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'We need clarity on rag-bag of council funding streams'

Richard Humphries
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As Tip O’Neill, speaker of US House of Representatives, once famously said, “All politics is local”.

After decades of centralisation, it is no wonder that local government has enthusiastically welcomed government plans to give it more control over money and decisions.

But the shift towards financial self-sufficiency is a radical step that will make funding for local services heavily reliant on levels of local economic activity and property values. This has profound implications for how councils and their NHS partners collaborate to meet the health and social care needs of their local populations.

There are many problems with the current arrangements. Unlike the NHS, there is no single nationally determined budget for adult social care. Instead, local spending comprises a mixture of council tax, social care precept, business rates, user charges, central government grants and the better care fund. This adds up to a messy picture that will get messier still when the ‘improved’ BCF is added to the mix next year. This will be allocated directly to councils and will be used to equalise the different amounts councils will raise from the precept. Public health funding is also fragmented particularly for services, like sexual health, where pathways of care cross multiple local government and NHS boundaries.

If there was an international competition to devise the most complex and opaque way of funding essential local services, our performance would be of Olympian standard. It has never been more difficult for the citizen to understand the tenuous relationship between their council tax bill and what their local council spends on vital services like social care. Could financial self-sufficiency for local government offer a simpler and more transparent approach?

The obvious question is how local revenue raising could take account of the big differences between local needs and how much potential there is for raising money in councils’ areas. Councils with high levels of need for publicly funded social care, for example, raise the least through the precept. For the same reasons, funding public health through business rates could potentially widen health inequalities between richer and poorer areas. Removing the ring-fence from the public health grant risks reducing public health spending when the need to invest in health improvement is becoming more urgent. There is a clear policy tension here in how to balance the incentives for councils to grow their local economies whilst ensuring adequate funding for essential services that reflect different local needs.

The government acknowledges there will need to be redistribution between councils, with a ‘reset’ mechanism to reassess relative needs and recalculate the amounts to be redistributed. There are different ways this could be done but all would involve a degree of trial and error. These untested arrangements would be introduced at a time when the care system is under unprecedented pressure. Councils need not just more money but a degree of certainty so they can plan more than one year ahead.

The changes will also affect how councils and the NHS work together. Successive governments have urged closer collaboration through aligning budgets and integrating services and the current administration has committed to ‘fully’ integrating health and social care by 2020. But the move to make councils wholly reliant on local revenue will deepening the longstanding fault lines in funding and entitlements between the NHS and social care. This could make it harder for councils and health partners to focus on using the public pound to get the best outcomes for their local population. Fiscal devolution is not on the table for local NHS trusts; if anything the grip of central control is tightening. The existing BCF process exemplifies a prescriptive, top-down approach that is completely at odds with local control.

In any case the offer to councils is limited; they will be able to reduce but not increase business rates and they can increase council tax by up to 1.99% providing it is spent on social care but general council tax rises higher than 1.99% still need a referendum. This is not coherent and it is far from clear how the existing rag-bag of funding streams will be brought together.

If Tip O’Neill was right and all politics is local, who could argue against councils having more control over local decisions? But as the NHS and local government face the toughest challenges in their history, the risks need careful analysis and thinking through. In the words of another celebrated American, basketball coach John Wooden, “it’s the little details that are vital”.

Richard Humphries, assistant director, policy, The King’s Fund

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