Re-thinking local: funding services and investing in communities

If councils are to continue to innovate and be able to invest in their services and in local economies, they need confidence in the financial system. This is not possible if they are not properly funded, have already spent their reserves or are having to find further significant savings to balance the books.

Prior to the COVID-19 crisis, councils were already facing a funding gap of £6.5 billion by 2024/25 even with the assumption of council tax increases of 2 per cent each year, fees and charges rising and sustained levels of business rates growth.

Now, councils are also dealing with the immediate financial impact caused by extra costs, loss of income and uncollected local taxes arising from COVID-19. The newest information from the June round of the Ministry of Housing Communities and Local Government (MHCLG) financial information survey indicates that the financial challenge councils are dealing with is nearly £11 billion in 2020/21.

Of this, the Government has so far met £3.2 billion with welcome grant funding and clinical commissioning groups have contributed nearly £300 million from their budgets. Under the principles of the business rates retention system, Government will also absorb half of the business rates losses of some councils - but not until next year. 

We want to work with Government to ensure a package of measures are put in place to address this challenge. These measures will need to provide a bespoke solution to address losses in local taxation, meet all additional costs councils are incurring as a result of the pandemic and provide a guarantee for all lost income from fees and charges and other sources. Councils have a legal duty to balance their budgets each year and these measures are vital if councils are to avoid taking steps, such as in-year cuts to local services, to cope with funding shortfalls.

The next budget and the autumn Spending Review will need to take first steps to properly enshrine long term, locally-led investment in the economy and infrastructure as well as take steps towards a place-based rather than agency-based model of funding local public services.

We cannot address entrenched inequality and social issues with more of the same. We need to look at not only how much we spend but the way in which we allocate it. We need to allocate money to places and not departmental silos. These budgets need to reflect the needs of diverse local communities. They need to be based on equality impact assessments and not suit the false distinctions of Whitehall departments.

We can only address the deep-seated issues of inequality if we acknowledge them at the beginning of the policy process and plan our spending and services accordingly. 

This type of re-think will provide a fundamental opportunity to tackle some of the most deep-rooted inequalities within communities and should include how councils are incentivised. Now is the time to place emphasis on communities and place within the Spending Review by having multi-department place-based budgets. These need to be explicitly built around the needs of diverse local communities using equality impact assessments.

The pandemic is already having a profound impact on the economy. In this context, the best possible efforts of councils to spark local recovery will not bear fruit without sufficient funding and certainty to underpin them.

With the Fair Funding Review postponed, councils might have to set three one-year budgets from 2019/20 to 2021/22. Without even considering the impact of the pandemic, this does not allow for meaningful long-term decisions to guarantee best value for public money. Government will need to take early and decisive steps to provide councils as much certainty as possible, which is vital for them to provide the services areas need, as well as meet their legal obligation to balance their budgets each year.

Councils’ confidence in business rates as a reliable income source has reduced. The taxbase is eroded by a gamut of national discounts, with council income propped up by Section 31 grants. The Government’s fundamental business rates review has not yet started and the next revaluation of business rates will also be highly controversial regardless of when it happens, which will add to the angst currently surrounding the tax. Council tax also faces pressure, with increases constrained by nationally set referendum limits and a debate over the future funding of the adult social care precept.

We currently have a system which forces councils to look to the centre even for funds to meet core responsibilities, as well as in times of crisis. This relationship has endured for too long and neither empowers local decision making nor delivers on the priorities that the Government has set out for the country.

In this profound moment of uncertainty and change we need to ask not only how we can balance the books but also how do we rebalance our system.

We need a system that raises sufficient resources for local priorities in a way that is fair for every resident and which gives local politicians all the tools they need to be the leaders of their communities.