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Councils face future shock

Council finance - the way schools, adult education and other local services are paid for - is once again in turmoil.

Between now and the end of April, the Government is set to publish no fewer than five consultation papers on local finance, as part of its fundamental reappraisal of local authorities. A further two papers are due on service standards and securing "best value".

On Monday the Department of the Environment, Transport and the Regions put out a paper on local democracy suggesting ways in which council procedures could be made more attractive to the public.

Yet for all the flurry of reviews, one senior source reports "an awful lot of caution in the centre" especially on giving councils any greater autonomy in deciding how much they spend.

One of the consultation papers will discuss the future of "capping" - the way Whitehall limits council spending. At best, councils can hope for a "measure of relaxation".

One local government finance chief predicted "quite a lot of room for the Government to move away from the existing capping regime without abandoning the principle altogether".

With total council spending of about Pounds 45 billion a year there is room for a wide measure of uncertainty, he said.

But Treasury sources say it is unlikely that Chancellor Gordon Brown and Chief Secretary Alastair Darling will agree to any slackening of their control. They are, after all, strong critics of councils' alleged inefficiency and have committed themselves to Conservative spending targets.

At Number 10, Geoff Mulgan, former head of the think-tank Demos and now an adviser to the Prime Minister, likes the idea of allowing councils more freedom provided they can demonstrate local support. Only last weekend Tony Blair told local government officials that councils had failed to win the public's "hearts and minds".

One consultation paper will float the idea of allowing councils to add to their budgets, provided they have consulted local opinion, for example through a referendum. Local ballots to approve spending are sometimes used in the USA and Hilary Armstrong, the local government minister, has recently been urging councils to use referenda more. "If a referendum is a means of exciting more local interest in a particular issue, then I don't think local government should be afraid of them," she said.

This view has found some favour with local authorities. Graham Chapman, Labour leader of Nottingham City Council, said his priority was the removal of capping and he would not mind if the price were special spending manifestos put to residents annually.

A further consultation paper will propose giving councils additional freedom to raise money by taxing businesses, but only with the agreement of the business community.

Under the Tories, the non-domestic or business rate was nationalised. Whitehall currently sets a single rate which councils collect. The Government is likely to propose keeping this system, but allow councils to levy a small "supplementary" rate, provided business people agree.

The consultation papers will be issued under the imprint of deputy Prime Minister John Prescott. But it is an open secret in Whitehall that other departments, especially the Department for Education and Employment and the Home Office, are insisting on keeping strong reserve powers to direct council spending where necessary.

David Blunkett, Education and Employment Secretary, is on record as saying he wants to keep draconian powers of intervention "for failing services or failing councils".

One of the consultation papers will examine the standard spending assessments - what Whitehall decides councils need to spend on residents. A common complaint in education and other service departments is that the council is not spending "up to SSA".

Many ministers feel that councils can only expect more freedom if they stick to the Government's agenda and prove, for example, that they can raise standards in schools. Some doubt that their colleagues in the town halls can deliver.

Mr Blunkett has said that central intervention is to be "in inverse proportion to success" and this maxim also applies in finance.

A senior official at the Local Government Association picked up this point. "A lot depends on what happens in the next four years. If we make 'good progress' then there will be friendly working together.

"If not, I wouldn't be at all surprised to find around the time of the next election a new round of legislation involving more centralisation."

David Walker leader, page 20 cash delegation, page 23

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