Many readers will have seen television programmes where participants are set almost impossible challenges. Each obstacle is harder than the next. Some young man or women desperately attempting to move a tractor tyre across a cold, muddy landscape? We pick our favourites, we watch for weakness, who will fail at the next hurdle? It makes for compelling television. It does not make for good local government.
Some of my fellow council leaders may find the description familiar. The country speculates on who will be the next council to ‘fail’ by declaring a Section 114.
The recent Housing, Communities and Local Government Committee report addresses the root issues underlying sustainability: social care, funding, COVID-19 and the influence of commercial investment.
We will be campaigning again this year to ask Government to put equality of service provision front and centre of local government funding policy. Perhaps, for the first time in a long time, we may have a minister on our side.
The Prime Minister’s recent speech on levelling up commented that it cannot be right that your life expectancy, educational achievements, income aspirations and social mobility can vary dramatically according to your home postcode. This means giving equal access to services and if poor councils are unstable then they will be unable to play their essential role in the levelling up agenda.
The Committee report rightly addresses self-funding and the complexity of business rates retention, with its conflicting purposes of funding needs and incentivising growth.
Funding for local government has fallen by 52% since 2010*, excluding council tax. When rate retention was introduced in 2013, authorities retained £11bn of business rates topped up by £15bn of revenue support grant (RSG), a total of £26bn.
By 2018-19, this had reduced to £15.6bn and RSG bore the impact, reducing to £3.5bn. Only one-off social care grants have made it possible for some councils to maintain services under these conditions.
Rates growth retention is not included in these totals. At least £1.4bn of growth was earned in 2018-19 alone – £2.3bn if additional retention pilots are factored in, and a similar amount in 2019-20. So, while needs funding has fallen dramatically, incentive funding has grown.
But rates growth goes to the most prosperous, not the neediest councils. The Committee is right to recommend implementation of the long-delayed reset of business rates and the implementation of a fair funding review. This is, after all, what was promised when authorities were consulted on business rates in 2012. Recent experiences underpin the strong link between deprivation and demand for care and health services.
Our members, unitary and metropolitan councils across the country, support the proposition of increased rates retention without further burdens. If you consider the figures I have quoted, an additional 25% would not even restore funding positions back to 2013 levels, without factoring in increasing demand for care services. However, the increasing complexity of rate retention rightly causes the Committee to ask whether it is sustainable in the long-term.
The Committee raises the issue of the appropriate balance between rewarding growth and funding needs. We are clear, that in a time of uncertainty and possibly declining tax income, funding core services on an equitable basis must be the absolute priority for the foreseeable future, with growth incentivisation as a consideration when basic services are fully funded.
Investment funded from borrowing is also considered in the report. Like the Committee, I feel Government must bear its share of the blame for encouraging self-funding without having considered the predictable consequences.
In any financial disaster story, there will always be questions about governance and oversight but the environment in which these have happened are of Government’s own design.
Alternative income can be a divisive issue within local government. Funding formula as currently proposed takes no account of non-tax income. Should councils now be compensated for lost income due to the pandemic and, if so, should alternative income reduce formula share in better times?
For us, the key is funding service fairly. Levelling up cannot be achieved while holding councils constantly on the brink of financial failure. After all, in this particular challenge, it’s only a win if everyone succeeds.
Sir Stephen Houghton is chair of the Special Interest Group of Municipal Authorities
*NAO financial sustainability 2010-11 to 2020-21