The government’s recent fair funding review promised to set new baseline funding allocations for local authorities. It pledged to do so by delivering an up-to-date assessment of councils’ relative needs and resources.
Taking into account the issues and realities which each local authority is facing must be a priority of any funding system. Indeed, a major flaw in the current set-up is that it makes no provision for the changing needs of local authorities over time.
Needs evolve, yet resources have been fixed since the current 50% business rates scheme was introduced back in the 2013-14 financial year. A reset was promised at an undetermined point in the future but, five years on, remains undelivered. The local government landscape is now very different, with local authorities facing a 26% real-terms reduction in their spending power since 2010.
Added to this, the UK’s mid-sized cities are faced with the challenges of raising productivity, providing affordable housing, and creating a modern infrastructure. The depth of these challenges is only intensified by the fact that they must be met while adapting to withdrawal from the European Union.
There is also clear evidence that the gap between affluent and poorer authorities is widening, with those facing relatively high needs and low resources being left behind. Some 55% of people in poverty in the UK are in work; a large proportion of the country’s productivity gap is the result of deprivation; and the UK has by far the highest level of regional inequality of any country in Europe, according to the recent Royal Society for the Encouragement of Arts, Manufactures and Commerce (RSA) Commission on Inclusive Growth.
This lack of parity is unfair, and cannot be allowed to continue unchecked. Equalisation and redistribution should be cornerstones of any local government funding system.
To balance these principles against incentives and rewards will be a difficult challenge, of course. However, the agreed settlement must first and foremost support local authorities in tackling inequalities and deprivation.
Achieving parity is arguably more important than ever. It is vital the new formulae enables all authorities to provide a reasonable minimum level of service which meets the often rapidly changing local demand pressures authorities are facing on a daily basis.
For Key Cities, the preferred approach would be to start simply and be prepared to add complexity to make the formulae as fair as possible – but only as far as is necessary. Any new formulae will also need to be transparent. Local authorities should be able to understand their own positions, and how these relate to other councils, and it’s crucial that a collaborative approach is adopted to deliver the best results.
The funding cuts to local government since 2010 have, by necessity, led to an increasing focus on statutory services and those which support the most vulnerable in society. Children’s services and adult social care make up a significant proportion of the expenditure of many upper-tier and single tier authorities, and so it is only right that the most effort is directed to ensuring the formulae for these services correctly reflect the needs at a local authority level. Properly resourcing local authorities to manage the demand pressures in these critical areas will clearly benefit the wider public sector.
The short period of time between the outcomes of the next spending review and the fair funding review, when coupled with the need for councils to set their budgets for the 2020-21 financial year and beyond, is a concern. Stability in funding allocations, which helps local authority financial planning, must be supported.
We also continue to urge the government to recognise the significant pressures on local authority budgets, and consider the quantum of the funding for local government at the same time as considering how that funding should be distributed. Calling on the collective insights and experiences of the councils affected will result in policy and investment being directed the most effectively.
Peter Box (Lab), leader, Wakefield MDC and chair, Key Cities