Rt. Hon Jeremy Hunt MP
Chancellor of the Exchequer
HM Treasury
1 Horse Guards Road
London
SW1A 2HQ
14 October 2022
Dear Chancellor,
Local Government Association – Medium-Term Fiscal Plan
As Chairman and Political Group Leaders of the Local Government Association (LGA), we would like to congratulate you on your appointment as Chancellor of the Exchequer. As the organisation working on behalf of councils across England and Wales, the LGA has enjoyed a constructive relationship with HM Treasury as we seek to achieve shared objectives to stimulate local growth and create preventative public services that save money and improve the lives of some of the most vulnerable in our society. We wanted to write to you at the earliest opportunity to share our submission ahead of the Government’s Medium-Term Fiscal Plan. This set out how councils can support your ambitions to ensure the country emerges from the current economic challenges stronger, more productive and with power properly transferred from Whitehall into hands of those who know and can deliver for their local communities best.
As you will know from your previous roles in Government and work as Chair of the Health and Social Care Committee, local government remains the fabric of our country, delivering over 800 services to improve lives and livelihoods. As leaders of place, councils strive to create thriving, productive and attractive places to work, live and visit. The pandemic highlighted what can be achieved when government empowers councils and works with them as equal partners to innovate and create new services locally. Most recently, councils have quickly mobilised local support for vulnerable families arriving from Ukraine, as well as continuing our work with those fleeing Afghanistan and elsewhere. Councils are also at the forefront of efficiency and helping deliver high quality local services at the best value to the taxpayer.
Stimulating growth is more important than ever as we face some of the most significant economic challenges we have had for many years. Local government can play a key role in boosting the economy, and making their communities more resilient in the future through their delivery of world-class public services and relationship with local people and local business. Empowering councils with the right resources and flexibilities to invest in quality public services and fulfil their role as place-makers, will be vital to our national economic and social recovery.
It was welcome that the Government in recent years recognised the crucial role local government plays in our communities. For instance, the Local Government Finance Settlement for 2022/23 provided a welcome potential increase of 6.9 per cent in council core spending power in cash terms, including new government grants and assumed increases in council tax, to support vital local services. Furthermore, at this year’s LGA Annual Conference the then Secretary of State for Levelling Up responded to our calls and confirmed he would introduce a two-year funding settlement for councils and would launch a consultation on this shortly. We look forward to working with you on securing longer term settlements for local government and on the future of business rates and the Fair Funding Review.
However, as you will know, the economic situation the country is now facing has changed significantly since the 2022/23 Local Government Finance Settlement was announced and councils face an unpredictable and difficult few years. Councils could make decisions which not only provide the services communities rely on, but provide better value for money for the taxpayer by making longer term investments that deliver savings, if they have adequate, certain, sustainable and long-term funding. In November 2021, when councils were setting their budgets, the OBR forecast was that consumer price index (CPI) would be 4.4 per cent in 2022/23. Since then, energy prices, spiralling inflation, and National Living Wage pressures are set to add significantly increased costs to councils’ budgets. At the point when CPI was expected to be 8 per cent in 2022/23, our analysis shows this led to £2.4 billion in extra cost pressures this year alone, and a funding gap of £3.6 billion in 2023/24 rising to £4.5 billion in 2024/25 just to maintain services at pre-COVID levels. As you know, inflation figures published since then show that inflation in August 2022 was 9.9 per cent. Without immediate additional funding, councils will face increasingly stark decisions about which services to stop providing as rising costs hit budgets. This means not just isolated closures of individual facilities but significant cuts to services people rely on, including those to the most vulnerable in our society.
Looking to longer term solutions, greater devolution of funding and powers would allow councils to fulfil their ambitions as leaders of place, and offer the taxpayer better value for money. Currently, councils in England are only able to levy two taxes: council tax and business rates. Both are subject to significant intervention and control by Whitehall and both stand increasingly exposed in the light of long-term changes in home ownership and business composition, such as the rise of e-commerce and the growth in microbusinesses. The pandemic underlined the transformative role councils can play in supporting their communities and economies if they are given the freedom to get on and deliver. To ensure councils can continue to harness this freedom, greater fiscal devolution and powers to raise money locally will be crucial. More widely, devolution offers the best value for money and is the right response to fiscal constraints and the ambition for a smaller central state. Given the tools and resources to tailor spending to local needs and opportunities councils will deliver better outcomes than a centralised system.
In your role as Chair of the Health and Social Care Committee, councils welcomed your close engagement and collaborative working style as you sought to scrutinise the Government’s approach on these important issues. We particularly welcomed your Committee’s work to recognise the financial pressures facing councils and the importance of local services more widely. We supported the findings of your Committee’s report from October 2020 which called for £7 billion annual increase in social care funding as a starting point for reform and the conclusion that doing nothing is “no longer an option”. We also welcomed your Committee’s report in July this year which acknowledged that recruitment and retention is “regrettably worse in social care” and pay is a crucial factor, with Government analysis suggesting that more than 17,000 jobs in social care are paid below minimum wage. Furthermore, the latest Skills for Care report found that there are currently 165,000 vacancies in the sector, this is up by 52 per cent since 2020/21. It is clear the situation has only got worse for those delivering and relying on adult social care services. The sector currently operates in the context of a decade of underfunding during which we estimate that councils have had to deal with a funding gap in adult social care alone of £6 billion. Councils met this through £4 billion in cuts to the service and £2 billion diverted from other services. These unstable foundations are being tested further with inflationary pressures, posing a serious threat to the ability of the service to function at even the most rudimentary level. This illustrates the very difficult choices all councils have had to make in order to put public finances on a more sustainable footing. As councils seek to limit the damage to the local services that so many people rely upon, we want to be clear that reserves can only be spent once; a local service cannot be cut twice. The pressures councils face will also impact other council services unless the funding gap in local government is closed, including homelessness services, children’s services and non-statutory services such as leisure and culture.
We would like to emphasise that we are supportive of the Government’s current policy on the National Living Wage (NLW). However, as you will be aware from correspondence received from ourselves and the National Employers for local government, that without additional funding, the current pay offer required to meet the increased cost of the NLW will not be affordable by many councils without cuts to job and/or services. This situation will be compounded and indeed repeated next year if the recent projections for the NLW come to pass. This pressure on pay brought about by the NLW will have a negative impact on service delivery, the viability of contractors, and potentially cause job losses in local authority run services, including adult social care, education and housing.
To support councils’ wider role as leaders of place, we would also like to discuss with you how reducing local government borrowing costs could allow councils to play their part in driving local green economic growth, through investment in housing, infrastructure including projects to achieve net zero, schools vital to levelling up the country.
The LGA delivers a range of sector-led improvement support to councils so authorities can learn from best practice and deliver the services their communities need to the highest standard, contributing to the improvement to local government as a whole. An independent evaluation of sector-led improvement concluded in 2020 and found strong support for the approach within the local government sector. We forward to continuing to work in collaboration with government departments to deliver this highly successful programme of support for and with local government.
Responding to the significant economic challenges ahead requires a renewed joint endeavour between local and national government as equal partners. We would be delighted to meet with you to discuss how the LGA can, on behalf of local government, work with your Department to ensure the Medium-Term Fiscal Plan delivers positive outcomes for our residents. Our offices ([email protected] or 07919304993) would be happy to work with your officials to find a suitable date for a meeting.
We wish you the best of luck in your role.
Yours sincerely
Cllr James Jamieson
Chairman
Cllr Shaun Davies
Leader of the LGA Labour Group
Senior Vice-Chair
Cllr Izzi Seccombe OBE
Leader of the LGA Conservative Group
Vice-Chairman
Cllr Joe Harris
Leader of the LGA Liberal Democrat Group
Vice-Chair
Cllr Marianne Overton MBE
Leader of the LGA Independent Group
Vice-Chair