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:
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:-
In the long term:-
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: