Funding for local government is in crisis. With a general election on the horizon it’s time for the political parties to come up with some answers
Funding for local government is in crisis. While authorities are still heavily dependent on government grant, grant no longer relates to either needs or resources and has lost purpose.
Council tax can’t carry any greater burden and has become increasingly regressive; it is declining in real terms but its reform is politically toxic.
Business rates failed to respond to the economic downturn and the system poses an increasingly heavy burden.The partial localisation of business rates has not delivered strong incentives for local investment in growth but is incredibly complex.
The New Homes Bonus redistributes grant from north to south and from counties to districts without any evidence that it has led to any incremental housebuilding.
Meanwhile, demand especially for social care services continues to rise, and the better care fund is only a redistribution of existing NHS funds with a challenge to local authorities and NHS trusts to produce a solution.
With a general election on the horizon it’s time for the political parties to come up with some answers.
No better time then for the LGA and Chartered Institute of Public Finance & Accountancy to establish an independent commission on local government finance chaired by Darra Singh to explore these issues in detail and suggest some approaches for a future government to consider.
There has been no shortage of local government finance reviews, so one might think that all the answers have been exposed already. Many past reviews have focused on relatively narrow questions, such as the balance of funding between central and local government, or questions of fairness and equity between authorities and areas. Neither those questions nor the answers dealt with issues that matter to people generally and hit a political road block in consequence.
Darra Singh’s review is different because it is asking questions about how local government can answer some of the key challenges facing the country today. How can we get sufficient housing in every part of the country? How do local authorities help promote growth and what changes do we need to make that more effective?
How can we better promote affordable health and welfare given the constraint on public funds and growing demographic-driven demand? What part can local government finance play in providing social protection while encouraging people into work? How can we better intervene in the lives of children and support their families to give them better life chances?
Efficient and effective answers to those questions will make the country more productive, more equal and well adjusted. Only in this way can public services become sustainable in the long term given that there is going to be less public spending.
So these are good questions, but the trick is to find convincing answers. The commission is asking for contributions:www.localfinancecommission.org/submissions.
In the macro debate around these issues there are two sets of competing ideas. One spectrum ranges from completely self-sufficient local authorities to fully equalised needs and resources. The obverse is how to manage the risks respectively of failure if self-sufficient authorities can’t deliver, or lack of incentives or unwillingness to respond if any benefit is simply redistributed in a world of full equalisation.
In a parallel dimension is the tension between allowing local choice and delivering national standards. The obverse there is about who is paying. Central government will be unwilling to fund discretionary local benefits, while why should local government deliver national standards if there is insufficient funding to deliver them?
Previously the debate has been couched in terms of local democracy, local capacity and capability. These new questions will select solutions based on their effectiveness. Perhaps local authorities should accept that the best way to deliver integrated health and care is by passing the budgets and responsibility to clinical commissioning groups and NHS trusts, so that national standards are delivered through nationally funding a national service. The resources then left to councils through council tax may be sufficient to deliver local universal services to the standard each area wants. What works best?
Conversely on growth there is a growing consensus (Osborne’s northern powerhouse idea, and the Adonis report on additional powers to combined authorities) that local solutions are likely to be better. But that will only work if local authorities are incentivised to take investment risks in their local areas with rewards from the fiscal benefits of growth beyond a share of part of the uplift in business rates.
But what do you think?
Stephen Hughes, strategic adviser on local government, Chartered Institute for Public Finance & Accountancy, and former chief executive, Birmingham City Council