England & Wales Finance

Countdown – one year til the financial cliff edge


The official MHCLG figures released this week show that almost all English councils are raising council tax for 2019-20, confirming our findings earlier this year from the LGiU and MJ State of Local Government Finance Survey.

The 1st of April marks one year exactly until local government drops off a financial cliff. One year in which to fix a fundamentally broken system that is rapidly propelling councils towards bankruptcy. Is it any wonder, then, that councils are seizing their last opportunity to raise some extra cash?

According to the LGA, councils will have lost almost 60p out of every £1 the Government had provided for services between 2010 and 2020. This amounts to a truly breathtaking decimation of essential community services which is being felt by millions of people. The extra money raised through council tax this year will barely scratch the surface in terms of covering the rising costs of social care and children’s social services.

As Cllr Richard Watts, Leader of Islington Council and Chair of the LGA Resources Board, argued in our recent podcast, it is wholly disingenuous for the Government to say that they have increased funding to councils this year. It amounts to claiming political credit for the extremely tough decisions made by local leaders to raise council tax for already-squeezed citizens. It cynically relies on the public not understanding how council funding works and on councils being too preoccupied with putting out fires to educate their residents on Government’s true role in the decline of the services they rely on.

Business Rate Retention, the promised alternative to the central grant, has yet to materialise in most of the country, and even where it is being piloted the longterm picture has yet to be clarified. Some areas are retaining 100% but will that drop to 75% in line with other areas next year? How much of the retained business rates will be redistributed to other councils?

These are not merely technical questions, they are central to the policy. And the answers cannot come from officials fiddling with statistical models. The shape of the future council funding system is a fundamentally political decision which will dictate how much we allow areas to diverge in outcomes and whether we allow councils to fail.

It is time for the Government to accept that it must set a CLEAR vision for the future shape of the council funding system within the next couple of months, including actual detail on redistribution and local funding mechanisms. If they cannot commit to this, they must give councils clarity about their funding levels for at least 2020-21, even if that means putting in place a temporary measure such as reinstating the Revenue Support Grant.

Everyone understands that Parliament is preoccupied with Brexit but if it is not realistic to gain the political traction needed to deliver such a bold change in policy, then we must be honest about that. It is unacceptable to continue shifting delivery deadlines until councils fall over. It is not an overstatement to say that lives are on the line – councils support the most vulnerable in society, such as the homeless, elderly, children in care, the disabled. They deserve much better.

Countdown to 1st April 2020, when the central government grant to councils runs out and councils face a financial cliff-edge