UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 977-vii

House of COMMONS

MINUTES OF EVIDENCE

TAKEN BEFORE

OFFICE OF THE DEPUTY PRIME MINISTER:

HOUSING, PLANNING, LOCAL GOVERNMENT AND THE REGIONS COMMITTEE

IS THERE A FUTURE FOR REGIONAL GOVERNMENT?

Monday 19 June 2006

SIR MICHAEL LYONS and MS SALLY BURLINGTON

Evidence heard in Public Questions 560 - 599

USE OF THE TRANSCRIPT

Oral Evidence

Taken before the Office of the Deputy Prime Minister:

Housing, Planning, Local Government and the Regions Committee

on Monday 19 June 2006

Members present

Dr Phyllis Starkey, in the Chair

Mr Clive Betts

Lyn Brown

Martin Horwood

Mr Bill Olner

Alison Seabeck

________________

Witnesses: Sir Michael Lyons, Chairman, Lyons Inquiry into Local Government, and Ms Sally Burlington, gave evidence.

Q560 Chair: Can I welcome you to the meeting, Sir Michael, and thank you very much for coming and giving evidence to our Committee. In a minute I will ask if your companion can also introduce herself but before I do can I say that we are looking forward to asking you questions based on the evidence we have been receiving thus far and also we would very much welcome hearing your personal views on where you think the issues that are under investigation are going.

Sir Michael Lyons: Can I introduce Sally Burlington who leads the team that support me in my inquiry. I felt it would be helpful to me - and I hope it creates no problems for you - for Sally to come along just in case there are issues of fact and detail which you might want to expand and where my memory temporarily fails me. She will not be here to give evidence in her own right.

Q561 Mr Olner: Sir Michael, you mentioned something that I had not heard of until I was reading the brief and that was place-shaping. As an ex-craftsman I know shaping machines is fairly precise. How are your shapes going to get together? How are you going to ensure that they fit together? How big are they going to be? It is a very bland statement. I am sure we all agree with place-shaping but what does it mean?

Sir Michael Lyons: The proposition that local authorities, the local council, has a place-shaping responsibility grows out of the work that I have been doing on what we want local government to do in the 21^st century. Although much of the recent debate has concentrated on local government as a provider of services, when you get down to the level of the individual council and the community it represents, there is a whole set of things that local government does that are not summarised as the provision of services. The way of looking at those is to use the term "place-shaping", the responsibility for stewardship of a place, the people who are living in it today and the people who will be living in it in the future. Let me try and make that come to life for you. I might even come back and say something about place-shaping in Nuneaton but let me give you a particular example: Gateshead in Tyneside. There you have a very good example of place-shaping, responding to a decline in ship building and the anxieties and doubts about the economic future of Tyneside. Gateshead is not alone because we have seen other areas in the country that have done exactly thing and build up an ambition to change not only the shape of the local economy but the very way the community sees itself and sees its future, working with local people, local firms and - this is a critical point which might be relevant to your remit - building a coalition of interest where, in the interests of Gateshead, you need to work across Tyneside and the UK to connect with the European Community. This is a way of trying to describe that role of stewardship and leadership in the community that goes beyond but includes the provision of local services.

Q562 Mr Olner: I very much agree with you. It is putting ambition back into local authorities and to a large extent ambition has been driven out by restrictions put on local authorities at whatever level and restrictions that have been put on councillors as well. How do you rekindle that ambition, because it has to come from the bottom up, has it not? It cannot come from the top down?

Sir Michael Lyons: It clearly needs a number of things to come together. Firstly, what I want to acknowledge is that in the very best examples of local government you see exactly what we are trying to achieve. You can look across the country and see some outstanding examples of place-shaping. To go back to your earlier question, it is not a question of scale. It is not just the big cities. You can see it, frankly, in good parish councils, exactly the same work in hand. How is it best encouraged? In my report, I am saying that there is a danger of the sheer weight of a growing number of government set objectives and targets followed up by quite substantial regulation and inspection procedures and a whole set of hidden controls within central government departments. The sheer gravitational pull of all those things means that local government has ended up looking out for instruction about what it should do rather than looking out to the people it serves saying, "What do we want to do as a community?" It is partly about reducing that weight of distraction and it is partly about government recognising place-shaping is a good thing and something we want to encourage. Then it is about providing the flexibility so that councils can do that job effectively on their own patch.

Q563 Mr Olner: You are quite right. Local authorities have tremendous ambitions and achieve great regeneration. Look at the local mining industry. One of the things that was always a huge break behind this, in wanting to regenerate, was providing the infrastructure. It sometimes seems to me that the providers of the infrastructure do not share the dream and the ambition. They are put in little compartments and they eventually trickle down. That is a great inhibitor on towns, villages or wherever you want to regenerate.

Sir Michael Lyons: I absolutely agree with that. The importance of infrastructure is again something which I have tried to emphasise. I have not finished my thinking about what I want to say on infrastructure. Before I report in December I probably will have more to say on that. Clearly, you cannot have every local authority making its own decisions about its connections with trunk routes, trams et cetera, but there is a case for more local decision making and a stronger commitment at a local level from contributions towards improving the economic prosperity of the community.

Q564 Chair: Can you expand on that slightly? What specifically do you think the government is micro-managing at the moment should be left to local government initiatives and what should remain essentially under government direction? Where does regional government fit into that as well?

Sir Michael Lyons: I cannot give you today a full map of what future local government responsibilities might look like. If I take you to page 25 of my report, I have tried to lay out what the characteristics of genuinely local services are there. This is an area where I am going to do some more work. We are working very closely with nine authorities selected to represent as wide a range of views and political controls and socio-demographic circumstances as we can achieve. We are working with those authorities to look in more detail at a range of local government services, six in total: economic development, public health, community safety, children's services, adult social care and waste collection and disposal. That is not by any means the full story of local government services but we are looking in some detail at these areas to see if we can map more clearly what are those things where it is right to set out national expectations. What are those things where it would be better to leave local flexibility? With the resources and the time I have I will not be able to produce a map that covers every detail but I think I might be able to offer some pointers towards a rebalancing of national and local responsibility.

Q565 Chair: Are you taking any view on the regional level?

Sir Michael Lyons: In short, I am looking at where the appropriate responsibility should lie. I am looking at the regional level in the same way that I am looking at the level of neighbourhood or parish. I recognise that some things are best dealt with at different levels and there may be some issues which need to be tackled at regional level.

Q566 Martin Horwood: I am very pleased and encouraged by some of the language you are using but obviously, as the Chair has suggested, a lot of this has to be tested in practice. Can I suggest two test areas and get your reaction to those? Our local authority at the moment is shouting into the wind about the imposition of regional housing supply plans, saying that a certain number of houses is okay but so many more will push into the green belt and they want to oppose that. They are also shouting vociferously about the devastating effect on the local NHS of what they perceive as Department of Health policy. Would you see a role for local authorities in some form being able to shape their place to the extent that they could stand up and perhaps provide alternative funding for those kinds of plans and strategies?

Sir Michael Lyons: Both housing and particularly primary health care represent excellent examples where meeting the needs and aspirations of our communities is going to require the right balance and connection between national level promises and aspirations and local level delivery. I would identify both of them as areas for further work. It is already clear to me that, in the case of primary care trusts, the government is itself moving in the direction of closer, more integrated work between local and central government, towards making PCTs coterminous with their local authorities. The experimentation in local area agreements points in this direction as well. Of course, Derek Walness has very clearly pointed to the fact that you do need local level co-operation, responding to the particular needs and choices in the community if we are going to seek to moderate growing expectations and expenditure in this area.

Q567 Martin Horwood: You say that PCTs are moving towards coterminosity. That is sort of true but they are moving towards coterminosity with social services authorities in two tier areas like mine. That means they are moving away from the district coterminosity. There is a gain on one side and a loss on the other. You might argue it is getting more remote rather than less. PCTs are also funding tertiary and secondary care. Would you see a role for local authorities exercising more control in those areas as well as just primary care and public health?

Sir Michael Lyons: I want to be careful about how far I go.

Q568 Martin Horwood: Be brave.

Sir Michael Lyons: I knew you would encourage me to be bold but I want to be careful about how far I go in terms of first steps. My remit is to look at the role of local government. It does not extend to the role of PCTs. All I am doing - and I am being very open about it - is recognising that there is a series of very important services at a local level provided elsewhere in the family of government and these need to be connected up. You yourself draw attention to the difficulty of deciding what is the right level at which these are joined up. I do not want to say that I have the final word on that. In housing and health and, particularly if you are interested in dealing with issues that we might generally put in the box of health inequalities, there is room for much closer integration. What I came out with in this report published in May was that local government might properly be given explicitly the convening role. Where local strategic partnerships and local area agreements are working well, it is because they are well led and usually because they are well led by local government. There is everything to be gained by being more explicit that that is a job that you expect local government to do because of its place-shaping responsibilities.

Q569 Lyn Brown: Given your analysis of Gateshead which I so agree with, I was interested if you felt that regional government might in any way in particular hinder the shaping of place. If we looked at London as an example, for instance, with the additional powers that are being sought by the Mayor around planning, do you think that such a system like that could hinder the shaping of the place by London boroughs, for instance?

Sir Michael Lyons: The proper starting point for this is for all of us to accept that these are difficult issues. There are no simple solutions in these areas. If we take planning, for instance, on one level you want planning to be taken as close as possible to the community that it affects. You certainly want dialogue so that local people understand the pros and cons of the change that is involved and a recognition that new development sometimes - indeed, quite often - brings a set of external costs. It changes the amenities of that area. It sometimes brings gains of course because it brings jobs or better services, closer access to retail facilities. Still, those are issues in which there is proper local discussion. However, we know that there is a whole set of big planning concerns where you have to take into account the interests of the wider community. Sometimes that is sub-regional; sometimes it is regional; sometimes it is national. The whole debate about the location of wind farms clearly has some national implications. The art I think is to have a planning process where you can balance these local and wider interests. Historically, we have tended to have the matter referred up to a higher decision making level and it is difficult to map exactly what the right level is for any particular decision. One thing I am clear about is that there is more work to be done about making sure that at a very local level, even when something has been decided, whether at regional or national level, the local people understand why it has been done. I have a sense that far too frequently, once the decision is referred up, people at a local level feel disconnected from it and sometimes do not understand why it is not the decision they wanted. That means mistrust in the whole process. We cannot afford that as a nation. I am sure that there has to be an issue of different levels and matters being referred up when there are wider costs and benefits, but the issue of close communication with the community about the outcome is something that we could do better at.

Q570 Mr Betts: City regions have been fairly in vogue or at least they were under the previous regime at ODPM. We are still waiting to see whether that enthusiasm continues. What is your view? Are they really there to make a contribution to the whole question of devolution and moving powers downwards, do you think?

Sir Michael Lyons: This is not a straightforward issue. As you know, I spent a fair bit of my time as chief executive of Birmingham City Council, acting as secretary for the Core Cities Group. The Core Cities Group have, for a number of years, been championing the need to give a clearer recognition of the needs and opportunities that our big cities represent. Part of their case, which I strongly support, is a recognition that the administrative boundaries of our cities do not reflect the functioning city. The closest we get to that is arguably Leeds but for cities like Manchester and Sheffield we know that the city economy goes well beyond the administrative boundaries of the city. If what we are talking about in terms of city regions is to try to capture the area of influence so that, in debating the future of - let us take Manchester - you include and think about all of the area that Manchester impacts upon, that can only be sensible. Recent reports have suggested that British cities are not performing as well as some of their European counterparts. They clearly argue that most of those other cities, in one way or another, take account of the wider spatial pattern of the city. All of that points in favour of city regions being taken into account. I should probably stop there because the next set of questions is about how you do that.

Q571 Mr Betts: That is exactly right. Three models that have been presented to us or a range of opinions. One is the NFBR model saying that, if you are going to have an area which has real powers and fund raising powers in particular attached to it, you are going to have to formalise it and get an elected mayor for the whole region. Others say if you go down that route you will kill off much of the developing work that is going on. We went to Bristol the other week and talked to them as well as Birmingham and Manchester, saying that collaboration and co-operation and working in partnerships is the way to develop city regions. They are two very different models.

Sir Michael Lyons: I absolutely agree. Some of the models around at the moment go beyond my definition of city region, to try to capture a conurbation-wide area. In the West Midlands at the moment, the debate is much more around the boundaries of the old metropolitan county than it is around the functioning city of Birmingham. There is a dimension there to be explored. Again, there is no right or wrong solution. Our history tells us that this country is sceptical about multi-tiered local government even though just across the Channel most of Europe finds a strength and a benefit in it. One might be cautious about introducing further elected tiers. I am generally in favour of a gradual change. It seems to me that virtual structures have much to commend them. The danger is that people will say that they are willing to adopt a virtual structure rather than change. Government always has to make a judgment about whether this is a good, practical way of moving forward or whether it is the turkeys getting together to avoid Christmas.

Q572 Mr Betts: If we are going to develop that sort of model - and most of the evidence from the various city regions is saying we are working together and developing arrangements which are leading in that direction - the further evidence is that what we really need for the city regions is to have some power over planning and more power over transportation, pulling together things and devolving them from the centre and also on skills. Have you any evidence that the Department for Transport and the Department for Education and Skills are signed up to this agenda at all?

Sir Michael Lyons: I think that goes beyond my area of competence as to whether they have signed up to it. There are some signs that they are willing to discuss, as I understand it, but I am not involved in the detail. The Department for Transport is interested in finding solutions to transportation problems in our big cities and they understandably recognise that those issues need to be addressed not just within the administrative boundaries of those cities. I think there is some appetite at the moment to find a solution to these big, ongoing problems. I guess my starting point would be to empower the councils that make up those areas, to incentivise them to work collectively and to then hold them to account for whether they can find mechanisms, working together, to make the difficult rationing and prioritising choices that have to be made.

Q573 Mr Betts: Can I pick up the transport question because this is a big issue in metropolitan areas. Most of the travel to work areas go beyond the boundaries of any one council. Indeed, the PTAs were set up for that purpose but even they sometimes do not form the whole of the travel to work area. How are we going to get accountability? If, for example, we really are into devolution of powers and passing the ability to regulate and franchise bus services down to some form of democratic local control, how can we do that? We cannot do it through individual councils, can we, in a city region area? What is the body that will have the powers and the fund raising abilities?

Sir Michael Lyons: I do not want to give a final view on this because clearly these are issues where there is room for more debate and I am watching the discussions taking place amongst city regions unfold. To answer your question, I might return it as a question: why is it impossible to imagine, in the case of the authorities of south Yorkshire, holding those authorities individually to account for moneys that are raised and used interest hat area, even when they are used collectively? Since the demise of the metropolitan counties, in each one of our major conurbations, a range of services has been provided on a joint basis. Are we so dissatisfied with the accountability for those services that we are confident we have to change? It is at least worth debating whether things can be done without new boundaries and new structures.

Q574 Alison Seabeck: Mr Betts talked about different sorts of structures that might make up a city region and the informal model particularly. If you have an informal model it is made up of different building blocks that are flexible, big ones and small ones. It will change with time. Do you feel that government funding streams are as flexible in terms of meeting that changing mass, if you like? If so, is it something which, if you want to incentivise councils, you will have to consider as part of the local government finance element of your review?

Sir Michael Lyons: Firstly, I absolutely agree that one of the benefits of taking a virtual approach to these things is that it recognises that all areas differ. There is no one size fits all and needs and expectations change over time. We could but it would be divisive and expensive to keep redrawing the boundaries of our councils. Moving into greater recognition that councils need to co-operate across their boundaries with their neighbours and that the level of co-operation will depend upon the issue in hand seems to me the key principle. The rest follows from that. Is local government funding flexible enough? There is a danger that this debate becomes too preoccupied with government funding. There is an equally strong argument. What we want to establish in this country are local communities that can themselves be clear about what they want to do and raise the money to do it. The move towards prudential borrowing at least provides the proposition that, with the right income streams, we might be able to do rather more before you call for central support. The model that says we can only deal with all the infrastructure of the UK by going back to our central government to raise the money is problematic.

Q575 Alison Seabeck: Suppose you have authorities where there is a real common sense bond between them to do something. One is a Walsall at its worst or Hackney, when it was performing diabolically, and the other is a very excellent authority. The folk in the excellent authority, despite the obvious benefits perhaps, will say, "Is this sensible?" Will government want to encourage the linkage between the two if one is performing particularly badly and needs the support of central government?

Sir Michael Lyons: At the moment, the family of local government is eager to argue, I think with some credibility, that they should and want to take more responsibility for dealing with weaknesses elsewhere in the family so I would be surprised if there is anywhere where you have excellent and good councils saying they do not want to work with weak councils because they are committed to showing that can work. Indeed, it has been shown to work very well. Where councils have improved has much to do with support from other councils. That is less of a problem for us really. You could posit a situation where you might have a collection of weak councils and maybe in those cases government would want to take some action to reinforce and support. This is about co-operation between tiers. I am clear about that.

Q576 Mr Betts: I take your point that flexibility, co-operation and not formalising things can be a good thing. If we get to a situation where taxation is being raised to fund certain services at city region level, do we not need clarity of boundaries in some form? I just take Barnsley which has travel to work partly to Sheffield and partly to Leeds but, in the end, it cannot be taxed for both areas, can it? Does there not have to be some degree of clarity over boundaries if we are going to move that further step to an organisation which has fund raising and clear accountability?

Sir Michael Lyons: I do not know. I do not want to dismiss the point. It is certainly worthy of further discussion. If I come back to Birmingham, a city that I know better, it is clear to me that it is important that the taxpayers of Birmingham understand what the money that is raised from them to be spent in Birmingham is spent on. We have a finance system where it is very difficult for people to be clear where their margin of tax pound has been spent. The sheer scale of our aspirations for equalisation means that, for taxpayers in parts of London, most of what they pay in tax they have no idea where it is spent even, let alone what it is spent on. Already we have a system that is far from transparent. Your argument that a good system would be one where you could hold to account the person who decided how your tax pound was spent I would agree entirely with. For the citizens of Birmingham, for instance, their interests are clearly fostered by investment at the National Exhibition Centre. It is owned by Birmingham but it is in another borough. They are clearly furthered by transportation arrangements that enable people to go from the east of the city out to the job opportunities in Solihull and the National Exhibition Centre. Our citizens know that the boundaries are not a paving around their lives so I do not think they have any problems understanding that some of the expenditures would take place outside the boundaries for their benefit. I would separate the two points.

Q577 Mr Betts: We have two different lots of evidence on this as well. If city regions are going to take over some of the planning and maybe housing and skills roles which currently are probably done at regional level, where a city region is up and working, developing policy and taking decisions, is there really a question mark over the function of the future of regional government in those areas? We have had evidence from Birmingham that said no and it would be a matter of carrying on with two tiers. When we went down to Bristol they said, "We would not need the region in that case."

Sir Michael Lyons: It is an open debate. The history of the city region debate has generally been one of either/or. You would have to question what exactly the division of responsibility would be and how the different structures would work together but I do not rule it out. It seems to me quite a complex map that you then draw if you have both city regions where essentially you have one administration for the sorts of issues that we are talking about - strategic planning, economic development, housing, skills - and it is difficult to imagine what you then have remaining at a regional level if you have taken those down to city region level. You are right to draw attention to the fact that it is a problematic area.

Q578 Mr Olner: You spoke at the annual conference of the Chartered Institute of Public Finance and Accountancy, when you called for local councillors to have more powers. You also called for better training. You said they needed better skills, more support from officials et cetera. Are you not being a bit patronising when you are saying that to all of our local councillors at whatever level?

Sir Michael Lyons: I think you can be challenging without being patronising. The way that I came to the assertion that local government needs to up its game is reflected in this May report. I do not look at what it is trying to do at the moment. I look at it in a different future where I am arguing that there is a case for greater local choice and a bigger place-shaping role for local government to play. Having put those two on the table, I then conclude that, compared with the job that local government would have to do, it would need to strengthen itself in a number of ways and that then follows. I am happy to defend my propositions. It seems to me that very clearly local government, if it is going to have a bigger role in this country, needs to have greater confidence amongst the people that it represents. I do not think anybody could challenge that as a proposition in terms of where we are at the moment. All of the surveys show much less trust and confidence in local government than you would expect. I do not know that I have the last word on how you engender that but I am sure that if you want to devolve more, to give a bigger role to local government, it itself has to address that issue. Interestingly, when I first raised these issues with the Local Government Association at their conference in Gateshead, there was a very wide acknowledgement that I had just about hit the nail on the head and had described the right agenda.

Q579 Mr Olner: Is that where you see that starting to engender back in terms of local authorities the ambition and leadership roles that we spoke about in the first question I asked you?

Sir Michael Lyons: Absolutely. It is about how you build. I have used the term "confidence and credibility". It is about how you build confidence in the authority that it is up to these bigger jobs. Part of that is about developing the skills that are necessary to do that and we need to develop enough confidence in the community that local government can be trusted with this.

Q580 Mr Olner: I would be interested to pursue that a little further because, as you know, I was a leader of a council many moons ago. The ambition and the stuffing was knocked out of a lot of us because of the overbearing regulation from central government. It did not matter what ambitions and what assets you had. You were told by central government that you could not use them. Having set on getting that leadership level and ambition back in, what do we need to be saying in our report for government to back off, to make sure that that leadership and ambition comes around again?

Sir Michael Lyons: To be credible the message, whether it is from your Committee or from me, has to simultaneously acknowledge that there is a national gain to be achieved from more local choice, taking place-shaping at a local level seriously. It also has to acknowledge that that requires local government to change. If you do not put those two things together, it is a rather difficult message to convince people of. How does it have to change? Not by positing something of which we have no experience, but instead saying let us take the very best examples where local government is at its very best. If you could make that practice more widespread, that would be an exceedingly good improvement on where we are. It is extraordinary, is it not, that very often when government determines by national initiative what it uses as a national initiative is something that was pioneered and developed within local government? It appears attractive and is then rolled out. That is fine but there is a danger that you reduce the ability for councils to respond to their local circumstances and to innovate, if you spend too much time directing from the centre.

Q581 Mr Olner: Is there any disengagement with local authorities, regions, city regions, shire counties or what-have-you with the other public services: fire and rescue, the police and all of those? Where do they fit in the game plan of what happens to local authorities?

Sir Michael Lyons: I cannot give you solutions because these are really problematic areas. Nowhere is that better reflected than in the arguments for and against the reorganisation of the police service, where you have a clear argument from the Home Secretary that the changed world that we live in of greater threat from international terrorism requires bigger units of policing and the ability to invest in those parts of the police service which are best developed at a regional and national level. Simultaneously, there is an acknowledgement that most police services in this country have made extraordinary progress in recent years in connecting up at a local level through crime and disorder partnerships to deal with antisocial behaviour. We know, because the Audit Commission's recent study very clearly demonstrates, that what our citizens value is being sure that the police service, along with other services, is going to tackle what happens on the door step. They are interested in the big ticket crimes but they are also very interested in antisocial behaviour problems that happen around them. There is the challenge. Do you organise the police at the level of the occupational command unit or do you organise the police at the level of the regional structure? The truth is you are going to have to make sure that it works at both levels. You have some choices about how you try to do that. For me, the most important thing is that public services work well together.

Q582 Martin Horwood: Can I address the same issues as Bill but from the other angle of the spectrum, which is that of trying to persuade high calibre candidates to stand as local councillors in the first place? I am sure every Member of this Committee has very high calibre local councillors in their particular areas, he says carefully, but we all know I am sure that it is desperately difficult to persuade people to take on what is a very burdensome role that is probably going to be done in their spare time and probably destroys their social life and does not help their family life. It is one for which they get a reward that has become more generous over recent years but it is still nothing like they would command in a really high calibre job. It is very difficult to persuade high calibre people to take this kind of burden on. Some of the things you talk about seem to offer something of a solution, particularly more support from officials in much the same way as we have publicly funded support from our researchers, or from local community councils. Some of them seem to go in the opposite direction. The idea of single member wards I have to say, as a former local councillor myself, strikes fear into my heart. If you were the only person responsible for taking on casework in a particular ward, that would make it even worse surely?

Sir Michael Lyons: You have two choices. Either you concentrate on the core remits and all the thoughts that occur to you as you travel towards conclusions you leave out because they are not fully researched and fully fledged; or you include them to give more colour and also to encourage debate on these issues. Then you find that you are including things which you have not been able to research and reach a final position on. I am quite clear about the suggestion which came out of the Young Foundation, that it was at least worth reflecting upon. If it is the case that the public find it easier to identify with the single individual that represents them - that is part of the argument for those who favour elected mayors - you could extend that to single person wards where it is clear that this person speaks for this area and that is a case that is at least worth thinking about. I put that to one side because I would not say that I am a champion of that. I was interested and it came up simultaneously with my work. I am much more interested in the drift of your main comments. My report very firmly comes to the conclusion that the whole body of elected members of a council is an important instrument of engagement with the community. I think that was not given the attention it should have been given in the 2000 Act which established executive models of management and far too frequently councillors felt dispossessed. That was a term that was used in front of the select committee at that time. Although the legislation speaks about local leadership, it was not thought through how that would be delivered and supported. I agree with you. In far too many areas local engagement is seen as part of the political process. Councils take a step back from it and do not engage with it as fully as they might. Indeed, when they do, they are sometimes criticised by their elected members for fear that this is encroaching upon their territory, so it is quite a difficult area to negotiate. I am clear that the body of councils in this country, whilst it includes some outstanding examples of both engagement and local leadership, is not entirely representative of the community. Far too many parts of our community do not see it as part of their life plan to spend some time on the council. That could all do with being changed. You will see that I come to some conclusions. The parties themselves might look at them.

Q583 Martin Horwood: You seem to be presenting it as a matter of choice but, for some people who simply could not afford to take on that kind of role because of their family responsibilities or taking a cut in income, it is not really so much of a choice unless you provide the support amongst the other options. Talking about whether or not it is part of somebody's life plan, I smiled when you suggested that the political parties need to leave more time from political activities. It would be nice if local councillors had some time for local activities sometimes. It might be more about the support you provide for them once they become councillors.

Sir Michael Lyons: I agree.

Q584 Martin Horwood: Can I move to local taxation? As a Lib Dem I am happy to trot out the advantages of local income tax. One of the ways in which I have done that in the past has been saying that it could be collected nationally if one of the advantages is you would be able to abolish other forms of collecting taxation and do it on a universal basis. I am sure that may be true of other forms of taxation as well. You seem to be opening the door to a kind of pick and mix approach to local taxes which would be presumably, I would have thought, quite costly and quite confusing in some of the economies where all of us might suggest a different form of taxation might be lost. Is that not right?

Sir Michael Lyons: If I have left you with that impression, I am not sure that is the one I wanted to leave you with. I am clear that there is discussion still to be had - and that is where my work will be completed in December - about the original remit that I was given: can we make council tax fairer? Does local government need creative flexibility to raise more money locally? Implicit in that is the debate about balance of funding. That also includes the possibility that there might be some taxes for which there is local choice. That is part of the remit. I do not think it extends to some areas having local income tax and some having council tax. We are talking about some smaller taxes over which there might be some local choice. What might they be? I seem to have a problem getting this over to the press. I have made no decisions but you might give freedom to authorities to make their own choices about whether in some way tourists make a contribution to the local tax base. You might give councils the opportunity to reflect on a wider charging regime as an alternative to some aspects of taxation. This is part of the equation but it is certainly not where some choose local income tax and others choose council tax.

Q585 Martin Horwood: You are clearly trying to extract yourself from the controversy of the bed tax but whatever local taxes they might choose are you suggesting that all local authorities would have that power or are you suggesting the two tier approach where those with the most strategic responsibility would have the right to do it but others would not?

Sir Michael Lyons: You are asking me to look into the future and decide which set of taxes I think are a good idea and then think about the spatial implications. That is all for later in the exercise. All I am acknowledging is - and indeed the original remit acknowledged - that there might be some - and these would be by and large taxes that would generate small sums - choice for authorities, not that there would be choice about their general tax base.

Q586 Martin Horwood: Would it apply to all or not?

Sir Michael Lyons: It is probably best that I do not stretch my imagination. At the moment, that is something I am looking at.

Q587 Alison Seabeck: Do you feel constrained by the fact that you have to consider a revised council tax? We cannot do away with council tax; that is accepted. Is this a personal view or an official view?

Sir Michael Lyons: On this particular subject, both of them come together. I am still looking at council tax. I was clear in my December report that it has many merits. We raise over £20 billion each year from council tax. It is a very efficient tax to collect. It relates to the locality so people understand that is the tax they are paying. They do not understand very well the value they are getting for their council tax. They think that it pays for a much higher proportion of local services than it does and I think that is problematic. Council tax has a lot to commend it but it is also true that it is the most perceived tax. More people recognise council tax than any other council tax in the country, even though it is a relatively small tax compared certainly with income tax and VAT. I need to consider that very carefully when I finally come to a conclusion in my recommendations about the future of council tax.

Q588 Alison Seabeck: You are not entirely wedded necessarily to council tax?

Sir Michael Lyons: I am continuing to explore that but I can see that it has many strengths. One would be cautious about positing its replacement.

Q589 Mr Betts: This is about fairness and the ability to pay related to a property tax. Most people might think it is based on how it relates to their income but there can be people with very different income levels housed in the same property value or the same council tax level. How do you square that circle? That seems to be one of the fundamental arguments around it: it is very difficult to collect and there are lots of merits but is it fair?

Sir Michael Lyons: You are right. There are those who question council tax because of what they see as a mismatch between tax paid and ability to pay. It is certainly a dilemma. Council tax in its design was quite skilful as a tax that had a property base but it is not pure property tax. It does have discounts which relate to the number of people living in the house and it also has council tax benefits which mean that it is related to income. What our work has shown is that if you had the full take-up of council tax benefits this would correct the regressivity of the tax at the lower end. My conclusion as of December was that if you were interested in fairness solely in terms of proportion of income paid in council tax, you would be most interested in getting the council tax benefit system to work so that people who were eligible took advantage of it. However, I was clear then and I am clear now that that is not the only dimension of fairness. If you have two households living next door to each other, one of whom has considerable wealth tied up in the house that they own, there might be an argument for taking account of wealth in terms of relative contributions. That is another aspect of fairness but these are complicated issues.

Mr Betts: Are you also looking at the issue of the various bands of council tax and whether there should be changes at the top and bottom to make the relationship between the property value and payments more in line? Secondly, I wonder whether you are looking at another issue which has been highlighted. A lot of the publicity is given to pensioners and council tax but, if you look at it, some of the real problems can be with people who are working, on fairly low incomes, sometimes with families, where the problem is that the income level at which they start to pay council tax - in other words, they start to lose their total entitlement to council tax benefit - is much lower than the level at which they would start to pay income tax. Should we look at some realignment of those? That might address another problem for people on low incomes.

Q590 Chair: It is perfectly reasonable with a property tax to say that property is wealth and therefore ought to be taxed, but the council tax does not recognise the difference between a tenant of a property that is owned by someone else or an owner occupier.

Sir Michael Lyons: I absolutely agree with that. Can I start with Mr Betts's point about low income households? I certainly do not argue that the only issues of fairness relate to the elderly. There are issues around those who are asset rich and income poor and there are issues around those who are tenants, living in highly rated properties even though they have no interest. These are issues which I am sensitive to and hope to explore further before I make my recommendations in December. To come to the issue of bands, we did a very substantial amount of work before the summer of last year on modelling different band arrangements, both increases in bands, the introduction of regional bands and the possible role that a special band for London might play. Those were all published in the December report so that it would be clear what the implications of those were. It is not impossible but it is difficult to imagine fundamental changes in the band without simultaneous revaluation of properties. As you know, government has decided not to pursue that, whereas when I started my work I expected that to be taking place in 2007. What my work had demonstrated is that even with the addition of extra bands, and quite substantial stretching of the shoulders between the bands, this had nothing like the impacts on fairness against income which many people had posited. In fact, it had no significant improvement, if that is the right term, on the proportion of income paid on council tax. That is partly because the mixture of home ownership by income is much more varied than you might immediately think of, and we are back to where people are in their life cycle. You have people who bought houses when they had much larger incomes and are still living in those houses. In short, I have not finished work on this, I still have the job of offering an answer as to whether you can make council tax fairer, and if so, how. All of the points which you have raised in those three questions are part of the agenda for that discussion.

Q591 Mr Olner: Can you perhaps share your view with us about how the business rate supplements the other strands of income into local authorities? Do you think it should go back to how it was, ie localising and set by the local authorities?

Sir Michael Lyons: I have not reached a final conclusion on that. It is one of the things I was asked to look at, and I have been actively engaged with the business community as well as local government and other stakeholders in that discussion.

Q592 Mr Olner: Is it possible to share business's views with us?

Sir Michael Lyons: Business views are variegated. At the level of headline there is a unanimity of view of all of the biggest organisations; the CBI and the British Chambers of Commerce are clear that they like the uniform business way. They like it for the reason that it is predictable, it is linked to the RPI, and I would posit that if any of us were in a position to have our tax linked to the RPI we would like it too. Why would they say otherwise? When I get into a deeper more detailed discussion, particularly at a local level, in interesting places like Sheffield and Surrey, but not alone, you will find the business community saying, "Of course we do not want to pay any more tax, who would, but we do have some concerns about current arrangements. We would like to see closer connectivity with the local business views and the council. We recognise that there are some important issues of infrastructure and other investments in which the business community might properly make a contribution. We like the principle of business improvement districts and foresee that might be built on because it is voluntary in nature". I draw out of that debate that whilst there is an understandable preference for the status quo, there is recognition that the business community has an interest in the debate, has an interest in getting closer to local government, and would like to see its issues more strongly reflected on local governments' agenda.

Q593 Chairman: We have been jumping around quite a lot, but can I bring up the issue of the Local Government White Paper which, as you know, has been delayed and is now likely to be published, we believe, in the autumn. How does the work of your inquiry dovetail into that revised timetable on the publication of the Local Government White Paper?

Sir Michael Lyons: It is not a major problem for me, I have my remit. When the remit was extended last summer, I agreed publicly - and at that point David Miliband was the relevant minister and made it clear that he expected to publish a White Paper - that I would put my thoughts into the public arena in advance of the White Paper so that those who were supporting him could draw on that. That is what I did, and that is why I published the May paper. Originally I anticipated that there might be three or four thematic papers, but when it came to putting them together I realised that this was such a complicated story that unless I tried to tell it in one go the different dimensions would be weakened, so instead of three thematic papers there is a rather fuller attempt to cast a picture of a different type of future in the May report. It is entirely a matter for the Secretary of State to decide when she is ready to publish her paper. This exists and I continue to be open to dialogue. Indeed, although this is an independent inquiry we work closely with government departments and there is a dialogue which continues.

Q594 Alison Seabeck: Will the delay in the White Paper and your final views on local government finance not impact on the next copy of the Spending Review in terms that the Chancellor, whoever he or she may be at that time, will not be able to make decisions with a clear basis in terms of local government finance because if there are changes to come it could skew that, could it not?

Sir Michael Lyons: I have always been clear that all of this is funnelling into the next Spending Review. That was the basis on which my remit was given to me and why we agreed at that point that December of this year is the right landing spot for me.

Q595 Alison Seabeck: It cannot afford to slip much more, can it?

Sir Michael Lyons: I have not decided yet what I am going to recommend, so it is a bit difficult for me to know how long that could wait. What I am clear about is that some of the more radical options for change could have quite long lead times to them. My general feeling is that there is a need to give more space for local choice, to provide greater incentivisation for local government to recognise the role of place shaping and try and develop a finance system which supports that. That might mean quite a range of changes, some of which would take a little longer to implement than others, but you can move towards a different future by being clear about the package of changes that you want to make, even if you cannot make them all in one go. I am less anxious about what is included in a particular White Paper, or even a particular piece of legislation, than the government of the day evolving a coherent view about the job that it wants local government to do in the future and the best brain work to develop that.

Q596 Alison Seabeck: If there is coherence incremental changes could work?

Sir Michael Lyons: I am sure, but I do not think there is any alternative and there is no golden key to this, I have said that on many occasions, it is not a single tax change. This is about, points which we have talked about today, building up confidence in local governments so that it is more assertive on behalf of its communities, that it gets better at listening to and working and engaging with communities. All of these things need to be dealt with together, so inevitably the drum will beat at a different rate for different changes.

Q597 Mr Olner: You mentioned earlier that revaluation could have some effect on what your eventual report will say at the end of the day. Do you think it was the right decision to defer revaluation?

Sir Michael Lyons: At this stage it is always best not to look backwards, is it not? Was it the right decision? I am on record saying that I would not have recommended that the Government backed off on revaluation. If you are going to have a property tax, I think it should be revalued frequently. Whilst council tax is a hybrid, it has got a property base and therefore there is everything to be said for it being revalued very regularly. The technology is at hand, we can do this, so there is no reason to stop it. It is difficult, I absolutely understand the Government's dilemma. When you have not revalued for 12 years, it takes some courage to make the revaluation. There are winners and losers and, not surprisingly, as we know of old, it is only the losers who knock on your door, the winners sit back quietly and if they think of you at all it is only in their prayers.

Q598 Mr Olner: Going back to the old rating system, it was based on the rentable value of the property and, of course, council tax was brought in because poll tax quite rightly failed so miserably. If you are talking about property values, there is a vast range of property values up and down the country, how does valuation affect them? Is it something which has to be taken into account? Do we look for an average valuation because there there would be winners and losers for sure?

Sir Michael Lyons: It would take me more time than you have got this afternoon to take you through the process of revaluing. Let me say, we have all the skills and VAO has prepared itself for revaluation, but it is not a task that, though complex, is beyond us. Indeed, there are other places in the world which have now moved to annual revaluations and it can be dealt with. Of course, the more frequently we revalue the smaller the number of properties at any point in time that are affected. The good policy will take you towards more frequent revaluation because after all it only changes if relative house price changes. It does not matter if your house price goes up, it is only if it goes up at a lesser or faster rate than others that you start to change your position. This is a technical debate rather than the Government has decided what it wants to do, I am clear that it has made that decision and it is not here negotiation.

Q599 Mr Betts: Still with the costing, I am sure you have very full and enthusiastic co-operation from the whole of local government. I do not know whether sometimes you get a slight hint of cynicism from people who say, "We have seen it all before. We have got a history of inquiries into local government and local government finance and nothing much has happened. We have got political parties that are always more enthusiastic for radical change when they are in opposition than when they are in government. You are on your third minister now overseeing the inquiry and who you report to and, at the end of the day, are we going to have a situation where the Government is going to be committing some radical change, because it seems like there is a mood for some radical change?" Do you sometimes feel that you might have wasted a couple of years of your life!

Sir Michael Lyons: How sweet of you. That remains to be seen and, indeed, there might be a bit of speculation about which particular years I have wasted! Let me assure you, I do have other things to do. I only took this task on because I was convinced that ministers were interested in finding answers to the questions. The challenge for me is can I come up with answers which are sufficiently persuasive and for them to adopt those recommendations. I have already been clear, and, indeed, some of my earliest communications with ministers made it very clear, that we have to change public understanding about the role of local government and the taxation basis as a precursor to be able to make changes. In a world in which 75 per cent of taxpayers seriously think their council tax pays for 75 per cent of local services, when, in fact, they need 60 per cent for local services on average, it is a pretty serious misunderstanding. That led to the extension of the remit into role and the debate which we are involved in at the moment. I have said publicly that I think we are approaching a tipping point in terms of the national debate about the balance between local centres. It is not the prerogative of any one party or any one government. Where do I look for evidence that might be a good idea? Well, virtually anywhere else in the world. We are one of the most centralised countries in the world amongst developed economies, and that suggests to me that we might have some benefit in moving towards a new balance with more local choice and local discussion.

Chairman: On that more optimistic point we will end. I am sure we do not feel that you have wasted two years of your life. As a Committee we will certainly be hoping that there is real change following the White Paper and your report. Thank you very much.