Neil Barnett and Steven Griggs argue that any future financial settlement must better understand the inequalities across local government, putting national redistribution between the centre and the local, and between authorities, firmly on the agenda

The COVID-19 pandemic has exposed and deepened the fractures in local government funding in England. Ten years of austerity had already widened social and economic inequalities between local authorities. Communities with the highest levels of deprivation had been hit the hardest by cuts to central funding. Now, the financial resilience of many of these authorities is being tested once more, particularly with the prospect of a ‘no-deal' Brexit to add into the ‘mix'.

Tackling COVID-19 has put huge pressures on local services and threatens to leave local authorities with a ‘funding gap' estimated at £10.9bn by the Local Government Association. A threat that puts the additional financial support of some £3.2bn from central Government, not to mention the announcement of an additional £500m on 2 July, into stark relief. Without further funding from central Government, we can expect to see more councils declare Section 114 notices.

Approximately one-third of this predicated gap in funding comes from lost income from falling council taxes and business rates, as well as falls in sales, fees and charges. Of course, this fall in income will have different impacts on councils across the sector.

The Institute for Fiscal Studies (IFS) recent June report suggests that shire district councils are particularly at risk, due to their dependence on income from parking, cultural and leisure services, planning and trade waste scheme.

But the risks vary from authority to authority. It is a complicated and varied picture that arguably militates against any uniform ‘solution' across the different tiers of local government. Authorities with higher levels of deprivation have communities that are, as the IFS points out, more vulnerable to COVID-19, although such authorities might in some cases be less exposed to the budgetary risks associated with falling local revenue, given the structure of some local economies and housing markets.

Much depends on the financial management of councils and the level of reserves across authorities after years of austerity governance.

Ultimately, it is difficult to ignore that this complicated financial future facing councils is bound up with the longstanding policy dilemmas surrounding the localisation of funding.

Local generation and ownership of funding may well be essential for truly ‘local' government. Yet, the impacts of the pandemic on local government have cast doubt on the continued economic, political and social sustainability of strategies of local income-generation.

Financial localisation poses serious questions of the equality of service delivery across and between authorities, and the capabilities and capacities of poorer areas to meet the needs of their communities, particularly in a post-COVID, post-Brexit world.

While we have seen the soap opera of financial localisation being announced and delayed several times, its potential unequal impacts on the resilience of local communities should not be ignored by a Government publicly committed to ‘levelling up'.

In other words the COVID pandemic has, we suggest, demonstrated the flaws of the ‘go it alone localism' that has dominated debates over the future of local government in recent years. Ideologically, the local has indeed been invested with far too many expectations and demands, so it has come to operate as a panacea for all the policy challenges in our communities.

Such investments in the local have arguably fuelled a local patriotism – one that has been driven by the placing of the local and the centre in a client-like relationship of closed back door deals as authorities compete for grants and subsidies, a tradition that in many ways predates the localism of former communities secretary Eric Pickles.

Paradoxically, such local patriotism has risked bypassing local government. On the one hand, it has gambled in some quarters on the devolving of responsibilities down to civil society to deliver innovation, dismissing the capacities of an active and collaborative local government to advance community wellbeing. On the other hand, it has put its faith in the vehicle of metropolitan city regions and elected mayors as the motor of growth and co-ordination.

As a result, local councils and communities have risked becoming doubly left behind, unable to attach themselves to the regional growth machine or lacking the social and economic infrastructure to take on new responsibilities and opportunities.

What does this have to do with the future of local finance? It suggests that calls for further localism, more autonomy over local taxation and new duties, will not meet the demands facing local councils. It is not a re-banding of the council tax, the adjustment of business rates or the simplification of funding rules and competitive grants that is going to work here.

These measures will not be sufficient to combat the financial challenges facing local government which central Government has arguably yet to fully recognise. Equally, such tweaks to enhance local financial autonomy only risk further feeding the model of local financialisation, reproducing the conditions that have – as the work of the Association for Public Service Excellence and the New Policy Institute demonstrates – led to English local authorities delivering an estimated £7bn ‘reverse subsidy' to central Government.

In short, local government finance cannot be divorced from the reframing of centre-local relations in England. Any future financial settlement must better understand the inequalities across local government, putting national redistribution between the centre and the local, and between authorities, firmly on the agenda. This potentially means calling into question the localism of recent years, recognising its limits in tackling the wicked policy issues that cut across communities while challenging the quasi-automatic reproduction of the model of competitive city regions and community self-help.

Localism can no longer be reduced to ‘survival of the fittest'. Alternative values, such as sustainability and solidarity, need to frame our thinking as we put in place a local funding regime fit for the future of local government in a post-COVID world. Such changes rest on local government standing together as a sector.

Over the years, local authorities have had no choice, given the rules set by the centre, but to play the game and fight tooth and nail for what resources they can get, engaging in often behind closed doors competitive bidding in a series of deals with strings attached. Unfortunately, there is every sign that the upcoming Devolution Bill will further encourage require such behaviour.

In the absence of a change of tack from central Government, now is indeed the time to bring forward an agenda as to how central Government can recognise the stewardship of local authorities and what it means for sustainable funding across all of our communities.

Neil Barnett is a senior lecturer in public policy at Leeds Business School and Steven Griggs is professor of public policy in the Local Governance Research Unit at De Montfort University