The Chamberlain News

Birmingham City Council Chief Exec calls for greater financial freedom

A radical plan to make local government funding fairer is being promoted by Birmingham City Council chief executive Stephen Hughes.

Mr Hughes wants to scrap revenue support grant – worth more than £700 million a year in Birmingham’s case – and replace it with a proportion of locally collected VAT receipts.

Local authorities would, as now, continue to keep cash raised from business rates and council tax.

He claims the big advantage of the proposal would be to bring stability to town hall budgets because councils would know in advance how much money they would be receiving each year.

The scheme is aimed at putting paid to the political impact of severe cuts in revenue support grant. Under the current arrangements, Birmingham is to suffer a £72.5 million grant reduction next year as the Chancellor continues with his austerity programme.

However, raising money through VAT would be sensitive to the health of the local economy with the level of income for the councils each year depending on how much consumers were spending.

Mr Hughes, who is retiring from the council in 2014, aired his proposal in an interview with Room 151,

But he admitted that such a radical change would probably never happen.

He said: “Suppose the Government took away all of our grant, left us with retained business rates, council tax and some percentage of locally collected VAT receipts. There would be a number of advantages. Firstly we wouldn’t have to worry about what grant we’d get next year, giving some stability.

“And you’d have an inbuilt incentive, because there’s a close correlation between improvement in employment and those things, and VAT. I don’t expect anyone would do this, but I throw the thought out there because there are different models of how local government could be financed. We don’t have to be this massively grant-dependent organisation.”

In the article Mr Hughes states that Birmingham is too big for a chief executive to control the council on his own. Only a “team effort” by officers working together can make a difference.

He says: “Certainly if you want to run it on a command and control model, it’s too big. You’d get clogged up with decisions right at the top because you couldn’t possibly know everything that’s going on.

“It’s too big if you’re going to use the heroic leader approach to service delivery, because there’s no way you can get to meet everyone. You have to have distributed leadership and influence negotiations so it’s not the chief exec that runs the organisation – everything is the team.

“That’s the nature of the organisation, it’s so big that it only works as a collaborative effort.”

He criticised “fragmented” government funding streams that “have gone through so many routes from Whitehall to Birmingham that there’s hardly any connectivity at all”.

Mr Hughes said: “A good example of that is schools and employment where you have three departments – Department of Education, DWP and BIS, all providing different interventions. Our argument, and Heseltine’s, was that if you brought all that money together and gave local control, you’d get much better results.

“It’s not that centrally-driven programmes aren’t good, it’s that they lack the connection to other programmes in the place. With the money comes responsibility back up to government departments and parliament.

“We’ve not been very good at convincing government that, first of all, we have passion for our place – we don’t want the money to be irresponsible with it, we actually care. We have to convince them to trust us more with it.”

On a personal note, Mr Hughes hit out at critics who say all the council “needs to do to solve your problems is sack the chief executive”, and that all would be well if the council got rid of its private contractors.

He added: “We have to get beyond the political ping-pong to a common understanding of the scale of the challenge and therefore the real policy choices that we need to make.”

And he claimed he became chief executive of Birmingham City Council after his financial expertise impressed the incoming Conservative-Liberal Democrat coalition in 2004.

“I came here in February 2004 and four months later the Conservative Lib Dem coalition took over from Labour here. I did a couple of things that year, one being the refinancing of the NEC debt. I did a particular piece around the accounts which saved a one-off £11m just by looking at some technical thing.

“Then, because the administration had not really thought through a full programme in advance (this was to be expected because they were two opposing parties), the first year was largely spent dealing with an overspend in social care. I’d already sorted out a similar problem at Brent, so with help I was able to get that turned round.

“When doing the parties’ first budget I guessed they would want to spend some money so as part of the budget preparation we found £7 million to use as ‘partnership priorities’. This was a way of identifying a resource which would enable them to do the things they wanted without having to go round slashing things here there and everywhere.

“The consequence of all of that was we had joint discussions between the two parties to agree a budget and there was one budget for 2005-6, not two. The two parties had gone in assuming they’d devise separate budgets then bring it together. That set the tone for the rest of the administration.

“In June 2005 Lin Homer, then chief executive, left to go to the Home Office and they asked me to be acting chief executive. I think that was because I had demonstrated my usefulness. So how important was finance in getting me the job? It was the whole reason. And their approach, their banner, was fiscal discipline; they wanted to focus on making better value for money.”

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