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Forget funding fights between London and the shires – we're all potentially losers

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LGC’s essential daily briefing.

August is meant to be reserved for silly stories about councils rescuing seals and local authorities making U-turns in rows with jacket potato salesmen.

But this August has been anything but silly.

The future of some councils, notably Northamptonshire, East Sussex, Lancashire, Somerset, Surrey, and Torbay, hangs in the balance and there are no signs that any of their budget pressures will abate soon.

We’ve been bombarded with housing announcements, including publication of a rough sleeping strategy and the social housing green paper, but there’s concern it amounts to little.

And today the Institute for Fiscal Studies has brought yet more realism to readers’ attention in an assessment of the fair funding review.

It has predicted inner London borough councils could be hit hardest by any revised formula as it believes the government is set to make low-taxing councils “bear more of the cost” of services while reducing spending needs estimates for councils which are currently deemed to have the highest needs.

County Councils Network chair Paul Carter (Con) was quick to highlight the “perverse and unfair” nature of the current system which allows some inner London boroughs to charge residents half the amount of council tax as counties.

Based on that factor alone, the IFS’ hypothesis has a more-than-probable feel about it. But there is another key factor that might increase the chances of it happening – the political colour of the capital. Two-thirds of London’s 32 boroughs are Labour-led and Sadiq Khan is the capital’s mayor. If ever there was a time for a Conservative government to redistribute funding from the capital, where it is likely to increasingly struggle to make political gains in, to its heartlands in the shires where social care service pressures are being most acutely felt then this is surely it.

A London Councils spokesman, obviously sensing the danger, optimistically moved to “urge ministerial judgements over the funding formula to be kept to a minimum”.

In an LGC interview in June London Councils’ chair Peter John (Lab) voiced concerns about cutting the resources of boroughs to bolster other areas.

While he admitted London’s boroughs have had “opportunities” other councils have not due to continued economic growth in the capital, he warned ongoing funding is still needed to address problems caused by deprivation.

But amid all of the arguments about the way the pie should be cut up, the IFS today noted the spending review, and not the fair funding review, “will be more important for the overall financial health of councils – and the sustainability of the services they provide”.

As Cllr John said in June: “Even if we [London boroughs] are doing well, that’s because we have been funded appropriately so don’t rob us to pay an area that has been historically underfunded - raise the level of funding to those areas.”

If the size of the pie is to remain the same, or worse shrink even more, then it will matter little which councils stand to gain or lose the most out of the fair funding review.

Demand for expensive services will continue to rise and an increasing number of cash-strapped councils will be unable to cope.

As Mike O’Donnell, associate director for local government at the Chartered Institute of Public Finance & Accountancy, said: “However the pot is divided up, it is important to not lose sight of the fact that there is just not enough money in the system for all the services local government is expected to deliver.”

When asked to comment on the IFS’ notes, a Ministry of Housing, Communities & Local Government spokesman said: “We are providing local authorities with £90.7bn over the next two years to meet the needs of their residents.

“We are also giving them the power to retain the growth in business rates income and are working with local government to develop a funding system for the future based on the needs of different areas.”

This does not sound like a government that gets the fact there is not enough money in the system. But without more money it is likely there will be even more councils running out of resources and issuing section 114 notices. And wherever that happens, everyone – politicians, officers, and residents – can consider themselves to be a loser in an argument that has ultimately been started and maintained by ministers who simply don’t seem to understand the impact their politically-driven agenda of austerity is having on the ground.

By David Paine, acting news editor

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