Opinion

How the NHS is funded may well be a matter of controversy, but compared with local government it looks like a model of clarity, and one better geared to working across boundaries.

It is surely odd that in local partnerships it is often the local authority rather than the centralised service which is seen as the less dependable partner. The explanation often lies in local government's arcane and restrictive funding arrangements.

No-one denies that local government finance has been in a mess for years, and agreement is widespread on the nature of the problem. First, with 75 per cent of local money coming from government grant and the national non-domestic rate, there is too much central control over local budgets.

Second, local accountability is flimsy: national spending priorities have greater weight than local ones, businesses see little reason to take an interest in civic affairs, and local politicians have little discretion over the level of funding or council tax levels.

Finally, the system is too arcane for many people to understand, so it is difficult to determine responsibility for cuts in services or increases in council taxes.

Of course, Labour's modernisation programme has not left local government finance untouched. The local government agenda was set out in the 1998 white paper, Modern Local Government: in touch with the people, which included proposed changes to funding arrangements.

Most welcome was the commitment to end the crude system of universal capping introduced by the Conservatives in the 1980s.

In 1999 no council was subject to pre-announced or retrospective capping, for the first time since 1985, although 12 were warned by the secretary of state that reserve powers to act against 'excessive' rises might be used against them.

The white paper argues that the exchequer meets around a fifth of any council tax increase through increased contributions to council tax benefit (a national meanstested benefit for those unable to pay the full council tax), leading to the allegation that the national taxpayer ends up meeting some of the bill for local decisions.

Accordingly, the government has limited this subsidy for the current and next financial year, above which local taxpayers must bear the burden. This arrangement is likely to penalise most heavily taxpayers in poorer areas, and is one which seeks to deny the understanding that the benefit system is a national responsibility.

The government has also declined to return to local councils the power to set their own business rates.

In short, the feeling is that New Labour has largely preserved the arrangements put in place by a Conservative administration wellknown for its contempt of local government.

There are two ways of trying to make sense of this. One is to engage in a rational debate about the principles which should underpin an effective system of local finance, and to use these as a yardstick against which to judge policy. The prime contenders for inclusion were in fact laid out in the largely ignored Layfield report a quarter of a century ago: fairness between individuals, fairness between areas, efficiency, stability, flexibility, comprehensibility and accountability.

But politics is rarely a matter of rational debate, and there is a second explanation for the continuing mess that is local government finance: lack of agreement on the sort of local democratic system we want.

The sort we have developed is evident from one statistic: in 1929, 59 per cent of local finance was raised locally, and by 1993 this had fallen to 21 per cent. Whoever pays the piper calls the tune. The Layfield report made a strong case for a local income tax substantially to replace government grant, but was soundly rebuffed by the Labour government of the day.

More recently, both the Audit Commission and the Commons environment select committee have added their voices to the call for the percentage of expenditure raised by local taxation to be higher than it is now, but their arguments seem likely to go the same way as Layfield.

The simple truth is that New Labour is not much less suspicious of local government than its predecessor, and while some new money may be coming into the local system it will not be locally raised and it will not be spent at the discretion of local bodies, elected or otherwise.

As elsewhere in the public sector, the comprehensive spending review 'windfall' came with strings - the£3bn for social services, for example, was linked to efficiency targets.

Indeed, in the case of social services, even the central grant is becoming more restricting, with growing amounts coming through specific grants ringfenced for specific work, rather than as part of the standard spending assessment with some scope for local priority-setting.

If anything, the noose of centralisation looks set to be tightened. Powers under the 1999 Local Government Act (due to come into force in April) allow the health secretary to intervene in the running of a social services department where evidence of failing to meet national standards is serious or persistent - a shift which some see as a watershed in the balance of power between central and local government.

In November, 17 local authorities were given four months to 'get their house in order' or risk other authorities being ordered in to take over. Although local authorities are being given new responsibilities, such as promoting the well-being of their communities, this is unaccompanied by a commensurate respect from the centre for local autonomy.

It all adds up to a somewhat poor prospect for local democracy.

Although the prime minister has said that 'at its best local government is brilliant and cannot be bettered', he obviously feels such brilliance is very much the exception rather than the rule.