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Section 5: Role and Constitutional Position of Local Government

Our Starting Position

1. A number of those submitting evidence to us expressed the opinion that either our review should have been preceded by an examination of the constitutional position of local government in Scotland and the role expected of Scottish local authorities, or that our remit should have included consideration of these issues.

2. It is arguable that, without a constitutional review, there is a danger that the taxation system would be insufficient to achieve financial accountability for decisions taken locally and that local government would become simply the local administration of centrally determined policies. This argument was put forward by the Scottish Conservatives, but they were not necessarily advocating a strong local government case. They argued that a debate on the role and responsibility of local government was urgently needed because, if centrally imposed policy erodes local government to the extent that all that remains is a local administration of the Executive's policies, services might be better returned to central control.

3. Orkney Islands Council argued that it was essential that local government finance was not considered in isolation from the role, functions and, indeed, the concept of local government. Similar views were expressed by SOLACE (Scotland), although SOLACE did not advocate the return of any services to central government control. Instead SOLACE was concerned about what local government was expected to deliver against a backdrop of increasing central direction in finance and, if it was about ensuring that priorities were determined and needs were met locally, about the ability of local government to take decisions on its expenditure.

4. It is obvious that the provision of local services requires to be financed. Historically local taxation has contributed towards this to some extent. We are concerned to ensure that our recommendations about how the work of local government is financed can cope well with a range of possible scenarios regarding the future delivery of local services.

5. What follows is a brief exposition of the constitutional position and role of local government in Scotland.

Constitutional Position

6. There are neither written comprehensive constitutional guidelines nor constitutional conventions concerning local government and its relationship with central government.

7. In November 1995 the Scottish Constitutional Convention recommended that the devolution legislation should commit the Scottish Parliament "… to secure and maintain a strong and effective system of local government, embodying the principle of subsidiarity so as to guarantee the important role of local government in service delivery". ⁴⁵ However, despite the signing by the UK Government in 1997 of the European Charter of Local Self Government, no such provision is contained in the Scotland Act 1998.

8. Michael Elliot usefully has identified two key propositions concerning the constitutional position of local government. ⁴⁶ The first is that it is absolutely subject to the will of Parliament and no legislative capacity of local government can take precedence over that will. In Scotland this manifests itself in the form of responsibility by the United Kingdom Parliament at Westminster and the Scottish Parliament at Holyrood for legislation governing local authorities and the services they provide and for statutory instruments made under that legislation. The second is that central government may only exercise coercive power over local authorities by means of legislation. He stated:

"In common with any other legal persons, both tiers of government have a power to deploy their resources towards any legal end they desire. The centre should only restrict this power of local authorities by express statutory enactment." ⁴⁷

9. Midwinter and Mair have identified four key principles whose intrinsic nature has remained constant through the years - ultra vires, local discretion, the representative principle and the right to tax. ⁴⁸ The doctrine of ultra vires complements that of Parliamentary sovereignty. Local government is a creature of Parliament and may only act within the powers set by it. Local discretion means that local government can vary its use of statutory powers on the basis of local choice. The nature of that discretion varies among services, from the mandatory to the permissive, but for the most part some degree of discretion exists. Over the centuries this discretion has been steadily eroded as centralisation in the name of ensuring uniformity of services or achieving minimum standards has grown.

10. According to a former Cabinet Secretary, this trend towards centralisation is continuing. Lord Wilson of Dinton recently said in evidence to the House of Commons Public Administration Committee. ⁴⁹

"I think we are in the middle of huge constitutional change. What I have always argued is that there is a trend towards devolution, in formal constitutional terms: devolution to Scotland, Wales and Northern Ireland; and a rebalancing between the state and the individual… At the same time, I think at another level there is a trend towards greater centralisation… The way in which local government has become an agent of central government, which is now declared by government ministers, rather than a democratic local tier of government, is a hugely important development, which has passed by virtually without much debate."

11. Many commentators argue that it is the third and fourth principles referred to by Midwinter and Mair - namely direct elections and tax raising powers - that make for local "government" rather than local "administration". ⁵⁰ Of all the public bodies responsible for the delivery of services, only local authorities are directly elected. This gives them a legitimacy and a mandate that is arguably of a higher order than those other bodies. This status is recognised, for example, through the conferring on councils of a community leadership role. While certain named bodies have a statutory duty to "participate in" community planning, ⁵¹ it is local authorities that are to "initiate, maintain and facilitate" the process. ⁵² We consider the fourth principle (the right to tax) in section 6.

12. The signing of the European Charter of Local Self Government is the most visible indication of the UK Government's view on the constitutional position of local government. The Charter refers to the safeguarding and reinforcement of local government as an important contribution to the construction of a Europe based on the principles of democracy and the decentralisation of power. It asserts that "… this entails the existence of local authorities endowed with democratically constituted decision-making bodies and possessing a wide degree of autonomy with regard to their responsibilities, the ways and means by which those responsibilities are exercised and the resources required for their fulfilment". ⁵³

13. Our understanding is that the Charter has a very limited status in law at present and that this will continue to be the case unless and until it is enacted into domestic law. Nonetheless, the fact that the UK Government has ratified the Charter, combined with explicit references to the Charter and principles derived from it in subsequent policy statements, ⁵⁴ would make legislation in direct contravention of the terms of the Charter difficult to defend.

14. Article 4 of the Charter foreshadows the Power of Well-Being given to local authorities by the Local Government in Scotland Act 2003, by providing that local authorities "…shall, within the limit of the law, have full discretion to exercise their initiative with regard to any matter which is not excluded from their competence nor assigned to any other authority." ⁵⁵ Article 9 deals with the financial resources of local authorities, part of which "…shall derive from local taxes and charges of which, within the limits of statute, they have the power to determine the rate. ⁵⁶ It calls for equalisation to protect financially weaker authorities ⁵⁷ and local authorities to be consulted on the distribution of resources. ⁵⁸ These provisions are clearly of great importance to our remit.

15. More generally, the establishment of the Scottish Parliament at Holyrood has affected the relationship between local authorities and other organs of government in Scotland. In anticipation of this, and as referred to in section3, in 1998 the UK Government appointed the independent McIntosh Commission to consider and make recommendations on the future of local government and its relationship with the new Scottish Parliament and Scottish Executive. The Commission, which reported in June 1999, ⁵⁹ recommended that the Scottish Parliament and the 32 councils should commit themselves to a joint agreement (or "Covenant") setting out the principles underlying the relations between the Scottish Parliament and local government. Under the proposed Covenant both parties agreed to work within the Framework established by the European Charter. A draft Covenant was published in October 2002 but we understand it has not been brought into force.

Role of Local Government

16. There have been numerous attempts to examine the role of local government over the years. Some of these have been made in the context of a discussion of local government finance, including the Layfield Report in 1976. Other reviews have included the Wheatley Report of 1969 which proposed the local government structure which was introduced in 1975, the Widdicombe Report of 1986 on the conduct of local authority business and the McIntosh Report of 1999 referred to already.

17. The Wheatley Report of 1969 was seminal in the history of Scottish local government. Whilst primarily concerned with the structure and functions of local government, Wheatley also argued that local government, with its elective basis and finance raising powers had a constitutional status which should be matched by "genuine local answerability". ⁶⁰

18. Layfield argued that local government was valuable in promoting democracy as local authorities were the means by which people could be involved in the making of decisions that affected services and amenities in their own area. Local government allowed for particular public services to be adjusted in accordance with local needs, preferences and priorities, thus enhancing local accountability. Layfield strongly argued that greater administrative efficiency could be achieved by allowing responsibility to be more decentralised.

19. Widdicombe reinforced Layfield's views by arguing that the value of local government stemmed from three attributes - pluralism, participation and responsiveness. Pluralism implied that power should not be concentrated in one organ of state but should be dispersed, thereby providing political checks and balances. Participation was about the quality of democracy within local government and local government offered two kinds of participation: participation in the expression of community views and participation in the actual delivery of services. Responsiveness to local needs was a particularly important attribute, stemming from the elective nature of local authorities. ⁶¹

20. The McIntosh Report saw matters from a practical viewpoint. For McIntosh the two essential features of local government were "to serve the people, including, in the case of some of the major statutory services, acting as agents of central government"; and to represent the community, given the status of local authorities as democratically elected bodies. ⁶² McIntosh felt that, with the onset of the Scottish Parliament, local government would need to look to its democratic credentials. If it did not deliver to Parliament's satisfaction, Parliament would look elsewhere. Local government would therefore have to renew itself continuously.

21. In common with the views expressed in all these major reports, we believe that strong and effective local government is essential if pluralism is to continue to be a feature of our system of governance and if local choice in the delivery of services is to be realised. The recent publication by the Scottish Executive of the discussion document Transforming Public Services, which is about the delivery of public services in Scotland ⁶³ should encourage debate about the shape of public services in Scotland.

Stakeholder Views

22. The MORI survey conducted for our report found that the public is most interested in the quality of services that their council delivers and in how efficiently that council spends public money. When asked what factors were most important in determining voting intentions at local elections, quality of services was referred to by 50% of those surveyed and efficiency was mentioned by 46%. These figures compare with 34% for what candidates say or do on policies affecting Scotland or the UK and 33% for the levels of council tax.

23. Responses from the public to our consultation paper did not provide evidence that people are more likely to vote if they pay directly for services. Respondents appear to attach greater importance to who is seen to manage services and to the quality of those services. However, respondents still consider it important that the balance of funding reflects the balance of control over the running of local services.

24. In the GfKNOP deliberative research carried out for us, accountability was seen as the second most important issue after fairness/ability to pay. Most participants wanted their local authority to be accountable on (a) how public money was being spent and (b) where they could go to voice a grievance with local services. They stated that the simplicity and transparency of a tax system were of less concern either ability to pay/fairness or accountability, whilst recognising that the one did impact on the other.

25. Some respondents to our consultation paper raised concerns that accountability has been reduced by a lack of clarity about how council tax is calculated, how proceeds are spent and how local services are paid for. There is scope for some councils to improve the quality of information they provide to local residents.

26. The MORI Scotland report found that people's preferences were not clear cut so far as regards the "balance of responsibility" between local councils and the Scottish Executive. While a majority favoured local control of refuse collection, roads and lighting, and sports and leisure facilities, views were divided on where the responsibility should lie for schools, police services, fire services and healthcare. MORI concluded that:

"… it can be said that local authorities tended to be viewed in a more positive light than the Scottish Executive - for example in terms of their priorities for local services and the care with which they spend public money. Moreover, there is a link between people's attitudes towards their local authority and the Executive, and their balance of funding preferences: those who view their local council in a positive light are more in favour of local control of public services. A parallel view exists for the Scottish Executive." ⁶⁴

27. These findings are tempered somewhat by a conclusion emerging from the deliberative focus groups undertaken by GfKNOP. They found that local authorities were not seen as being fully accountable on the key issues of how public money is spent and how people can voice a grievance with local services.

Towards a Clearer Role for Local Government

28. In a document produced for the Lyons Inquiry, Steve Martin sets out arguments in favour of strong degrees of both local and central control over local services. ⁶⁵ The advantages of local control over
services include:

• Councils are close to citizens and service users and are therefore best placed to tailor services to local needs and preferences;
• Local discretion facilitates engagement by local stakeholders in the design, delivery and monitoring of services, increasing the chances of these services being responsive to the needs and priorities of local service users and taxpayers;
• Local control can enhance local democracy, by making local government more directly and demonstrably accountable to their electorate;
• Councils can work more effectively with other agencies in providing holistic services that lead to improvements in the overall quality of life if they are freed from centrally designed regulations, targets and funding streams.

29. Against this, he lists a number of reasons for a strong degree of central control over how services are funded and delivered. These include:

• Central government is best placed to ensure equity between local areas by checking that all councils achieve certain minimum standards in terms of quality and quantity of service provision;
• Some services can be delivered more effectively and efficiently at regional or national level;
• There is a need for regulation by central government to safeguard the "common good"; and
• Decisions and action by local government might affect the ability of central government to achieve broader economic, social or environmental objectives.

30. In his Interim Report of December 2005, ⁶⁶ and subsequent paper of May 2006, ⁶⁷ Sir Michael Lyons placed strong importance on the capacity of local government in England to perform its strategic role effectively and on striking the right balance between achieving national standards and allowing for local discretion.

31. For local authorities local democratic control and accountability is a key concern. Councils want both freedom to govern, subject to electoral endorsement from residents, and to be accountable for their decisions. That to a large extent reflects their wish for a 50:50 balance of funding ratio, and their opposition to ring-fencing, about both of which we say more later. Local authorities argue that there is an ambiguity in current accountability that could best be resolved by giving councils more discretion.

32. In principle, there is a close relationship among four elements of public accountability:

• Political authority to decide how local services are to be provided;
• Political responsibility for ensuring those services are delivered well and efficiently;
• Financial authority to determine a budget; and
• Financial responsibility for using funds efficiently and to best effect in support of political responsibilities.

33. There are correlations among these elements. Whichever layer of government has political or financial authority should be responsible for exercising that authority appropriately. Whichever layer of government is responsible politically for the delivery of services to a certain standard needs either the financial authority to raise the resources necessary to deliver those services or the political authority to prioritise how it uses limited funds in the most effective way.

34. These four elements of public accountability need not always coincide in full. The Scottish Parliament is a case in point. It has full legislative authority across many issues of great importance for the people of Scotland, including education, health, law and order and many aspects of economic development, environmental and social inclusion policy. Yet Holyrood has very limited fiscal authority, with the resources at its disposal being limited to the Scottish Block grant, influence over local taxes and a limited power to vary income tax (through the Scottish Variable Rate). Nevertheless, Holyrood is fully accountable for how it uses the resources at its disposal and the quality and quantity of services that it funds.

Political devolution

35. The division of powers and responsibilities between local and central government is not clear cut. Central influence comes in many different forms - legislation, funding controls, outcome agreements, targets, guidance. Each places a different constraint upon the local authority. Guidance may leave some scope for discretion where a clear legislative provision may not. For example, education authorities are required to maintain school class sizes below a certain number, but have certain discretion over the classroom environment. Also, whilst the school curriculum is prescribed by the Scottish Executive, teaching and learning methods are not. This "central influence" described above both restricts the extent of authority for local government and confuses the picture as to who either is or should be responsible for the quality and quantity of local services.

36. We attempted to find out how much discretion local authorities have over how they spend the income they receive today. We were unable to obtain hard evidence. However, COSLA estimated that almost 80% of local authority budgets is defined by legislation and by the Scottish Executive. ⁶⁸ In oral evidence, SOLACE estimated that perhaps 75% of expenditure was prescribed by the Scottish Executive and, if expenditure which local authorities cannot avoid in practice were added to these percentages, local authorities might only have discretion over 10% or less of the total revenue budget. These figures raise serious questions over just how much discretion and authority local authorities actually do have in using the funds they receive to tailor and deliver services in accordance with local priorities.

37. The clearest expression of the present relationship between the Scottish Executive and local government is the Partnership Framework signed by the Executive and COSLA. ⁶⁹ This important document implements the McIntosh recommendation that a formal working agreement should be established between local government and the Executive. The Framework sees the Executive as "… responsible for developing public policy at a national level, for bringing appropriate legislation before the Parliament as necessary, and for the discharge of the functions assigned to Ministers by legislation." Local authorities "…have a democratic mandate to ascertain the needs of their communities and the priorities of their electorates; to plan, coordinate and ensure the delivery of local services accordingly, within the legal framework laid down by Parliament."

Financial devolution

38. There is also opacity in the extent of financial devolution that local authorities have. It is clear that local authorities are responsible and accountable for using all funding they receive effectively, efficiently and appropriately. However, although evidence suggests that most of the work of local authorities relates to meeting requirements and objectives set for them by the Scottish Executive, present funding arrangements do not make clear which of the Scottish Executive and local authorities are responsible for ensuring that councils receive sufficient funding to meet these commitments (we return to the issue in the next section).

39. Midwinter painted a picture of what Layfield's recommendations might mean in practice in giving evidence to the Scottish Parliament's former Local Government Committee. ⁷⁰ He referred specifically to education and said:

"The Executive has been increasingly concerned to drive education policy and practice, even ring-fencing funding for improvement. There must therefore be a case for the Executive to assume full funding responsibility for the service and therefore full political responsibility also. The benefits of local knowledge could be retained by local authorities providing education on a service level contract basis."

40. He saw this as one side of a coin. The other side was a situation where local authorities should be able to provide a higher share of their funding for other services, for the development of which they hold considerable local discretion. This would reduce the degree of dependency on central government over funding for these services.

Conclusions

41. The 30 years that have passed since the Layfield Report was published have been notable for the fact that the issues raised by his central recommendations for clarity in the relationship between central and local government, and financial systems that reflect and underpin that relationship, have never been resolved. Despite all the commissions, reports, consultation papers and pronouncements since then, neither central nor local government has been prepared to address the choice posed by Layfield.

42. There has not been a subsequent examination of the fundamental nature of central-local relations. In contrast to the Lyons Inquiry, our remit was not extended to cover the role and functions of local government in Scotland.

43. We agree with Layfield, Widdicombe and McIntosh that strong and effective local government is essential if pluralism is to continue to be a feature of our system of governance and local choice in the delivery of services is to be realised. The optimal financial system will be based on a clear definition of the respective powers and responsibilities of the Scottish Executive and local government.

Recommendation 1: It appears to us, from widespread evidence we have received from local government, that there is a corrosive argument about the relationship between central and local government. If this is so, then in order to resolve the argument the Scottish Parliament, the Scottish Executive and the local authorities must grasp this nettle. Unless and until they do so, the underlying problems and consequent less than optimal structures will remain. The Committee cannot emphasise too strongly their recommendation that action must be taken quickly. Transforming Public Services⁷¹ is both a welcome and necessary first step but a resolution must be achieved.

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