LGC’s essential daily briefing.
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There’s a saying that if it ain’t broke, don’t fix it.
However, there aren’t many people in the sector who would say that applies to the local government finance system.
The trouble is, the system feels so broke that it can’t be fixed; certainly not through minor tweaks anyway.
Ministers agree. That’s why communities secretary Sajid Javid and local government minister Marcus Jones have repeatedly confirmed their commitment to undertaking a fair funding review, although there’s been scant evidence of anything happening on that front any time soon though.
The fair funding review and the outcome of that was originally meant to coincide with the introduction of 100% business rates retention but, as has been well chronicled in the (ahem) Local Government Chronicle, that’s all a bit up in the air at the moment.
Which is fine except that there are some rather important public services that need to be funded and the people in charge of those would ideally like to be able to plan how to fund those in the medium to long-term, albeit with ever decreasing resources.
If it is not already, then the situation will soon become critical.
There are no shortages of differing opinion about what should happen next, but the one thing everyone can agree on is something should happen.
This week the Commons’ communities and local government committee published independent analysis by LG Futures on ways to revamp the current funding arrangements for councils.
It’s an interesting piece of work that focuses on the current funding formula, although it does not attempt to assess how fair that is.
What it does do, though, is look at how it could be changed, in conjunction with the move towards 100% business rates retention, to make it more transparent and simpler.
The fact it spends more than 150 pages exploring different ways it could be made simpler illustrates this is an exercise that is, er, far from simple.
In broad terms though, the paper suggests it might be better to get rid of a number of indicators of need – some of which relate to children’s and adults social care services – and revert to a system more akin to the one that existed just over a decade ago.
That sought to allocate funding “in direct proportion to assessed need”, the paper said while deductions were “applied in direct proportion to each authority’s council tax base”. The system had its faults, though, and the paper acknowledged there was a “misinterpretation” that “confused” notional funding and council tax figures with actual spending targets or forecast changes in council tax.
On business rates, LG Futures looked at resetting the system every five years or every year (it’s worth noting the research was based on the assumption that all two-tier areas would split their business rates 20% for districts and 80% for counties).
The findings, in short, showed the annual reset system to be the ‘fairer’ of the two as it lifted more councils up from below the baseline and left fewer in the safety net between 2019-20 and 2023-24.
On the downside, 88 authorities gained a collective extra £428m under the annual reset system as opposed to 94 councils gaining £726m in the fixed reset period scenario.
That’s quite a big difference and would be much-needed money to fund a lot of struggling services.
But is it the fairest thing to do for all?
That’s for others to judge but even these ‘simple’ scenarios illustrate the struggles going on behind the scenes on this issue.
Last Friday there was a meeting of key figures in local government finance to discuss “common views” among the different treasurer societies.
LGC was granted permission to sit in on the discussion, which was kept deliberately broad to flesh out the themes, both functional and strategic, they could all agree are important to address.
The themes will be familiar to readers of LGC: adults and children’s social care, homelessness and housing, welfare reform, the future role of local government, and, of course, fair funding – not least the size of the cake from which slices will be cut up and handed out.
As one might expect when you have a large number of people in the same room representing varying degrees of different views, the rough wording that will be refined to go back to different societies for agreement is rather broad-brush.
But the fact the discussion took place at all is extremely positive for the sector; only by working together does local government stand the best chance of getting the best result for all.
By David Paine, Chief Reporter