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Clive Betts: My demands for radical funding reform

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It wasn’t long ago that ministers and senior civil servants were dismissing any suggestion that some local authorities were heading for the financial rocks – let alone that the whole sector was approaching dangerous waters.

I don’t think they are as complacent today. But despite the continued insistence that they are not expecting any surprises, it is clear there is a lot of nervousness and finger-crossing.

Establishment complacency has largely been fuelled by the way local government has coped with the significant cuts in resources since 2010, assisted by the disciplines of seeking best value and comprehensive performance assessment.

These cuts have been on a scale not faced by any other service nor by any government department. They have not been evenly distributed, but even massive redistribution of resources from the poorest areas to the wealthiest has not sufficiently protected the latter, which are now foremost in waving red flags.

Northamptonshire may be blamed as simply a case of bad management, but it is not alone. Surrey, East Sussex, Birmingham, Shropshire, Somerset and Lancashire are already posting warning signs.

Earlier this year the National Audit Office said 10% of upper-tier authorities were “vulnerable to financial failure”. Many district councils are now considering full or partial mergers as one way of cutting costs.

The “vast reserves” which Eric Pickles claimed could be used to avoid any cuts, are now being used at a dramatic rate – not for the purposes intended, but to cover in-year overspends and next year’s planned spending. The National Audit Office suggests one in ten councils could run out of reserves within three years.

Section 151 officers across the country will now realise there is nothing to be gained by keeping their concerns private or by not drafting their section 114 notices. Many auditors are likewise busy re-reading section 24 of the Local Audit and Accountability Act.

But the problem is bigger than a shortage of money. We have now reached a situation where the immediate financial challenges are compounded by the uncertainties about local government’s financial infrastructure.

The public accounts committee asked the government to explain by September’s end why it believes local authorities are sustainable in the current spending round, and agree a definition of financial sustainability and a methodology for assessing risk with local authorities. Will ministers agree?

Meanwhile, the green paper on adult social care funding is delayed till the autumn. But the problem doesn’t go away by delay. It’s a classic ‘wicked issue’. What is needed is political leadership and courage.

Given individual and collective failures in children’s services over the last decade and the justified criticism of councils’ performance, it was inevitable that we would see a significant rise in the number of children in the care system.

The Children’s Commissioner has now warned ministers that the £2bn resources gap inevitably means that crisis work will be prioritised, and preventative work cancelled.

Housing is also high up the government’s agenda, we keep being told, but the promised social housing green paper has failed to materialise.

On the income side, the government has reaffirmed its long-term commitment to 100% business rates retention but refuses to give a timetable for implementation. National non-domestic rates(NNDR) are under attack as the retail sector is in turmoil, while Amazon reveals it paid just £4.5m in UK corporation tax last year and relatively little on business rates on its out-of-town warehouses,.

Likewise, unreformed council tax, with no extension of the bands and still based on 1991 valuations, is increasingly seen as unfair.

What we need is nothing short of fundamental reform.

We need a significant increase in the amount of funding for councils, and specifically a social premium and a slice of inheritance tax to meet the growing demands of social care, as recommended by the joint select committee inquiry. Reform for council tax and business rates is also needed to make them fairer and more effective.

Then there’s devolution, forgotten but hopefully not abandoned. Transferring powers to councils can improve services and value for money. Let’s start with the obvious candidates: skills and transport.

If we are to see councils have a tax base able to grow with service demands we also need to devolve tax raising as well as spending powers. The Treasury may not like continuing demands from the Local Government Association for more money, but it likes the idea of giving councils the ability to raise that money themselves even less.

We may get some change. Will it be enough?

Clive Betts (Lab), MP for Sheffield South East and chair of the communities and local government committee

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