IFS: How views of local government finance vary across councils

By David Phillips | 13 September 2017

I should be up front. As an economist I’ve been trained to be a little wary about taking people’s responses to surveys at face value.

Why? Well, for instance, when asked about changes in the quality of the services their council provides, or their view on proposed funding system changes, council leaders’ and senior officers’ stated views are just that: their stated views. They may not reflect the wider views of council staff or local residents and businesses. And respondents may answer strategically: to influence what people think of them or their council, or to influence future policy debate and design. I would therefore want to look at other evidence before concluding that councils’ service quality was maintained or improved last year despite funding cuts, even though nearly 90% of survey respondents say that this is the case.

However, keeping these caveats in mind, I still think we can learn something from looking at how responses to such survey questions correlate with the characteristics of local councils. That is what our new report, written in collaboration with the LGiU and PwC, does.

A couple of findings stand out.

First is that respondents from areas that we estimate have done relatively well out of the 50% retention scheme, and where local economic growth has been higher (especially in the most recent year for which we have data, 2015), are significantly more optimistic about the impact of 100% business rates retention in their area.

Second is that officers from Labour-controlled councils and areas with high spending-needs (as assessed by the DCLG) are more likely to prioritise redistribution over the provision of financial incentives, than those from other councils.

These findings are not that surprising. They imply local decision-makers views of the future are strongly influenced by the recent past. And they suggest a belief that there will be further divergence in economic fortunes around the country, with (richer) low needs areas pulling further ahead of (poorer) high needs areas. However, the ongoing redistribution of the proceeds of revenue growth need not benefit poorer higher-needs areas if rather than divergence there is convergence in economic performance and spending needs around the country. Regular updating of redistributive formula would reduce the financial gains to poorer higher-needs areas of such convergence. It is with these sorts of issues in mind that our next report will examine recent patterns and trends in revenues and spending needs.

I was also struck by the fact two-thirds of respondents felt unable to ascertain whether their council’s funding had increased or decreased as a result of the existing 50% business rates retention scheme. In part, this may reflect the fact we just do not know how the local government finance system would have evolved without business rates retention. But, having worked with data on business rates income, I know how hard it is to make comparisons across councils over time. If we want councils to be accountable to local stakeholders for their revenue performance under the business rates retention scheme – another way the scheme can provide incentives for growth – better and more widely disseminated revenues data would be a good place to start.

David Phillips is associate director of local and devolved finance and TaxDev Centre at the IFS

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