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IFS: Choices on council funding will shape England's future

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The future funding of local government has “profound implications” for the type of country England will be, and should be subject to a proper national debate, according to the Institute for Fiscal Studies.

In a new briefing note, published today, the institute said the country faced three options: relieve councils of some of their responsibilities, increase central government funding or give councils the ability to raise additional sources of revenue themselves.

It said the allocation of funding between councils was also crucial but warned determining council spending needs could not just be a “statistical exercise” and that “judgement and subjective decisions” would be unavoidable.

Report author David Phillips, associate director at the IFS, said:Current plans for councils to rely on council tax and business rates for the vast bulk of their funding don’t look compatible with our expectations of what councils should provide.

“A proper national debate on how much we are willing to pay and what we expect of councils is therefore needed. Without it, we will default to a situation where the services councils can provide are gradually eroded without an explicit decision being taken – until ad hoc funding is found as a response to political pressure.”

The report found council spending had fallen on average by 21% between 2009-10 and 2017-18, however it noted this varied significantly between authorities with more deprived areas having faced larger cuts. It said the most deprived fifth of councils currently spend 1.25 times the least deprived fifth, down from 1.52 times in 2009-10.

It said while cuts to council funding appeared to be ending, council tax and business rates, which will form the bulk of council income in future, were unlikely to keep pace with rising demand and costs of services.

The report reiterated the institute’s previous conclusion that a local income tax would be the best candidate for a new local tax. It said a flat 1% on all tax bands would raise about £6bn a year but would need to be redistributed between richer and poorer areas to avoid increasing funding disparities.

Neil Amin-Smith, a research economist at the IFS and an author of the report, said: “It is equally important to consider how funding is allocated between councils, and how willing we are to tolerate bigger differences in tax and spending between different parts of England in order to give local councils more control and stronger financial incentives.

“Without debate, the risk is that we continue with reforms to the funding system that emphasise local financial incentives, while trying to regulate for common service standards in the context of a funding system that is just not set up to deliver them.”

The report also highlighted how councils had been managing reductions in funding by focusing resources on the acute, demand led services. It found while planning and housing services had seen cuts of 50% and cultural and leisure services reductions of 40%, net expenditure on adult social care had only reduced by 5% while spending on children’s social care services such as social work, safeguarding and fostering, was up around 10%.

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