Our civic infrastructure is in decline. The local safety net has gaping holes in it. And increasing numbers of councils are declaring effective bankruptcy. Against a backdrop of national political paralysis and broken public finances, it’s fair to say local government funding reform is in the “too difficult” policy box.
This situation is not sustainable. The government was recently forced to recognise this when – with too many councils pushed to the brink – it bunged an extra £600m into the annual local government financial settlement. So, the sector might limp on to the other side of the election but relying on short-term ad hoc bits of cash found behind the Treasury’s sofa is no way to run a country.
The next government will urgently need to put in place a long-term plan for local government. Not just to rescue local services, but to recalibrate the terms on which councils are funded and operate. An unfortunate by-product of years of austerity and retrenchment has been a complete absence of any vision or ambition for the future of the local state, its umbilical links to wider public services and core purpose, which is to ensure all communities thrive.
This recovery, reset and renewal will be the work of at least two parliaments. So, what would a ten-year plan need to involve? An immediate recovery phase could take steps to stabilise funding even within current spending constraints. Replacing annual revenue allocations with multi-year settlements of three years minimum would provide more stability for councils to plan around. Existing funding for local growth has become increasingly fragmented through a complex array of competitive bidding pots. These should be identified and channelled into a single capital allocation for every area, so that identified investment priorities could be pursued without waiting for government approval.
[Read more: English councils are facing an “out of control” financial crisis]
Resetting the terms on which local government is funded requires political mettle and awareness that inaction itself involves mounting costs. The long-postponed Fair Funding Review was intended to set out an equitable assessment of relative needs and resources between councils. But it has proved impossible to define a “fair” allocation between a sector starved of resource overall: everywhere has burgeoning “needs”. This is a product not just of austerity, but also of rising demand for support due to underlying societal trends. Our ageing population and deepening poverty are creating mounting support needs in areas such as social care, children’s services and housing.
Serious consideration should be given to removing local government funding allocations from day-to-day political control. This could happen through either through legislation or an independent body – an objective, regularly updated mechanism to assess demand pressures and determine resource sufficiency is required.
Local government funding shouldn’t be narrowed into a battle between councils over ever-slimmer pickings. A wider system approach would recognise the value of the local safety net as foundational for all other services to function effectively and less reactively. Current spending plans beyond 2025 imply deeper cuts for “unprotected” budgets, which in previous rounds of cuts has included local government, while “core” services like health and education experienced relative protection.
But the evidence shows that this core tenet of austerity policy is not, in fact, a cheap option. In the context of growing demand pressures, multiple costs have accumulated for other parts of the system as a direct result of underfunding local provision. The social care crisis has direct consequences for hospital bed pressures. Insufficient funding for children’s services creates rising costs for late intervention, with more families presenting later with higher risks. Lack of social housing is leading to rocketing temporary accommodation costs.
So, a renewed approach to local government funding cannot be detached from the fate of our whole system of public services. To ensure better value for public money, the way funding flows within the system needs to be geared around places and communities rather than artificial Whitehall siloes. As part of this, place-based public service budgets should empower democratically elected councils to convene collaboration across services operating in an area, based on identified population needs and anchored in community priorities.
This should be backed up by a new settlement to guarantee the political, administrative and financial independence of local government, enshrined in legislation. A clear national framework should be able to set broad outcomes such as reducing health inequalities or increasing labour market participation among identified groups, with local areas then having the autonomy to meet these outcomes in ways adapted to their context.
Renewal should move towards a wider range of fiscal powers devolved to local areas, backed up by equalisation measures to compensate different starting points. It is widely observed that council tax is regressive and business rates are broken, so local areas should be able to retain a proportion of national tax revenues generated locally, such as VAT or income tax. This wouldn’t mean residents paying more tax. But giving local areas a direct stake in supporting businesses and increasing labour market participation may well increase the overall yield, which would benefit the Treasury.
National policy towards local government needs to shift away from implicit tolerance of the gradual decay of services and recognise that the local tier is integral to the effective functioning of society. A ten-year plan for local government’s rescue, reset and renewal would set the course towards building more resilient, outcomes-focused local systems more responsive to the needs of communities – and more sustainable for the future.
[Read more: Council bankruptcy tracker: authorities under increasing financial strain]
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