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Part two of a series of articles on the Conservative green paper on local government, which are also appearing on the Democratic Society blog.

Section one of the green paper discusses local housing and economic growth. The Conservatives’ proposals are:

• enable local authorities to benefit financially when they deliver the housing that local people need;

• give local authorities the right to retain the financial benefits arising from new business activity in their areas;
• give local authorities a new discretionary power to levy business rate discounts; and
• make the local government funding settlement more transparent.

There are two things to pick up on from a democratic perspective. The first is the plan to give businesses a vote over business rate increases, the second the intention to make housing or business growth more financially beneficial to councils.

The idea of a referendum on business rate increases comes from the Business Improvement District scheme. I know that at least some areas have passed referendums to levy BID payments – but that has been on the basis that the increased rates would be spent in the immediate locality, in a manner of which businesses approve.

Subjecting a supplementary business rate to the same sort of referendum is unlikely to be as successful. First, the supplementary rate is potentially across the whole of a local authority area. Second, the discretion on how to spend it (and whether to levy it) is with the local authority. That makes it a much harder deal to sell, and I suspect makes the Supplementary Business Rate a dead letter.

The second issue is promoting housing and development. The green paper wants to move away from regional decision making and national targets that tell councils what to do and thump them if they fail. The rationale is to make development financially worth it to local government. As the paper says:

“little of the economic gain [from new development] is captured by the local community.”

This implies two things – first, that local developments don’t bring economic benefits to local communities; and second, that aligning the financial incentives for councils will make the problem go away.

I suspect that both these points are wrong. First, and trivially, the green paper fails to distinguish councils (which don’t get much cash benefit from new development) from communities (who often do).

This seems pedantic, but it’s important. Local shops benefit from new customers, and businesses from new employees, if new housing is built. Residents get new job opportunities if new businesses move into town. There’s a lot of benefit there – it just doesn’t go to the council except through trickle-down of business rates and a few application fees.

Logically, if councillors represent communities and communities benefit from development, councils should support development. The fact that they don’t shows up is the other weakness of the approach – it assumes that financial incentives trump everything else. In fact, if you listen to people who oppose developments, they complain about traffic, about rowdiness, about overdevelopment – everything, in fact, except the fact that the council aren’t making enough profit from the thing.

We have to assume that they are telling the truth – and they probably are. After all, if there is a development down the road, it doesn’t benefit individual residents much. It might benefit the community, but there’s no requirement to act in a pro-community way, and people can in any case easily convince themselves that traffic, rowdiness, etc., trump the financial benefits.

So why would financial benefits to councils matter? Two possibilities: people are lying about why they oppose development, for which there is no evidence. Alternatively, councils might really be persuaded to oppose their electors’ wishes by getting a bit more cash for the authority. I sometimes get annoyed by nimbyism, but I do hope our councillors aren’t quite that venal.