From the TUC

Damning local government to ineffectiveness

31 Jul 2010, by in Economics, Public services

I was struck by two items in the news that happened to appear on the same day. In the UK, Eric Pickles, the Secretary of State for local government, has announced plans to give the public the power to veto Council Tax increases. From 2012, MPs will decide each year on a maximum increase local authorities will be allowed to introduce, and increases over that limit will be subject to a referendum and a ‘shadow budget’ the Council would also have to produce. If the electorate voted against the Council’s budget, there would be a refund or a credit against next year’s Council Tax. (There will be no right to a referendum on cuts in services.)

On the same day I saw a report on California’s budget crisis, with Governor Arnold Schwarzenegger declaring a “fiscal state of emergency.” California’s state budget has a deficit of $19 billion and 200,000 state employees have already had their pay reduced to the minimum wage. The Governor’s latest move requires state employees to take three “furlough Fridays” a month – compulsory unpaid leave. Cuts introduced in January include reductions in benefits and reduced services in prisons, health services, transport and environmental programmes.

What, I hear you ask, links California’s problems with Mr. Pickles’ proposals?

I’m very glad you asked me. California’s problems came about because Californians expect the public services most people in advanced democracies expect these days – good schools, effective police, adequate health, safe transport, social services, benefits – but California’s electorate has made it almost impossible to raise the taxes needed to pay for it.

California’s state constitution allows for amendments to the constitution, passed directly by a referendum – the ‘initiative’ system, as it is known. In 1978 California’s voters agreed “Proposition 13” – which limited property taxes (a main source of revenue, especially for education) and required the state legislature and local authorities to get a 2/3 majority for any tax increases. It has been impossible for California politicians to persuade voters to support repeal of this measure – who votes yes for higher taxes, when that is the only question on the ballot paper? But Californians have not stopped voting for politicians who promise new or improved services.

The result is California’s impasse. The state legislature repeatedly fails to agree a budget, services grind to a halt and the situation gets a little worse every day.

For some US conservatives this result is exactly what they want. Their strategy – known as “starve the beast” – is to use crises like this to force a reduction in the size of government.

To be honest, I don’t think this is Mr. Pickles’ conscious intention, but the risk is that allowing voters to demand improved services whilst refusing to agree the taxes needed to pay for them, could result in recurring crunches as local authorities ran out of money each year. Genuine localism and a serious commitment to empowering local councils must mean giving them the independent tax-raising powers to pay for the policies they have been elected to carry out.

2 Responses to Damning local government to ineffectiveness

  1. Tweets that mention Damning local government to ineffectiveness | ToUChstone blog: A public policy blog from the TUC —
    Jul 31st 2010, 9:42 am

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  2. Transport and the lock-in problem « thenextwave
    Aug 1st 2010, 4:35 pm

    […] been running a large scale experiment to find out how this works out in practice. The answer is: not well).  And if there is a secret to breaking out of this destructive cycle, this seems to be the clue. […]