Chancellor urged to use the Autumn Budget to fund neighbourhood services

A new report on English Local Government finance ‘Hollowed out: the impact of financial localisation on neighbourhood services’ has found that by 2019/2020, council tax and business rates will exceed the spending that local government controls by £7 billion per year. This is enough not only to plug the funding gap in social care but to go at least some of the way towards reversing the cuts in neighbourhood services on everything from bin collections and recycling to roads and parks.

This £7 billion ‘reverse subsidy’ of central government by local taxpayers rests on a comparison of locally-raised revenue with “core spending power” (CSP) plus the ring-fenced public health grant. CSP is the sum of a local authority’s council tax, revenue support grant, other specific grants from central government, as well as retained business rate income. The “reverse subsidy” is a recent development: in 2015/16, local government still got slightly more from central government than was raised in business rates. Council tax and business rates are set to continue to rise until the end of the decade but a fall in central government grant means that councils are now collecting more than they spend. Combined with increasing demand for services, tax payers are unlikely to feel any benefit from paying more council tax.

Speaking about the report Paul O’Brien the Chief Executive of APSE, who commissioned the report, said “We would ask the Chancellor to now seriously reconsider the positive opportunity to fund local council neighbourhood services. By returning this ‘reverse subsidy’ directly to local councils we can go a long way to plugging the funding gap that increasingly sees cuts to those services valued by the public but often at the forefront of austerity measures.

O’Brien added “Councils are struggling to provide the most basic of services like repairing pot holes, maintaining local parks and emptying litter bins and yet these local neighbourhood services are the very visible local services that support the local infrastructure, valued, not just by local residents, but local businesses too. At the same time councils are being forced to ration social care. If the Prime Minister’s promise of an end to austerity is to be believed then our findings show that the Chancellor can make good on that promise by giving councils a welcome relief to the funding pressures that have beset social care and our neighbourhood level public services. Investing in these neighbourhoods services would be a very visible signal to the public that austerity is drawing to an end”.

The report found that because of the way in which local councils collect money and send it to the Treasury, it is central government, not local councils, who decide how this money will be spent. Although other monies are returned to local government in the form of ring-fenced grants (for example, for education or the police), they cannot be spent by councils according to locally-determined priorities.

The report was written and produced by Dr Peter Kenway and Carla Ayrton of the New Policy Institute. Dr Peter Kenway said “Ending the reverse subsidy cannot just mean allowing every local authority to keep all the tax it collects. That would usually benefit the strongest councils most. Instead, there must be a new formula to allocate the money between local areas according to need. The decades-old principle on which it rests, that burdens should be borne collectively, can help hold an unequal country together."

The report also found that:

• Under the guise of localisation, council tax has represented an ever-growing share of CSP, up from 44% in 2010, to 54% by 2016/17 and 62% by 2019/20. It varies greatly according to the type of local authority, from 51% for London boroughs and metropolitan districts to 75% for shire counties.
• With grants from central government continuing to fall, 88% of CSP will come from two taxes – council tax and business rates – by 2019/20. The share will range from 84% for London and metropolitan districts to 93% for counties.
• A previous report by APSE and NPI found that neighbourhood services had been the hardest hit of all local government services since 2010 with the most deprived areas, on average, hit the hardest.  Since 2010 local neighbourhood services have lost £3.1B of funding.

Why does it matter?

For a few local authorities with good prospects for business rate and council tax growth, leaving councils reliant upon these two property based taxes has attractions if they are in a good position to build new homes and attract and keep new businesses.

For less well-placed areas, the growing dependence on locally-raised finance will worsen their situation, meaning further service cuts and risking non-statutory services; the services that most councils provide but are not legally obliged to do – like leisure centres, parks and many more services delivered at a local neighbourhood level.

This hollowing out of local councils, reducing their capacity to intervene and support local services and local economies, cannot be easily patched up with piece-meal and ad-hoc funding announcements from central government

Because it is only right that services like care for older people, and vulnerable children, are prioritised, the current funding crisis means that many other council services, valued by residents and businesses, are placed at the bottom of the funding pile. This means services like our much loved local parks, winter gritting to clear our roads in heavy snow, streetscene services to keep our streets clean and safe – all see funding reduced. But these services are loved and valued by the public. The public do not want to see these services cut. 

Immediate steps to be taken now:- 

• APSE is calling for the Chancellor to use the Autumn Budget Statement as an opportunity to adjust the funding to local councils. The issue of the ‘reverse subsidy’ suggests that money could be made available to local councils to help fund both social care and neighbourhood services. Whilst social care funding needs a long term solution the ‘reverse subsidy’ would provide some interim measures to support local councils as they potentially move into their ninth year of austerity budgets.
• If Government returns the £7B back to council coffers it will provide a real boost to funding social care, relieving pressure on the NHS and giving a viable future to neighbourhood services which the public most value  
• Government must recalibrate its localist claims. To do so it should pin fiscal neutrality (the condition under which central government insists localisation should take place) to the date 2015/16 when it was first proposed that locally raised taxes should fund local government. That was the year when local taxes were first equal to the amount controlled and spent by local government
• The Chancellor’s Autumn Statement due on the 29 October could be used to announce measures to ameliorate the impact of funding cuts on local council finance. Prime Minister Theresa May promised an end to austerity in the speech to the Conservative Party on Wednesday 3 October 2018. Local councils want to see that promise delivered upon now

In the long term:-

• Government should restore ‘need’ to pride of place in the debate about local government funding. The language of ‘need’ is a bottom up approach to the resources required by local government to best serve its local communities, both residents and local businesses.
• By contrast, the language of incentives around localisation is a top-down approach. It does not work in the real-world context of some heavily deprived local authority areas.
• In its place, local government should push for a system of funding whose first test is precisely that it works for the least well-placed authorities.

The full report is available on the APSE website and the link to download is here.

-ENDS-

Notes to editors

The Chancellors Autumn Statement will be on the 29 October 2018 and could be used to announce more funding for local councils.

The funding gap in social care is cited by the LGA to be:

• Children’s services £2B
• Adult social care £2.3