Local government finances and the impact on local communities

• In October 2023, before the Government announced an additional £600 million in funding for the sector, the LGA estimated that councils in England faced a funding gap of £4 billion. Councils’ financial pressures and needs must be seen in the context of the huge contribution that councils already make and of their potential to do more to support the delivery of public services.
   
• Despite the financial pressures councils have faced since 2010/11, the vast majority have met their statutory responsibility to balance their books annually. But this does not mean that services remain unchanged and sustainable:
   
  • Council spend is increasingly concentrated in fewer services and on fewer people.
  • There are growing concerns over the quality and scale of service provision.
  • Increasingly unsustainable workforce challenges.
  • Reduced spend on preventative services.
     
• These outcomes show that simply keeping councils on a financial drip feed has not prevented the steady narrowing and weakening of council services. The Government should not confuse councils’ ability to balance their books over the short-term with service sustainability over the medium-term.

• The main features of the Local Government Finance Settlement are:
   
  • £4.6 billion extra in Core Spending Power (7.5 per cent) in 2024/25 compared to 2023/24. This includes:
     
    • An increase in the business rates baseline and revenue support grant– (as well as compensation for the freeze to the small business rates multiplier announced at the Autumn Statement) in line with the September Consumer Price Index (6.7 percent).
    • A core council tax referendum principle of 3 per cent plus an adult social care precept of 2 per cent for councils with social care responsibilities, with shire districts getting the higher of 3 per cent or £5.
    • Increase in social care grants of £1.5 billion of which £1.2 billion is for the Social Care Grant which is ring-fenced for adults and children’s social care.
    • A 4 per cent funding guaranteeing. Each council is guaranteed a 4 per cent increase in Core Spending Power before any decisions about council tax increases – amounting to £269 million.
    • Services Grant reduces to £87.4 million compared with £483.3 million last year.
    • The New Homes Bonus at £291 million – similar to last year - with no legacy payments for previous years.
    • An increase of £15 million in the Rural Services Delivery Grant to £110 million. 

• An increase in council tax of up to 5 per cent will place a significant burden on households particularly during a year of economic uncertainty and increased costs. In addition, increasing council tax raises different amounts of money in different parts of the country not related to need.
   
• It is disappointing that the Government has continued to rely on council tax and the social care precept, alongside grant, to fund adult social care. As we have previously stated, council tax is not the solution for meeting long-term pressures facing high-demand national services such as adult social care. The assumption that not only the adult social care precept but also a substantial part of any council tax uplift should fund adult social care leaves little for other council services on which all citizens depend.
   
• The Adult Social Care Precept is calculated based on the council tax of single tier and county councils. This means that in two-tier areas the amount raised to address social care is lower as it excludes council tax to fund Shire District services. This is becoming an anomaly. We call for councils to be able to raise the Adult Social Care Precept on both the shire county and shire district element of council tax in two tier areas to help support social care and reduce demand for social care.
   
• Shire districts should have extra council tax flexibility but we would propose a limit of £10 rather than £5. We would also call for standalone fire and rescue authorities to be given the £5 flexibility as was the case in 2023/24.
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  We have always maintained that the council tax referendum limit should be abolished so councils and their communities can decide, when the time is right, how local services are paid for, with residents able to democratically hold their council to account through the ballot box.

• The methodology for allocating settlement funding and Revenue Support Grant (RSG) in 2024/25 is unchanged from previous years. The LGA considers that both the formulas and the underlying data used for the assessment of relative needs and resources need to be reviewed and the Government should provide sufficient funding to ensure that no council experiences a loss of income.
   
• We welcome the fact that local government will be compensated for the freezing of the small business rates multiplier in 2024/25. However, freezing the multiplier reduces buoyancy in the business rates system, and without alternative means of funding or compensation, council income would reduce in the medium term.

• Steadily growing demand has seen councils with responsibility for children’s and adult’s social care devoting an average of 63.9 per cent of budgeted service spend (excluding education) in 2023/24 to these services. This demonstrates councils’ commitment to protecting these crucial services, but it comes at the expense of funding for other important services and is also completely unsustainable. We note that Social Care Grant is for both adults and children’s services. Both of these are under significant pressure as well as facing the impact of a high rate of inflation. The extra money can only be spent once and so councils will be forced to prioritise.
   
• The LGA welcomes that the Government has acted on the concerns we have raised and recognised the severe financial pressures facing councils, particularly in providing services to the most vulnerable children and adults through social care services and delivering core front-line services to communities. The extra government funding for the Social Care Grant for 2024/25, including £500 million announced between the provisional and final local government finance settlements, is positive, but significant challenges remain going into 2024/25 and beyond. Directors of adult social services remain worried that their budgets are insufficient to meet all of their statutory duties. 
   
• We also continue to call for a long-term workforce plan for adult social care equivalent to that for the NHS. Councils commission the majority of direct adult social care from external providers. Pressures on the frontline care workforce are acute and challenges around recruitment and retention are well-known. Increases in the National Living Wage (NLW) are therefore welcome, but providers will likely expect to see their increased wage costs reflected in the fees councils pay. This will pose a significant additional pressure on adult social care budgets, which are already considered by many directors to be insufficient to meet all statutory duties.
   
• In addition, the Improved Better Care Fund allocations have again been frozen at 2022/23 levels. Additional investment is an essential foundation for future adult social care reforms if councils are to play their part in delivering on the Government’s ambition. It will be also necessary to understand the conditions attached to the different streams of funding. The LGA considers that these should be minimal and their use determined by local partners.
   
• Recent LGA research highlighted a sharp increase in the number of placements for children in care that cost more than £10,000 per week. While we know all providers are experiencing increased running costs as a result of high inflation, there is significant concern in the sector that this does not explain the cost of very high-cost placements. Work to increase transparency around the costs of residential placements for children is therefore welcome, and we continue to discuss with the Department for Education options to expand placement capacity to ensure that every child lives in a loving home that meets their needs.

• We are pleased the Chancellor has extended the Household Support Fund (HSF) in his Spring Budget, which will enable councils to continue to provide vital support and advice to households facing hardship.
   
• It is disappointing that we had to wait until the very last minute for an extension, and that it is only for a short period. Many councils have already had to close services, reduce or remove grants to their charitable partners and make redundancies due to the uncertainty.  Councils could find themselves in this position yet again in September. 
   
• The continued financial pressures on councils mean that many will have no choice but remove support if/when the funding ends, even though three-quarters of them expect hardship to increase further in their area over the next 12 months.
   
• The Government needs to use the next six months to work with the LGA, councils and our partners in the voluntary and community sector to agree a more sustainable successor to the HSF. Councils need certainty and consistent funding to efficiently maintain the staff, services and networks that help our most vulnerable residents. Without this we risk more people falling into financial crisis as we head into winter.

• The New Homes Bonus makes up a considerable part of funding for some councils, particularly shire district authorities. The LGA supports a bonus which is easy to understand and easy to evidence, including provision for affordable housing and energy efficient homes and which provides incentive. It should not be funded from a settlement top-slice. 
   
• Councils need clarity on the future of the New Homes Bonus following a consultation in 2021. Any changes should come with transitional funding to ensure that local authority services that residents rely on are not put at risk.

• We are disappointed that the Spring Budget provided no support to address the spiralling cost of temporary accommodation. Councils are spending more than £1.74 billion supporting 104,000 households in temporary accommodation, both the highest figures since records began. The restoration of Local Housing Allowance rates to the 30^th percentile of market rents from April 2024, announced at Autumn Statement 2023, is a welcome step. However, it is disappointing that the Government has not taken the opportunity to uprate the subsidy for claims in respect of people living in temporary accommodation which remains capped at 90 per cent of January 2011 rates.
   
• The severe shortage of social housing means councils are forced to pay to house people in private temporary accommodation, including hotels and B&Bs while they wait for a permanent home.
   
• Building more genuinely affordable homes remains the best way to help families struggling to meet housing costs, provide homes to rent, reduce homelessness and tackle council housing waiting lists in the long term. The Government must urgently implement our six-point plan to give councils the powers.

• We were pleased to see the confirmation of Levelling Up funding in the Spring Budget for culture and further investment in the West Midlands Combined Authority's cultural offer. Investment in cultural infrastructure drives local economic growth, reduces spend on acute health and wellbeing services, drives educational outcomes, and improves quality of life for people across the country. As the LGA’s Commission on Culture and Local Government highlighted, access to culture is not evenly distributed across the nation and measures to address this challenge are very welcome.
   
• However, capital spend should be matched with revenue funding to ensure the long-term sustainability of these services. Councils remain the biggest public funder of cultural services, spending over £1 billion a year, but this core revenue funding for culture reduced by over 40 per cent in the 10 years leading up to the pandemic because of pressures on council budgets and rising demand for statutory services. A recent LGA survey found that around half (48 per cent) of councils would need to make cost savings within their library services this financial year and over a third (34 per cent) reported the need for cost savings in their provision of museums, galleries, and theatres because of budgetary pressures.
   
• There is no substitute for a long-term, sustainable, multi-year funding settlement for councils, to ensure they can continue to invest in these important neighbourhood services and cultural infrastructure, setting the context for thriving, vibrant places in which to live and work.

• The Government continues to encourage local authorities to consider, where possible, the use of their reserves to maintain services in the face of pressures. Councils hold reserves for a reason. Earmarked reserves are held so they can plan for the future and deal with known risks; unallocated reserves so that councils can respond to immediate events and emergencies. Reserves can only be spent once and using reserves is not a solution to the long-term financial pressures that councils face.
   
• If reserves are used to address unfunded recurrent costs, the pressure is passed into future years. New funding will have to be found in successive budgets to replace the initial use of reserves. If councils use reserves repeatedly to offset recurrent pressures, they will rapidly find themselves still having to address unfunded pressures but now also with depleted reserves.

• The New Burdens Doctrine requires Whitehall departments to justify why new duties, powers, targets and other bureaucratic burdens should be placed on local authorities, as well as how much these policies and initiatives will cost and where the money will come from. The key definition of a New Burden is a change that could lead to an increase in council tax if it was not additionally funded by central government.
   
• The New Burdens Procedure should be extended to Spending Review decisions. The Doctrine says that where new policies and programmes are directly funded as part of a Spending Review and a funding transfer is made to local government, they should not be subject to a further New Burdens assessment. This means that in practice where a funding transfer is part of a Spending Review there is much less transparency than for those outside Spending Reviews.
   
• The Department for Levelling Up, Housing and Communities should ensure Post Implementation Reviews are carried out speedily. The LGA has been waiting for a Post Implementation Review for the Street Manager project (a transport data system) for two years.
   
• We are concerned that the revised Doctrine allows Ministers to waive it if they consider that authorities are currently going against government guidance – this was invoked by Defra ministers in December 2023 when they decided not to pay new burdens funding for the abolition of DIY waste charges.
   
• The Government has taken the view that the Housing Revenue Account (HRA) is not covered by the New Burdens Doctrine as it should be funded by social rents – this had led to the anomalous position that New Burdens funding may be paid to councils without HRAs but not to those with HRAs (an example is tenants’ rights and complaints).
   
• We welcomed the increase in the National Living Wage (NLW) at the Autumn Statement. However, local authorities must be sufficiently funded to meet the additional costs in order to avoid further unsustainable pressures on local public services. Looking beyond 2024/25, local government needs as much certainty as possible as to what future NLW rates are going to be, in order to plan effectively for any future increases. There is currently too much uncertainty in the process.
   
• To illustrate the scale of cost pressures affecting the sector it is helpful to examine the impact of the increase in the NLW from £10.42 to £11.44 (a 9.8 per cent increase) from April 2024. Our analysis shows that this will add £1.6 billion to the cost of commissioned adult social care services alone in 2024/25. This is greater than the amount that social care councils can raise if they increase their council tax rates to the maximum (5 per cent) before a referendum is needed – £1.5 billion in 2024/25 (excluding taxbase growth).

• While the sector is currently in need of additional financial support we also want to draw your attention to the benefits that investment in councils can bring to the delivery of key national government policies while also protecting the public purse. There are three core areas where there is strong evidence that investing in and empowering councils will deliver a strong return for government:
  • Driving economic growth.
  • Delivering better life opportunities while protecting the public purse.
  • Convening power and understanding place to improve public services.

Driving growth

• Councils are vital to addressing government priorities to support more people into work and address employers’ skills needs. But fragmented initiatives and services to achieve this seldom align with each other or the needs of local communities. Councils and devolved authorities are already doing a lot to cohere the system. The Government should route the Universal Support programme through local government, and work with us to build capacity to deliver it.
   
• The sector wants to go further with the right powers and funding and we urge the Government to back the LGA’s Work Local and pilot it by giving local leaders a single pot of funding to work with partners, to design, commission and have oversight of a ‘one stop’ all-age skills and employment service. A cost benefit analysis reveals that for a medium-sized combined authority, a Work Local approach making more effective use of around £270 million per year has the potential of an extra 2,260 people improving their skills and an additional 1,650 people moving into work. This could boost the local economy by £35 million per year and save the taxpayer an extra £23 million per year.
   
• Councils need a long-term national commitment to support a council house building renaissance and improvements in existing stock. Long-term certainty on powers and funding could help councils scale up to deliver an ambitious build programme of 100,000 high-quality, climate-friendly social homes a year. It would also improve the public finances by £24.5 billion over 30 years, including a reduction in the housing benefit bill and temporary accommodation costs.
   
• An expansion of council housebuilding would provide a counter-cyclical boost to housing supply; offer a pathway out of expensive and insecure private renting towards home ownership; reduce homelessness; tackle housing waiting lists and support the growth of green skills and net zero supply chains. Key to achieving these gains is the need for further reform to Right to Buy. Councils should be given: the right to retain 100 per cent of receipts on a permanent basis; flexibility to combine Right to Buy receipts with other government grants; the ability to set the size of discounts locally; and the ability to recycle a greater proportion of receipts into building replacement homes.

Improving life chances while protecting the public purse

• Investment in council services is proven to lead to better outcomes and life chances for residents. But in addition, there is also strong evidence that high quality council services prevent demands and pressures being passed onto other public service providers, often requiring more costly forms of intervention.
   
• By capitalising on the local knowledge and expertise of councils in supporting children and families, government can not only improve outcomes but avoid significant societal costs. Research for the Care Review estimated the societal cost of adverse outcomes for looked after children at £9 billion per year, while the ‘Big Five’ children’s charities found that a failure to invest in children’s social care now will lead to approximately £1 billion in additional costs to the Government over the next ten years.
   
• Preventive public health services such as smoking cessation, weight management, health visiting and sexual health services are essential to prevent disease, improve people’s quality of life and reduce health inequalities. If the Government provides public health with the long-term resources it needs this will reduce the long-term cost of treatment on the NHS while maintaining a sustainable health and social care system. Academic analysis shows public health expenditure by councils is three to four times as cost-effective in improving health outcomes.
   
• We welcome the Government taking decisive action in the Spring Budget to make vaping products less affordable to minors. Councils work hard to tackle the sale of illicit vapes in their communities as well stopping the sale of the products to children. We urge Government to ensure the proceeds from the tax are specifically targeted for environmental, public health and enforcement purposes. This will help to tackle the pocket money prices vapes are currently available for, deterring children from using them and helping the clampdown on illicit products.

Convening power and understanding place to improve public services

• Councils have unrivalled local knowledge and sit at the heart of dense networks of public, private and third sector bodies. This means that further empowering councils and organising and delivering public services locally through them can deliver huge benefits.
   
• Devolved models for delivering net zero are more efficient, and more effective. Innovate UK modelled interventions in heat, buildings, and travel, and concluded local targeted action would hit net zero by 2050 while saving around £140 billion, returning an additional £400 billion in co-benefits. Government should seriously consider our proposals for backing local climate action by giving all places the clarity, certainty, and flexibility to help deliver net zero through an evolving set of Local Climate Action Agreements underpinned by multi-year, place-based funding allocations which are reviewed and adapted over Spending Review periods up to 2050.
   
• Further empowerment of councils can help deliver the Government’s objectives in relation to children with special educational needs and disabilities (SEND). The Government’s SEND and Alternative Provision improvement plan rightly acknowledges that while councils and their partners are working hard to meet the needs of children with SEND in their local areas, not all children and young people with special needs are able to access the support they need. Councils, with their democratic mandate, are ideally placed to convene and lead local SEND systems, bringing health and education partners together to quickly deliver the right support to the children that need it. But councils need the powers to hold partners to account which they cannot do within the existing system. Without further change, sufficiency of funding will remain a major concern, as well as hampering efforts to ensure the needs of all children with SEND can be met effectively.

Arian Nemati, Public Affairs and Campaigns Adviser

Email: [email protected] / Mobile: 07799 038403