Rt. Hon Jeremy Hunt MP
Chancellor of the Exchequer
1 Horse Guards Road
1 February 2023
Ahead of the Office for Budget Responsibility providing its next set of public finance forecasts on 15 March and your statement in Parliament, we 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.
Children’s social care
Demand for children’s social care has risen significantly over the last decade. Latest statistics show that there are now record numbers (and a record proportion) of children in care, over 15 thousand more than ten years ago. Referrals rose by 8.8 per cent last year as the impact of the pandemic started to become clear, with referrals from schools at record levels. While the number of children and families requiring support has risen, so has the cost of providing homes to children in care. Council spend on placements from independent providers grew by 57 per cent between 2016 and 2021, driven largely by increasing residential care costs. This compares to a 15 per cent increase in the number of children in care over the same period.
Councils have increased their children’s social care budgets, but this has not been enough to meet the impact of rising demand and rising costs. LGA analysis, prior to high levels of inflation, indicates an existing shortfall of £1.6 billion per year simply to maintain current service levels. Councils welcome the opportunity to work with Government on much-needed reform of the system, but as the Independent Review of Children’s Social Care identified last year, the system must have the resources to change. The review recommended investment of at least £2.6 billion over four years, prior to the impact of inflation, to improve the system to better meet children’s needs. If we are to keep children safe and provide them and their families with the support they need to thrive, children’s social care must receive sufficient investment both to stabilise current services and to start to build the new system envisaged by the care review.
The future sustainability of Housing Revenue Accounts (HRAs) remains a concern for councils:
- LGA-commissioned research shows that the 7 per cent cap on social housing rents, compared to the usually permitted Consumer Price Index + 1 per cent limit, will amount to a cumulative deficit of £664 million after two years. This, alongside expenditure pressures, will have an impact on the ability of councils to deliver key maintenance and improvement works as well as retrofitting of existing stock in pursuit of net zero goals and energy efficient homes. Decisions on social rent setting needs to sit with councils so they can set rents at a level to meet expenditure requirements.
- Decarbonising existing council housing continues to require significant investment. Recent analysis undertaken by Savills estimates the additional costs to deliver net zero, compared to what is currently provided for in HRA business plans across the country, is £23 billion over 30 years. Whilst the £3.8 billion Social Housing Decarbonisation Fund is welcomed, it falls a long way short of the funding needed. The Government needs to move away urgently from the drip-feed of small competitive pots of funding and inflexible tight timescales for delivery. Long-term funding certainty would enable councils to support the rollout of an ambitious national retrofit programme across all tenures.
- The Building Safety and Fire Act, which is welcome, introduces a significant additional expenditure requirement on the HRA. LGA-commissioned research estimates that the cost to achieve compliance with the Act across the entire HRA council housing stock will be £7.7 billion between 2023 and 2030.
There are not enough social homes to meet current demand, with more than 1.2 million households on waiting lists and almost 95,000 households in temporary accommodation. Councils need long-term certainty on powers and funding to help support an ambitious build programme of 100,000 high-quality, climate-friendly social homes a year. Not only would this provide safe, secure homes for those most in need, but it would improve the public finances by £24.5 billion over 30 years, including a reduction in the housing benefit bill and temporary accommodation costs. This should include further reform to Right to Buy by allowing councils to retain 100 per cent of receipts, to have flexibility to combine Right to Buy receipts with other government grants and to be able to set the size of discounts locally.
With the number of private rented evictions increasing, the cost of living continuing to rise and more Ukrainian arrivals presenting as homeless, councils are increasingly concerned about a national homelessness crisis. These pressures, combined with a lack of affordable housing options have created a perfect storm for services trying to prevent homelessness. Latest figures for England show there are a total of 120,710 dependent homeless children living in temporary accommodation, with 2,320 of these in bed and breakfasts. The number of people rough sleeping in London has increased by 24 per cent in the last year. Councils are warning us that these numbers are set to rise if government fail to address housing shortages.
We are calling on the Government to help prevent homelessness by reviewing Local Housing Allowance rates to bring them back within the 30th percentile of rents, and to prioritise a significant increase in social housing. We are also calling on the Government to look at developing a cross-departmental homelessness prevention strategy which addresses the drivers and levers of homelessness. We are pleased to see that the Homelessness Prevention Grant 2023/2025 will be multi-year funding that continues the £315 million per year from 2022/23, but this does not take into account extra pressures such as inflation or the rise in the cost of living.
Adult social care
We were pleased that the Government used its 2022 Autumn Statement to provide extra funding for adult social care and accepted our ask for funding allocated towards the now delayed charging reforms to be used to address inflationary pressures facing councils. Local government has always supported the principles underpinning adult social care reform and wants to deliver those changes effectively, but underfunded reforms would exacerbate significant ongoing financial and workforce pressures.
Although the additional funding announced in the Autumn Settlement was welcome it is not solely for adult social care as some of it is also available for children’s social care. Other elements of the funding have to be spent to support hospital discharge rather than councils having full discretion over its use. Ultimately the new funding falls significantly short of the £13 billion we have previously calculated is needed to address the severity of the pressures facing the service. These go beyond inflation and delayed discharges and include rising demand, and the need to ensure councils can meet all of their statutory duties under the Care Act. An investment of this scale is needed to support our national infrastructure, our economy and our prosperity. It was also disappointing that the Government continues to rely on council tax and the social care precept as part of its package to increase funding for adult social care. Council tax is not the solution for meeting long-term pressures facing high-demand national services such as adult social care. Council tax revenue raised locally is not aligned to need, leaving many councils struggling to raise sufficient funds.
Funding pressures on adult social care also have an impact on the extent to which the service can help mitigate demand pressures facing hospitals. Councils’ social care teams are working around the clock to relieve the strain our health service is under, but they could do more if they had adequate funding. A sustainable, long-term funding solution for adult social care remains essential if people are to live their best lives and if we are to avoid the annual last-minute search for solutions on delayed discharge.
Culture and leisure services
Public leisure and culture play a vital role in the health and wellbeing of communities around the UK, targeting the most vulnerable and those in areas of highest health deprivation. While many universal services face challenges, pressures are felt acutely in the leisure sector, with 40 per cent of council areas at risk of losing or seeing reduced services at their leisure centre(s) before 31 March 2023, and nearly three quarters of council areas at risk of seeing closures and/or reduced services before 31 March 2024.
Due to the nature of these public services and the mix of communities being served, the sector is unable to pass the significant energy and supply chain increases to customers via price uplifts. Price rises are also generally capped by the contract position and by market and economic conditions. This, coupled with the wider cost of living crisis, results in the sector being left exposed and vulnerable both under the current cap position and in the future. Without Government support we will see leisure centres and community services being dramatically reduced and with an increasing threat of centres closing across the country. This will have a significant knock-on effect to other services, in particular the NHS and social care, and risks supportive investment during the pandemic being wasted.
Government must show a commitment towards these vital public services by: acknowledging that the public leisure, sport and physical activity sector is an energy-intensive vulnerable sector; providing financial support towards the significant energy and cost of living rises in the medium to long term; and investing increased capital in public leisure provision to create modern and energy efficient buildings. In addition, the forthcoming new sport strategy should set out a ‘plan for the growth’ for the sector, unlocking the potential of the sector to support the economic, health, and social wellbeing of the nation.
Devolution of powers
Devolution to local leaders, with real power genuinely devolved and backed by sustainable funding, is the most efficient and effective way to address the current fiscal crisis and secure a path to long-term prosperity. Devolution of powers and money to our local leaders should not require reorganisation. As well as continuing to press ahead with new devolution deals across the country, we are calling on the Government to pilot a new approach to public service investment, building on the experience of whole-place community budgets, troubled families and total place and asking areas to come forward with radical proposals to bring together budgets and public services under the leadership of local government.
For example, the current skills and employment system is fragmented and unable to adequately address current labour market and productivity challenges. Recent analysis by the LGA reveals that across England, £20 billion is spent on at least 49 nationally contracted or delivered employment and skills related schemes or services, managed by nine Whitehall departments and agencies, and delivered by multiple providers and over different geographies.
Giving democratically elected local leaders the power to join up careers’ advice and guidance, employment, skills, apprenticeships, business support services and outreach in the community has the potential to save money and improve outcomes. A cost-benefit analysis based on a medium sized authority estimated that the LGA’s Work Local Proposal would improve employment and skills outcomes by about 15 per cent, meaning an extra 2,260 people improving their skills each year and an extra 1,650 people moving into work. This would boost the local economy by £35 million per year and save the taxpayer an extra £25 million per year.
Local Net Zero
The future economy is the green economy. Net zero is creating a new era of opportunity and councils want to act decisively and quickly to seize the opportunity across housing, transport, energy and nature recovery. The offer from councils is substantial and recognised across all significant independent expert interventions, from the Skidmore Net Zero Delivery Review to the Climate Change Committee. Only councils can lead, mobilise and join-up action within our villages, towns and cities. UK Research and Innovation found that council-led approaches to hit net zero targets cost three times less than a centralised approach and deliver twice the social and financial returns.
The importance of place-based approaches is recognised by a range of partners, including the Climate Change Committee, the Skidmore Review into Net Zero, and the Government itself in the Net Zero Strategy. The Government must now focus on delivery and accelerate action by:
- Bringing forward and consolidating funds into single place-based funding allocations for all councils to lead an agreed set of local net zero actions, free of the range of national restrictions.
- Giving longer-term financial certainty to councils to lead on priority issues including heat and buildings, transport and energy decarbonisation. Financial certainty should be for a period at least as long as one spending review period to enable businesses to take on and train employees to take advantage of an expanding green economy.
Putting in place a package of support to bolster councils’ capacity and capability to meet their aspirations for local climate action, including working with the LGA to expand how the sector can lead its own development.
Local government finance
We note that the Government has now clarified that it will not implement the Review of Relative Needs and Resources and a reset of accumulated business rates growth in this Spending Review period. And that it remains committed to improving the local government finance landscape in the next Parliament. In our view, when the Review does happen, it needs to consider both the data and the formulas used to distribute funding. The Government also needs to ensure that overall local government funding is sufficient when new needs formulae are introduced to ensure that no council sees its funding reduce as a result. There should also be transitional arrangements for any business rates reset.
Spending Review 2021 and Autumn Statement 2022 provided some welcome assurances on future funding levels at a national level for the next two years. But significant uncertainty remains at the local level and nationally beyond 2024/25, which continues to hamper councils’ financial planning and financial sustainability. Councils need a multi-year settlement which provides sufficient funding for statutory services. This is crucial for councils to plan budgets effectively, manage future risk, and improve the financial resilience of local government.
Alongside the introduction of greater funding certainty there should also be a move away from piecemeal pots of funding allocated through wasteful competitive bidding processes. LGA research estimated that the average cost to councils in pursuing each competitive grant was in the region of £30,000, costing each local authority roughly £2.25 million a year chasing down various pots of money across Whitehall. Government should instead adopt a place-based approach in which funding is aligned with local needs and opportunities.
Cllr James Jamieson
Cllr Shaun Davies
Leader of the LGA Labour Group
Cllr Izzi Seccombe OBE
Leader of the LGA Conservative Group
Cllr Joe Harris
Leader of the LGA Liberal Democrat Group
Cllr Marianne Overton MBE
Leader of the LGA Independent Group