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Definitive proof that council finance matters to us all

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Commentary on a hectic two days for council finance

Today’s bombshell for London: DCLG’s housing estimates expose north-south divide

Today’s bombshell for finance professionals: Javid moots ‘graduated approach’ to full rates retention

Today’s bombshell for the NHS: Chiefs express concern about STPs

To say that the past two days have offered much of interest to the local government finance community rather downplays the broader significance of the series of announcements and releases of research.

This period has seen confirmation both that full business rates localisation will not proceed as planned and that councils will have to shoulder the financial burden of post-Grenfell Tower safety improvements. It has also seen new demonstration of the scale of children’s services money worries and an indication of how London may support itself in the years to come.

Let’s start this briefing positively. Children’s services minister Robert Goodwill today announced £20m would be spent on a new sector-led improvement programme for children’s social care. All well and good. However, this was announced the day after LGC produced an analysis showing that local government’s children’s services overspend last year hit over half a billion pounds.

Richard Watts (Lab), chair of the Local Government Association children and young people board, told LGC it was spiralling demand for children’s social care – rather than the more widely appreciated demand for adult care – that was keeping senior councillors awake at night.

It is hard to see how the £20m – however well intentioned – is going to make up for the demand pressures that are leading cash-strapped councils to cut back on preventative services.

The need to fund improved safety in tower blocks after the Grenfell Tower blaze is another area in which encouraging noises from government come up against the reality of austerity. Sajid Javid yesterday told the Commons communities and local government committee that councils would not receive government funding to make improvements.

However, the communities secretary repeated a previous statement that “any essential work” should be undertaken and a lack of “funding should not hold any council back”. However, he left it to councils working with the fire service to define what was “essential”.

Councils will be allowed to increase the borrowing cap of their housing revenue accounts or use money from their general funds to pay for works. As a result, improvements to other council housing are likely to lose out, as will other council services.

Mr Javid also revealed the Department for Communities & Local Government was in detailed negotiations with just six of the 31 councils that have asked for financial assistance.

While housing and children’s services will continue to be beset by funding concerns, what hope is there for a broader solution to the ever vexing question of how to ensure fair funding for councils?

There isn’t that much hope but at least Mr Javid used the same evidence session to restate his commitment to the full localisation of business rates and the fair funding review.

In the absence of primary legislation (plans for which were abandoned after the government lost its majority) to bring about full localisation Mr Javid mooted a “graduated approach” in which fewer responsibilities are transferred to councils, which do not receive the full 100% immediately.

Full localisation “will be delayed from the original schedule”, he admitted. However, as councils approach a financial cliff edge, they will have to make do with his assurance that they would find out more “in due course”.

The first indication for a while that the communities secretary remains keen on full localisation was not the only smidgeon of business rates hope today. It was also announced that London’s councils and mayor had reached a deal on how business rates would be pooled between them.

While this by no means falls under the category of an easy win, London’s agreement (still subject to DCLG approval) is not an event on the magnitude of counties and districts shaking hands on how business rates should be split between them.

The county delegation would no doubt seek to brandish new LGC research which shows the huge disparity in reserve levels between themselves and districts as a signal of the wider financial health of the two tiers. While counties had the lowest level of unallocated reserves as a proportion of net revenue expenditure (4.7%), their district colleagues had the highest at 39.2%.

So much in local government remains mired in uncertainty. However, you can be fairly certain that financial conflict between the two tiers will remain constant, at least for as long as the two-tier structure survives.

Local government finance is widely seen as a dry topic. But the past two days alone have shown how it impacts upon the drive to prevent another Grenfell Tower, raises questions of the fair treatment of different areas of the country and has a crucial bearing on the support for the children with the toughest starts in life.

Council finance is rarely dull. And it is rarely ample.

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