Place-based budgeting which draws from across the local public sector and is monitored not by Whitehall, but locally, could save millions, says Margaret Eaton

We have a government which is committed to reducing the budget deficit. It is also committed to ‘the radical devolution of power and greater financial autonomy to local government’, in the words of the coalition agreement.

I believe a major reform of the state through devolution to locally-elected people will deliver both the Government’s objectives at once.

Much more importantly, I also think the creation of place-based budgets will make life better for the local voters who elected councillors represent.

We know that our over-centralised system of government is wasteful and ineffective. Whatever we think about the total amount of public spending, we know that a pound spent under the control of locally-elected people is likely to be better targeted and more effective than a pound spent on a central government programme.

We know that far too much money is wasted playing postboxes within the public sector, and bargaining between organisations.

At a time of spending cuts, this argument becomes vital. All politicians – ministers, council leaders, and frontline councillors – have a powerful shared interest in making sure the frontline services our citizens receive are protected.

We, all of us – whatever our political colour – want to see the axe fall on waste and bureaucratic overheads so that as much as possible can be saved to go to the frontline. Every elected representative thinks good local results matter more than systems or organisations.

The choices we face look very stark. For a typical county, the cost of reporting to central government on performance numbers is £7m. That’s the cost of filling in 90,000 potholes.

Nationally, £50m is spent administering specific grants. That’s the cost of employing almost 2,000 social workers. Paperwork or care? The answer is obvious, surely.

Except it isn’t. Unless we radically change the system, we simply do not have the choice. There is no alternative to reporting to Whitehall until the requirement to report is scrapped.

There is no alternative to administering a complicated maze of grants unless Parliament hands the money down as a single pot. Without decentralising, the way decisions are made, the only local options we have are to cut and cut again into real services which people value. 

The LGA has calculated that moving to a more devolved arrangement allows us to strip out the middleman and slash bureaucracy to the tune of £4.5bn a year. But the benefits to the taxpayer of place-based budgeting are far greater than that.

The centralised system which we have allowed to develop is not only a costly and unnecessary overhead. It actually prevents public services delivering the outcomes we all want. To take just one example, the system of support for young people who are disengaged from learning and work costs about £9bn a year. It delivers that money through what we have estimated are 49 different policies and funding streams. 

Radical reform, based on local targeting, support based on the individual and their family, and preventive action, can be both more effective and cheaper for the taxpayer. Francis Maude, the Cabinet Office minister, was last week quoting evidence from Birmingham’s Total Place  pilot which powerfully demonstrated how joined-up prevention could save millions of pounds of taxpayers’ money in the case of individual problem families.

This is why the LGA’s offer to the coalition government on behalf of our member councils has centred on the concept of place-based budgets.

We have said to ministers that local government can make a major contribution to deficit reduction and improving public services – but only as the result of radical devolutionary reform. I launched a document at our annual conference which sketched out a model of how place-based budgets might work.

Our model is relatively simple. A place-based budget should contain a coherent total of public spending for an area. That might be drawn from spending which is currently channelled through quangos, government departments and the NHS.

The budget should be voted directly by Parliament, removing any need for civil servants to account for, quality assure, check or inspect it. A local accounting officer – a council leader or chief executive, perhaps - would be nominated to ensure the money was properly spent achieving the objectives that Parliament had voted it for.

We think these budgets should cover a full range of services – regeneration, transport, back-to-work support, and skills – as well as budgets for neighbourhood policing and public health.

Alongside holding cash budgets, we believe there is a wider local commissioning role. Many of the new government’s policies focus on giving people the power to choose the services they want, with public money following their choices.

This is the model which underlies free schools and GP-led commissioning. Within these systems, there is an important role for locally-elected representatives to act as commissioners and have a strategic role in ensuring services work.

Ministers have received this offer well. The chief secretary to the Treasury and the CLG secretary earlier this month commissioned their officials to work with the LGA and councils to develop proposals on place-based budgets to feed into the Government’s spending review.

This submission, which will be finalised this week, will provide a unique local and joined-up balance to the submissions made by individual departments intent on protecting their turf.

As part of this process, we asked a group of councils – not scientifically chosen, and not a large group – what they would want to do if they were able to establish their own place-based budgets. I was extremely impressed by the results.

More than 40 councils replied within just three days. Almost all of them expressed an appetite for ambitious place-based budgets with wide scope and real local accountability.

This is really encouraging – showing councils are willing to take on a much bigger devolved role, if the Government decides that this is the reform it wants to make. When ministers return from the August break, the Spending Review will begin in earnest. Local government must give them a clear message. They do not face a choice between deficit reduction and devolution.

Rather, they face a choice between frontline cuts that will carry political pain for ministers and councillors alike, and devolution which offers the hope of cutting out the middleman and reforming public services to be both cheaper and more effective for the future.

Baroness Margaret Eaton is chairman of the Local Government Association