Today, LGiU and the MJ publish exclusive research following the annual local government finance survey.
Over a third of councils have warned that financial constraints may place them in a situation where they are no longer able to deliver statutory services, reveals research by think tank LGiU and local government trade magazine The Municipal Journal.
A further third of councils are planning to use reserves to help finance themselves this year.
The findings come following reports that Nick Clegg, Deputy Prime Minister, and Theresa May, Home Secretary, have blocked Eric Pickles’ intention to lower the council tax cap to 1.5%. The current threshold of 2% will remain, above which councils must hold a referendum to increase council tax.
The research shows, however, that much more radical thinking is required if local authorities are to prove financially sustainable. Coalition disagreements regarding a suitable threshold for the council tax cap overlook much greater fundamental flaws within the local government finance system.
9 in 10 council representatives warned that the local government finance system is not fit for purpose.
Councils expressed frustration with central government intervention and called for greater financial freedom:
- More than four in five council respondents (85.1%) want the freedom to vary business rates
- Just under half (49.2%) council respondents would like to see additional taxes localised such as a tourist tax, stamp duty as well as business rates 100% localised.
Commenting on the findings, Dr Jonathan Carr-West, Chief Executive of LGiU, said:
“The Coalition’s squabble on the threshold for holding a council tax referendum is revealing about central government’s priorities for council funding. Bickering about whether the cap should be set at 1.5% or 2% seems trivial compared to the scale of efficiencies local authorities have been forced to absorb by the Treasury. The reality is that unless all parties can agree a radical future for council funding, everything from road sweeping to social care will be increasingly difficult to deliver. Councils have the freedom to collect business rates but not vary them. Council tax is locally collected but in practice can’t be raised due to the Government’s insistence on local referenda.
“Everyone agrees the system needs radical reform but the only changes we are offered are piecemeal and marginal. We need clarity from central government: if its aspiration is for councils to become self-funding then it needs to legislate for radical change now. To allow for genuine local taxation, a brave review of property banding, reform of Treasury rules on investing and prudential borrowing, an understanding of how equalisation would work under a self-funded system and most importantly for councils to keep money they collect.
“Governments of all colours have ducked these questions but the message should be very clear – funding of statutory services cannot be sustained if the local government finance fudge continues. And that is true of a council tax threshold of 1.5% or 2%.”
Heather Jameson, Editor of The MJ, said:
“Our survey shows just how close to the edge of financial collapse some councils find themselves. With increased pressure on services – particularly adult and children’s care – and the squeeze on their finances, making ends meet is no longer guaranteed.
“But it is becoming increasingly obvious that the local government finance system is just not working anymore. Consecutive governments have looked at the problems, but have failed to act. Wednesday’s announcement does little to address this.
“Now is the time for action. The MJ’s Fiscal Freedoms Campaign is calling for the government to change the finance system and give local government the tools it needs to deliver strong and economically viable communities.”