Response to IFS report on unsustainability of councils’ funding

A report published on 29 May by the Institute for Fiscal Studies (IFS) has found that since 2009-10, local government spending on services has fallen on average by 21% in real terms.

The report has also found that the level of funding cuts has varied significantly between services as councils have prioritised both adult and children’s social care services (down 5% and up 10% respectively) to the cost of others (children’s and youth centres down by more than 60%; planning and development and housing down by over 50%; highways and transport and culture and leisure down by more than 40%).

Some of the key points to highlight from the report are:

• Cuts have been greater in more deprived than affluent areas, with per person spending on those living in the most deprived fifth of councils falling from 1.52 times to 1.25 times the per person spending on those living in the least deprived fifth of councils between 2009-10 and 2017-18.
• Cuts seem to be at an end.
• Total funding available to councils is likely to become “increasingly inadequate” due to the Government’s plan for councils to rely on council tax and business rates to boost fundings.
• Bleak financial forecasting shows that councils must receive additional funding, or they will be unable to deliver the necessary number and quality of services.
• There are different potential models for raising more revenues nationally by the Government.

Comment

These latest findings won’t be news to councils, who for the last decade have worked harder and smarter to reduce the impact of funding cuts through many means, including alternative service delivery, shared services, joint ventures and any number of commercial endeavours, with the result that many councils are today barely recognisable to their historical selves.

But what of the IFS’s further finding that, overall, cuts to council funding seem to be at an end? Perhaps unsurprisingly, the report would suggest that anyone lauding Theresa May’s 2018 party conference proclamation that austerity is over and “there are better days ahead”, may have been jumping the gun.

The IFS report has considered not only the last decade but also looks to the future and summarises the funding options and issues for councils as the 2020s loom. Relying on council tax increases isn’t the answer; even if council tax increased by 4.7% a year. Adult social care alone could amount to 50% of local tax revenue, with the remaining 50% expected to fund the myriad of other services councils are expected, if not obliged, to provide.

Funding models to meet the shortfall include:

• More revenues could be raised nationally by the Government and then allocated to councils based on need, likely resulting in a more comparable service provision across councils; such a model is further considered likely to hinder local choice and accountability.
• Councils could be given greater powers to raise more tax at the local level, thereby allowing councils to make different decisions on tax and spend and giving them increased incentive to grow their local economies, and as such, their local tax base. The disadvantage being that it may result in increased disparities in both the range and quality of services provided by councils in different areas of the country.

Either model would have wide-ranging and significant consequences for councils – not just in consequence, but also implementation. New legislation and/or amendments to existing statutes and regulations will likely be required of central government, with the powers afforded thereby filtered down through a council’s constitution and schemes of delegation for exercise by their committees. In addition to the substantive provisions of any such legislation, whether in terms of both powers and additional obligations or potential restrictions on the use of local revenues, it’s reasonable to expect extensive public consultation in respect of any proposed increases in local taxation and/or the implementation of alternative forms of revenue generation. In turn, both the consultation process and its outcome may be susceptible to challenge or appeal on any number of fronts, in addition to the proposals themselves having the potential to scare off new business or would-be investors in the local economy.

The IFS considers that a proper national debate should be held on expectations of councils and how much we are willing to pay and that trade-offs should be borne in mind as we head towards the conclusion of the Fair Funding Review.

As for the future, it would seem that with the combined authorities and elected regional mayors of recent years, and the results of this May’s local elections showing ever-increasing support for localist politics, the future of council funding may also contribute in no small way to the greater localisation of local government.

Further information

For further information on the report findings and this briefing, please contact Olwen Brown or Matt Marsh.

Sources

FS Briefing Note – English Council funding: what’s happened and what’s next? – Neil Amin Smith and David Philips 29.5.2019
IFS Press Release – ‘England’s council funding system is unsustainable – and big choices loom’ – Neil Amin Smith and David Phillips 29.05.2018  

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