Local authorities saw substantial reductions in their funding in the last Parliament; and it seems unlikely that budgetary pressures will ease in this one. The degree of change has led to numerous proposals for reform to the system of local government funding.
It has also triggered debates about the sustainability and purpose of local government, its powers and structures, and its methods of service delivery.
What happened in the last Parliament?
Reductions in central funding for local government during the 2010 Parliament were substantial. The Department for Communities and Local Government’s grant to local authorities in England fell considerably.
Some other sources of funding, such as public health funding, the Better Care Fund, and City Deals, became available to local authorities. Taking these into account, the overall funds available to local authorities have fallen less starkly.
Chart 1: Local authorities’ grants and spending
Local authorities’ grants and spending power fell by substantially more than budgets for central government departments. Real-terms change from 2010/11 in departmental expenditure limits, local authority spending power and local authority grant
Local government funding is devolved to Scotland, Wales and Northern Ireland, but local authorities in those territories too have been unable to escape pressure on their budgets.
A funding crisis?
Some commentators have raised concerns that, if the current trajectory of funding continues, it could cause some local authorities to fail in their statutory duties, or get into serious financial crisis, a view backed up by a poll of council leaders and chief executives conducted by PwC.
Chart 2: Local authorities risk
Proportion of council chief execs and leaders believing that…
some local authorities will get into serious financial crisis in the next…
Some local authorities will fail to deliver the essential services residents require in the next…
The Local Government Association (LGA), the representative body for local government in England, has estimated that if the current trends of central funding reductions were to continue, there would be a £12.4 billion gap between funding available to authorities and projected expenditure in 2019-20.
Councils are actively seeking additional funding, including through enhanced trading activities and commercial activity. There have been calls for greater freedom over the two local taxes, council tax and business rates.
The Local Government Association has called for an end to the Government’s requirement for a binding referendum for any council tax rise over a fixed percentage (2% in 2015-16).
Councils have also kept a proportion of the growth in their business rates revenue since 2013: there have been demands to allow them to keep all of it.
Even if councils had greater control over both of these taxes, it might be hard to use them to raise a significant amount of extra funding. Both of them have a high local profile, and local politicians might be sensitive to any increase. Thus some authorities – particularly in areas with less capacity for economic growth – are still likely to struggle for funds.
Councils has also begun to change radically the way services are provided in response to fiscal pressure. This has included initiatives to bring together the provision of health (by local NHS providers) and social care (by local authorities), including the pooling of funding via the Better Care Fund; and, through the Troubled Families programme, taking a multi-agency approach to families with complex needs.
Some areas have also benefited from city deals, giving one-off powers and funds to deliver agreed outcomes. But pressure remains for further change to local powers and funding.
More powers for local councils?
Some political parties’ manifestos proposed to devolve various powers, and the attached budgets, from central to local government. This could boost councils’ financial capacity as well as making them more important actors locally.
Retaining business rates revenue has led many councils to focus on economic growth, skills, business support and infrastructure, alongside their traditional role in public services.
Five areas have formed combined authorities – joint bodies to take on shared functions – to help them exercise such powers effectively, and there are plans for combined authorities in a number of other localities. But as combined authorities have no direct elections, any devolution of substantial powers to them could prompt concerns over accountability.
The previous Government proposed to devolve powers over skills, housing, transport, business support and integration of health and social care to Greater Manchester. The powers will be transferred to the Greater Manchester Combined Authority in 2015 and 2016.
They are to be accompanied by a directly-elected mayor for Greater Manchester, with the first elections expected in 2017. More limited ‘devolution deals’ have also been agreed with the combined authorities in Sheffield and West Yorkshire.
Such deals could increase local authorities’ capacity and status: but much depends upon the outcomes from the ‘first movers’, and on their ongoing relationship with the new Government.
These deals have spawned a number of demands for devolution of power from other local authorities across England. The government elected in 2015 will need to decide how to respond to demands for local devolution.
Whatever changes are made, it seems inevitable that, without a more generous settlement from central government, councils will be left with difficult decisions about the provision of local services.
Reprinted from U.K. Parliament Publications.