George Jones and John Stewart – who were on the original Layfield Committee looking into local government finance, two decades ago – consider its relevance to the current Lyons inquiryAs members of the Layfield Committee on Local Government Finance, between 1974 and 1976, we were pleased Sir Michael Lyons’ consultation paper regarded so much of our report as being relevant today. Although Layfield’s terms of reference were more restricted than those of the Lyons inquiry, our committee saw many requirements as necessary to an effective system of local government finance – accountability, fairness – both between individuals and areas – impact on consumption and investment, efficiency, stability, flexibility, and comprehensibility. But for Layfield, the key issue was accountability. It saw confusion of responsibility as the underlying problem in local government finance. The critical analysis was contained in the chapter three on The Present Confusion, which argued: ‘The present arrangements do not make clear where the real responsibility for spending lies’, and without that clarity, there is no basis for accountability, since ‘few people, if any, know where the real responsibility rests for decisions about local government services, and the money to be spent on them [page 46]’. Our committee made its main recommendations to deal with this. Since Layfield reported, confusion has grown, rather than diminished, due to four main changes. The first, at the heart of the Lyons inquiry, concerns local government finance. The growth in the dependence of local government on grant beyond anything at the time of Layfield means it is even truer today that the financial arrangements do not make clear where responsibilities lie. The problem is all the more intense because the greater dependency on grant has aggravated the gearing effect, so that a 1% increase in expenditure by an authority can mean an increase in the council tax of 4% or 5%, giving a misleading message to voters. The second change has been the growth in the number and amounts of specific grants under the Labour Government, effectively pre-determining decisions by local authorities on expenditure, even though those decisions may not reflect an authority’s own priorities – again, confusing accountability. The third has been the introduction of capping by the Conservative Government, and its reintroduction by Labour. Capping should not be regarded as capping local authorities but as capping citizens and communities by denying them the right to vote for increased expenditure financed by their own taxes, inhibiting local accountability. And the fourth change is the growth in the tendency of both Conservative and Labour ministers who, while controlling so much of local authorities’ decisions, nevertheless blame them for those decisions. This is well-illustrated by the blame attached to local authorities by ministers for decisions made in 2004 on school resources, although those decisions were largely a consequence of the Government’s grant settlement. Accountability was the key issue raised by Layfield, and is rightly recognised as important by Lyons. It should provide the main basis for its recommendations on local government finance, as it did for Layfield. Lyons inquiry should see – as did Layfield – the potential of local income tax as the basis for local accountability, not to replace council tax but to replace a substantial amount of central grant, reducing the level of the national income tax and providing a long-term basis for local government finance. A tax on property and a tax on persons are particularly appropriate when the functions of local authorities serve both property and persons. Like Layfield, Lyons should recognise that local accountability has consequences which go beyond grant levels and forms of taxation, and indeed, beyond local government finance. Lyons’ wider remit provides an opportunity to work out the full implications of local accountability as a necessity for effective local government. n George Jones is emeritus professor of government at the LSE, and John Stewart is emeritus professor of local government at the University of Birmingham