England & Wales

Is it time for the UK government to fix the broken funding system?


A tower of stacked coins slightly leaning. Photo by Matthew Lancaster on Unsplash

In this think piece, Cllr Ray Morgon, Leader of London Borough of Havering, asks if it’s time to change the local government funding system across England in light of mounting pressure on the sector. He remarks that his own well-run council is now sounding the alarm bells during these testing times and offers some suggestions that might help make local government sustainable. 

We are seeing more and more coverage of the plight of local government following a spate of section 114s issued by a number of councils. Birmingham is an exception due to the historic pay claim, but other councils like Thurrock are in this state due to failed investments that were made over the years because of reduced funding from national government. Indeed, Havering’s annual settlement has reduced from over £75m in 2013/14 to around £33m. In the same period, goods and services and other inflationary costs have risen by over 30%.

However, we are now seeing that well-run councils are sounding the alarm bell due to the pressures from rising social care and homelessness costs. Havering is one of these councils. As Leader, I am proud to say that we are a well-run, efficient, low-cost council. We are doing all the things you must do to balance the books every year, which includes reducing headcount, finding better low-cost ways of delivering services, increasing income and selling our assets.

But we are now at the stage where whatever we do is not enough because of the massive increase in the costs of social care and homelessness. And unlike the NHS, these services have been badly funded by the government without taking into account the individual circumstances of councils like Havering.

For example, we have high council tax but low government funding as a result of the way the funding formula works. We also have one of the oldest populations in London and one of the fastest-growing younger populations in the country. Add to this, Covid-19 impacted us immensely, especially around young people needing mental health care support. And we have more long-term conditions as a result of elderly care.

More people moving into the borough means more strain on housing too, especially homelessness. Government legislation has also made it more onerous for private landlords, and the number of private sector leasing properties available to us has dramatically reduced. The policy on benefits caps also impacts what people can afford.

All of this means we just can’t keep up with demand.

When looking at our budget position, we have £48m of general balances and earmarked reserves left, with a projected overspend in 2023/24 of £23m. Next year, we have a potential gap of £14m, rising to £51.8m over a four-year period to 2028.

We, therefore, need some long-term solutions to government funding rather than short-term fixes. Allowing us to add an additional prefix of 3% to council tax, adding to the high council tax of residents, is not the solution, and indeed only partly mitigates the pressure. We would need to raise our council tax by at least 20% – and this isn’t an option.

So what are those long-term solutions?

We need to have a different and grown-up conversation about funding, as the current system is broken. There have to be better, more sustainable solutions to help local government meet its duty of care without going bankrupt. Any short-term solutions simply push the can down the road and will lead to an even more difficult problem for the government to solve in future. If a council were to issue a section 114 and go bankrupt, sending in government officials to sell off assets and reduce headcount or bailing out councils is surely not where they want to be.

It is recognised that the government has attempted to look at some form of early warning system through Oflog, but this is too little too late and does not look at the key indicators needed to see where the pressures are.

The disparity in London between inner and outer also needs to be considered. Inner London has more government grants, to reflect perceived levels of deprivation and homelessness. Many also receive more income. They can afford to offer lower council tax charges and not pass costs on to residents. However, for Havering, this is the other way around with low grants and high council tax. You can’t keep raising council tax to pay for social care. This can never be raised to the right level. As said, in Havering, you would need around a 20% increase in council tax to try and break even.

Therefore, there needs to be a different view about how we fix this. And with an election next year, now is the time to have this debate. To try and give the next government some time to implement long-lasting changes, there are some shorter short-term fixes that could be delivered.

Enabling us to keep 100% of business rates over the next five years would be a great start and would help us replenish our budgets. In addition, growing the private sector should create better investment and growth in regions. Although Freeports are in place to support this, government policy has shifted, lessening their impact. There should be another look at how these can be extended and themed to enable 100% business rate collection for an indefinite period.

As mentioned earlier, the impact of Covid-19 is still being felt. Particularly around mental health care for younger people. This needs to be addressed to help support residents back into normal life and help lessen the impact on council budgets. This adds to the burden of complex social care issues that have to be funded.

There also needs to be an end to funding disparity in regions like London, recognising the difference between, for example, inner and outer London and the change in demographics.

For the longer-term there needs to be some bold decision-making by national government to stop the steady decline of local government. If local government fails, the very fabric of our society fails, too. Therefore, the government needs to grasp the nettle and implement their review of the fair funding formula. But this has to go further than that, as it will only be a temporary fix. We propose that social care is treated like the NHS – it needs to be nationally funded so that the right areas get the right money. It should no longer be a postcode lottery.

We should also move to the Scottish model of not-for-profit home care so the focus moves back to people, not making money. The free-market economy of care has become a cash cow for those wishing to benefit from this industry. It should be about people, not about profit.

We also question how two-tier local government works in wider regions like London. If we can’t fund social care nationally, we need to decide who is best placed instead. Do we need to devolve social care to regional bodies or mayors? Or if it should be at the local authority level, then how should the funding be better spread to reflect demographics, local circumstances and wider pressures?

We also believe that there should be larger simplified funding pots, with programmes to meet different circumstances so the right money can go to the right place. This means it can be more easily monitored.

It is, therefore, important that we have this conversation now and look to a sustainable future. Not doing so could mean the end of sustainable local government.


One thought on “Is it time for the UK government to fix the broken funding system?

  1. I am a LB Havering resident, and also a LB B&D Employee so I was very pleased to read this sensible approach/forward thinking article. Thank you

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