Letter to Chancellor ahead of public finance forecasts on 23 March 2022

From the Chairman of the Association

Cllr James Jamieson OBE

Rt Hon Rishi Sunak MP

Chancellor of the Exchequer

HM Treasury

1 Horse Guards Road

Westminster

London

SW1A 2HQ

16 March 2022

Dear Rishi,

Ahead of the Office for Budget Responsibility providing its next set of public finance forecasts on 23 March and your statement in Parliament, I wanted to write to you about the priorities for local government where public finance interventions would help councils remain financially sustainable and deliver on shared priorities in this highly uncertain time.

I would welcome a meeting with you ahead of 23 March to see how we can work together on delivering on our joint ambition for the country.

Support for refugees and asylum seekers

Councils have a proud history of welcoming new arrivals, stepping forward at times of crisis to offer homes and support so families and individual build new lives in the UK. We are keen to work with government to rapidly clarify funding arrangements for councils’ immediate and long-term support for new arrivals from Ukraine, including as a direct sponsor and also around their unique role in supporting integration and ensuring access to local services.

This support form part of a wider system of resettlement and asylum dispersal. Officials across government are already working with councils to look at ways to reduce the use of high-cost hotels in asylum and resettlement. We remain keen to work with the Government on accelerating funding for areas where asylum seekers are accommodated to reduce pressures on councils and communities.

Local government finance

• Overall funding: The Spending Review last year delivered much needed grant funding for councils to support vital local services and vulnerable residents in 2022/23. However, local government continues to face significant financial challenges. Initial LGA analysis following the Spending Review had suggested that the increases to core spending power projected by the Government, including all councils increasing council tax to the maximum, will meet estimated forward pressures in 2022/23 but not address existing underfunding of services like adult social care, children’s social care or homelessness.
  
  
  
  However, councils are now increasingly concerned by more recent inflationary pressures and energy price rises, as well as the cost of dealing with the ongoing impact of, and recovery from, the COVID-19 pandemic. This has made the 2022/23 settlement significantly more challenging than initially estimated when the Government made its decisions as part of the Spending Review.
  
  
  
  In any event, the funding package will fall short by at least £1 billion in the last year of the Spending Review period.
• Finance reform: The local government finance system is in desperate need of reform. The Government’s commitment to ensuring that funding allocations for councils are based on an up-to-date assessment of their needs and resources is encouraging, but further clarity and more substantive change is required. We have called on the Government to commit to the Fair Funding Review, reviewing both the formulas and the underlying data used for the assessment of relative needs and resources. Local government funding should be sufficient, when any funding distribution changes are introduced, to ensure that no council sees its funding reduce in order to protect services to vulnerable residents.
• Multi-year settlements: The three-year Spending Review also provided some welcome assurances on future funding levels at a national level, but a lot of uncertainty remains for individual authorities beyond 2022/23 including the distribution of the one-off 2022/23 services grant which includes funding for ongoing National Insurance costs. While funding reforms made it difficult for a government to set out a multi-year settlement for local government from April 2022, this is the fourth one-year settlement in a row for councils which continues to hamper financial planning and their financial sustainability. Councils need a multi-year settlement to make well-founded and sustainable budget decisions. This is crucial for councils to plan budgets effectively and manage future risk, improving the financial resilience of local government.

Services provided by councils

• Adult social care: We are growing increasingly concerned that the amount of funding Government has earmarked for adult social care reform is insufficient. We are particularly concerned about the affordability of the proposals on ‘fair rate of care’ which aims to better fund providers so they can pay staff fairly improve services, and the parallel application of section 18.3 of the Care Act which allows self-funders to ask the council to commission their care at council rates, thereby addressing the issue of cross-subsidisation. To be clear, we do not disagree with the aims of either policy. Instead, our concerns are about their affordability – inadequately funded charging reforms risk exacerbating an already very fragile system, with potential consequences for service quality and availability. We continue to call for a greater share of the new health and social levy to come to social care immediately.
• Children’s social care: Pressures on children’s social care budgets continue to increase, including significant increases in the costs of placements for children in care. Reported spending on independent residential and fostering placements grew by 21 per cent between 2017/18 and 2019/20 to more than £2 billion. Despite increasing their budgets for children’s social care, most councils continue to overspend in this area, and spending continues to move away from preventative spend into acute spending as needs and costs increase. The Independent Review of Children’s Social Care will provide evidence and recommendations in this area, however councils urgently need additional financial support to ensure the safety and wellbeing of children in their areas.
• Living with COVID: As national systems are scaled back, it’s important that local public health teams still have the tools they need so they can respond to new variants and tackle outbreaks, particularly in higher risk settings such as care homes and schools. This won’t require the same level of funding as the Government has provided so far, but an extension of part of the Contain Outbreak Management Fund is vital so councils can continue this work and ensure staff with expertise in this area are retained.
• Leisure services: The rise in energy costs is impacting on energy intensive services such as leisure centres, which are struggling to recover from covid-related low membership levels. As well as more financial support, energy intensive services that councils provide would benefit from greater energy security. Data from the National Leisure Recovery Fund evaluation showed that these services have received significant subsidy of around £125 million from councils, and a similar figure from provider reserves but these resources are now exhausted, leaving a shortfall between the earned income that used to cover not only provision of the service but extra income which could be reinvested in other public services. Swimming pools are particularly at risk with three separate surveys all suggesting between one third to one quarter of all pools could close. LGA public opinion polling on levelling up shows improved community assets like leisure centres, libraries and parks are people’s top priority for levelling up improvements in their local area (42 per cent). A strong leisure centre and pools offer will be critical for delivering against four of the 12 new Levelling Up Missions – 5 (skills), 7 (Narrowing life expectancy gap), 8 (improved wellbeing), and 9 (pride in place).
• Education for children with Special Educational Needs and Disabilities: A statutory override is in place for the 2021-22 and 2022-23 financial years that means Dedicated Schools Grant (DSG) deficits sit between individual councils and the Department for Education, not on council balance sheets. Some councils are concerned that they will not be able to set budgets for 2023-24 if these DSG deficits return to their balance sheets and we are therefore calling for the Department for Levelling Up, Housing and Communities to extend the statutory override until the Department for Education comes forward with a comprehensive set of proposals to eliminate or write-off high needs block deficits.

Levelling up and capacity

Levelling up is at the heart of what councils and combined authorities want for their communities. It is positive to see Government’s commitment to further devolution to local government in England at the heart of the Levelling Up White Paper.

• Independent data body: We want to work closely with government on the development of the new independent body relating to data transparency, which must add value to existing arrangements, and its plan to simplify the local growth funding landscape.
• Capacity and pay: Local government has a key role in delivering the levelling up agenda but this is hampered by workforce capacity issues that see the sector without some of the professional staff required in areas such as social care, children's services, planning and public health. Investment in training people for these high quality jobs in local government is central to the delivery of essential services and to do justice to the ambitions of 'levelling up'. The restricted budgets available to councils for employee reward will necessarily be focused on remaining compliant with the rapid escalation of the National Living Wage projected over the next two years. Additional funding is required to address the challenges of recruiting and retain key staff at senior and middle management level in the wake of cost of living pressures and sector pay non-competitiveness.

Net zero and transport

• Working together to deliver net zero: Only councils can mobilise and join up the collective action to achieve net zero in our towns, cities and communities. Councils have direct impact on a third of local emissions through levers over housing, transport and the natural environment, and are able to influence over 80% of an areas emissions. The Government’s Net Zero Strategy recognised this and committed to providing resources, to building capacity and capability at local level, and to simplifying and consolidating funds to provide longer term financial certainty for the local path to net zero. This action must come forward quickly, the climate crisis is an urgent one and councils want to play their full role in delivering the decarbonisation and adaption of places to protect our communities environment, health and jobs.
• Buses: Whilst the LGA has welcomed the recent £150 million extension to the Bus Recovery Grant up to October 2022, the LGA remains concerned about the long-term growth of bus services and the role that buses will play in reducing carbon emissions and giving private car users a realistic and sustainable alternative mode of travel. Analysis shows there is a £5 bn gap between plans by local authorities and bus operators to improve services through Bus Service Improvement Plans and available government funding. A long-term settlement is needed to protect and improve services, especially for the half of all bus users that are dependent on bus for their travel and those without viable alternatives, leading to knock-on impacts to the economy from reduced access to jobs, education, health and leisure activities.
• Electric vehicles (EV): The LGA is calling on the Office for Zero Emission Vehicles to publish its long awaited EV charging infrastructure strategy, address the barriers and opportunities raised by councils and clarify their role. Councils have an important role to play in the transition to electric vehicles but it is important that they are given maximum freedom and flexibility, for example in the provision of charge points to aid those without off-street parking. A statutory duty, as being considered by Government, to plan and deliver a network of charge points, may place unnecessary financial risks on councils and divert resources away from other initiatives to reduce carbon emissions from transport. What councils need is certainty of funding (both capital and revenue), removal of barriers impeding progress and access to expert support.
• Road maintenance: Funding for highways maintenance need to be restored to 2020/21 levels, which reached £1.65 billion. The Government has fixed highways maintenance funding at £1.125 billion per year between 2021 to 2025 – a reduction of £525 billion from the 2020/21 peak. The current levels will lead to long-term degradation of local roads, greater harmful emissions and costs to business. The reduction in maintenance funding is further exacerbated by construction inflation which is currently running at 5% per annum.

Housing and planning

• Planning: Councils share the government’s ambition to deliver 300,000 new homes a year – homes that are better quality, safer, greener and more affordable. Delivering the right type of housing in the right locations alongside supporting infrastructure creates sustainable, prosperous, resilient and integrated communities – as well as playing a vital role in rebuilding local economies. For local residents this will deliver higher living standards and an increased sense of community pride, and ensure that levelling-up can benefit everyone, irrespective of where they live. To enable councils to play a full role they need a properly resourced local plan-led system, an effective infrastructure funding mechanism that maximises land value capture as well as the tools, powers and flexibilities to empower them to significantly scale up council housebuilding.
• Right to Buy: Reforms to Right to Buy last year were a positive step forward, but significant barriers to delivery remain and so we need to go further and faster if we are to deliver the much-needed boost to housing supply. That means further reform including allowing councils to retain 100 per cent of receipts from the sale of homes through right to buy, as well as the ability to set discounts locally and combine receipts with other government funding streams.
• Funding for social housing: More broadly, there needs to be an urgent system-wide review of the total resourcing requirements for council Housing Revenue Accounts (HRA) to ensure that a high-quality service can be provided to meet the needs of all social housing tenants. This needs to include consideration of the impact that the government’s current rent policy and right to buy policy has on the ability of local authority landlords to meet their statutory functions, as well as deliver on other priorities – including decarbonisation of homes; building safety; new build programmes and a potential revised Decent Homes Standard. Without a sufficient resourcing package, which will likely need to be delivered through a combination of rents policy and grant subsidy, there will need to be trade-off decisions made in terms of balancing priorities at a local level.

Yours sincerely,

Cllr James Jamieson

Chairman