives in the funding system: reform Local Authority Business Growth Incentives scheme.

Some of these can be implemented immediately.

Developmental approach: Medium-term reforms (which could be implemented in the next Parliament)

Council tax: revalue properties for council tax to update the tax base and improve the link to property value: extra bands to enable those in the lowest value properties to pay less, paid for by increased bills for those at the top.
Other funding: consider assigning a fixed proportion of income tax to local government, which could provide a buoyant but fluctuating source of revenue for local government; power to levy tourist tax if local government could make a strong case based on local public support -only appropriate in some areas.
Improve incentives through reform of the grant distribution system.

Developmental approach: Longer-term options

Local income tax is feasible and could improve fairness but would take time to implement and has significant costs.
Business rates could be relocalised to provide greater local flexibility and better incentives.
But either of these would need greater public support and understanding than currently exists.

These recommendations are taken from a wide range of recommendations for both local and central government and the wider local government family including political parties, which are summarised on page 361 of the main report.

What does central government need to do?

Central government has accepted the need to reduce pressures on local government, and to provide greater local flexibility, and the White Paper and Local Government and Public Involvement in Health Bill provide significant steps in this direction, particularly through the new performance framework and Local Area Agreements, but it will be a big challenge to deliver these ambitions fully.
Central government departments and agencies need to resist the temptation of introducing new "soft controls" on local government through guidance, new ringfenced funds and other forms of influence, page 130.
Central government should set a clear target to reduce specific funding as this limits local government's flexibility to set its own priorities.
Local government should be rewarded for improving allocative efficiency - doing the right thing for local people rather than meeting Whitehall targets.
Central government needs to help local government and service providers to work more effectively together at the local level- this is known as convening page 136.
Local authorities should be given incentives to improve local prosperity -through closer working with business and other neighbouring authorities.
Consideration should be given to an independent and authoritative source of evidence to inform the debate about local government funding page 125.
The Government should cease to use and then abolish its capping powers to re-establish local accountability for tax and spending decisions.

What does local government need to do?

Taking on the place-shaping role is a significant challenge for local government, and will require major changes in its behaviours - particularly for its leaders.
Leaders will need to be credible, visible and accountable with the capacity to take a long-term view and be able to work with, arbitrate and influence other local partners pages 179/181.
They should play a major role in leading local partnerships - ensuring that these are fit for purpose- and where this is not the case, they should act decisively to improve, or disband them.
Local government must, with support from the LGA, continue to improve its own performance.
Councillors should be recruited from beyond traditional bases and political parties should do more to measure performance and consider limiting use of the party whip, page 188.
Every council should ensure front-line councillors are given the information and support they need to do their jobs effectively - this includes role descriptions, training and development.
Councils need to vastly improve the way they engage with local people - making sure this follows best practice and that results of consultations are fed back to communities.

What recommendations are made for services?

There are a range of recommendations covering services-these include economic development, social care, waste, community safety, health and well-being and children's services pages 157-170.

What does this mean for economic development?

The report supports Kate Barker's conclusions that Government should pursue devolution and clarification in the planning system.
It also supports independent Planning Commission proposal to increase clarity over issues of national interest - provided it only covers issues which are unambiguously of national interest, and there is room for local voice and feedback.
Proposals on sub-regional economic decision-making arrangements (set out below) respond to Rod Eddington's analysis.
The report strongly supports proposals for new local powers on the regulation of bus provision, which the Government is already taking forward.
Sir Michael agrees with Sandy Leitch's analysis on the importance of skills to future economic prosperity and social justice.
It will be important to ensure that the local dimension is brought to life, through scope to tailor local provision to local needs, and an appropriate role for local authorities in any future Employment and Skills Boards.

Sub-regional governance

Decision-making arrangements for economic development issues like transport, planning and skills need to reflect actual patterns of economic activity - but this must not undermine the place-shaping role of local authorities, and must be flexible enough to respond to complex and changing patterns of economic activity.
Local authorities should develop arrangements between themselves to take strategic decisions on these issues.
Central government should test those arrangements to ensure that they are robust, sensible and capable of taking hard choices. The tests it might use are set out on page151 of the report.
Responsibilities and funding for transport, skills and economic development, currently administered at national or regional level, should be devolved to sub-regional arrangements which met those requirements.

Does this mean doubling council tax for 1 million homes?

None of the options discussed in the report aim to do this.
The report does look at a range of options for council tax reform, including some which look specifically at reform of the top bands. These are all illustrative options and it would be for the government to decide how to implement any change.
Extra bands at the top and bottom could be designed in a number of ways. The option modelled by the Inquiry in 2005 suggested the new highest band would apply only to those properties worth more than 2.5 million (at 2005 prices) - this would capture only about 5,000 households, or 0.02% of all homes. (See pages 231-234, Annex C, and the Inquiry's Consultation Paper and Interim Report, 2005, for more details)

Is this really about raising more money from council tax?

Adding extra bands at the top and bottom, in the way described in the report, would not raise extra money. It would provide for a cut in bills for the lowest-value properties, paid for by some increases in bills in the top bands.
Revaluation would not be a means to increase the take from council tax - all the options examined by the Inquiry assume are designed to be revenue-neutral. They would simply ensure that properties are banded according to up-to-date valuations. The Inquiry estimates that 3.7 million households would have benefited from a band reduction if revaluation had gone ahead in 2007 as planned. (See pages 231-234 for more details).

Does revaluation mean intrusive inspections of homes?

Revaluation would not imply any new powers to enter homes without the permission of householders. Nearly all valuations are, and would continue to be, conducted without entering properties. (See box on page 235 for more details).

Is England going to follow Northern Ireland in implementing a tax based on individual property values?

Sir Michael examines this option, alongside many others, in his report. He concludes that while a point value' property tax would have some advantages in theory, it is not a viable option in the short term, and he is not recommending it. (See pages 237-238 for more details).

Are you recommending new powers for councils to charge for waste?

There are significant emerging pressures on waste services as the UK aims to reduce its dependence on cheap landfill in the face of growing waste volumes. The government should create powers for local authorities to charge for domestic waste collection, as a means by which incentives can be created to reduce household waste and manage costs, and to help ensure that the remaining costs may be shared in a way that is perceived as fair. (See pages 278-280 for more details).

What is the proposal on business rates?

Sir Michael is not recommending full localisation of business rates, reflecting the concerns of businesses, and the need to develop relationships between local authorities and businesses
The report aims to respond to the message from a range of stakeholders, including businesses, that flexibility is needed to make choices about investment at the local level
The proposal for a local supplement is intended to enable that. The key features of the proposal (pp.296-303 in the report) are:

an appropriate scale for the supplement. Some Business Improvement Districts have levied up to 4p, though lower limits would be an option;
local retention of all revenues;
accountability to tax payers. Though voted approval would be an option, I propose a requirement to consult with a clear proposal and timetable, an assessment of the impact on the economy, and hypothecation of revenues;
in London and shire areas a single rate should be set across the area, but the different tiers of authorities (Mayor and boroughs; counties and districts) should develop joint plans for the use of the revenues; and
some flexibility over which sizes of business pay the levy.

What is the proposal for tourist taxes?

The report does not propose a general tax on tourist activity or tourist accommodation without reference to the impact on the local economy
But there may be a case for a permissive power for individual local areas to levy a tax, depending on local circumstances, to reflect the impact that visitors can have in some areas
The report recommends that the Government should consult on the costs and benefits of providing a permissive power, and whether local authorities would use it, and use the results of that consultation to examine the case for its introduction.