England & Wales Finance

HCLG Committee finance report informed by LGiU recommendations


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Through LGiU’s engagement with the HCLG Select Committee’s recent inquiry into the future of local government finance, we are delighted that the priorities and opinions of our local authority members have been reflected in the Committee’s recommendations to Government.

Council funding has been a major focus of LGiU’s policy work for the past two years. Our members consistently tell us that getting their councils on a sustainable financial footing is their top priority after years of budget cuts. This has only grown more urgent as councils approach the 2020 cliff-edge, after which they have no idea how much money they will have or where it will come from.

LGiU’s Local Finance Taskforce has been consulting with our local authority members and other senior figures in local government to design a sector-led Roadmap to a Sustainable Future, and to raise the profile of council funding to a wider Government and public audience.

In 2018 we campaigned for a formal consultation on the full range of options for council funding and enthusiastically welcomed the launch of the HCLG Committee Local Government Finance and the 2019 Spending Review inquiry. LGiU was pleased to be able to contribute to the consultation, submitting written evidence and appearing before the Committee at the 4th June evidence session.

The Committee’s final report, released today, accepts many LGiU recommendations for council funding reform. Our recommendations to the Committee included: introducing additional council tax bands to improve fairness; committing to maintain the current level of funding in 2020-21 to allow councils to plan; an emergency funding settlement; and a major review of the suitability of the Business Rate Retention Scheme. We were delighted that these recommendations were then put forward by the Committee in their report for consideration by Government.

Here is a full list of the LGiU recommendations that appeared in the HCLG Committee’s final report:

LGiU Local Finance Taskforce recommendations The HCLG Committee report said…
Commit to a one year emergency local government finance settlement “MHCLG and HM Treasury [should] provide a multi-year settlement for local government which runs for one year beyond the Spending Review period.”
Commit to maintain a constant level of funding indefinitely while the details of the new system are agreed “The Government should provide assurance on 2020–21 funding as soon as possible—for example by stating that no council will receive less in real terms spending power in 2020–21 than they did in 2019–20.”
Undertake a fair and transparent assessment of the actual costs involved in delivering local government services to complement the relative needs assessment in the Fair Funding Review “MHCLG, working with HM Treasury and other departments, should clearly set out what tasks are expected of local government and how much funding it requires. It should draw upon the work of academics and other experts, such as the National Audit Office. […] If HM Treasury wants local government to continue providing the services it currently does it needs to provide local government with a significant real-terms increase in its spending power.”
Decide a national strategy for health and social care funding that is fair and sustainable, starting with the Social Care Green Paper “There is need for new revenue resources [for adult social care] both at a local and national level. Local government must be given additional central government funding or powers to raise more revenue to deal with growing demand.”
We need further consultation on the extent to which the 75–100% Business Rates Retention plans will meet the future funding needs of local government. This should look at the future viability of the tax base and reform of the business rates system to be fairer and more reflective of economic activity “MHCLG needs to reform and make substantial changes to the business rate retention system. […] The Government also needs to start considering alternatives to business rates as a revenue stream for local government, given the risks to this tax over the long-term.”
In lieu of full revaluation, introduce additional council tax bands above band H and change the ratio between the bands to improve fairness for tax- payers “As part of a review of council tax, the Government should consider the case for creating new council tax bands at the top and bottom of the scale.”
Consult on allowing councils to retain a share of income tax, corporation tax or the new digital services tax. This would be to complement council tax, which is regressive, and business rates, which fail to capture increasingly significant parts of the local economy “The Government also needs to start considering alternatives to business rates as a revenue stream for local government, given the risks to this tax over the long-term.”
Reverse the trend of funding councils through small ringfenced grants to councils, which are inefficient to administer and restrict councils’ ability to solve complex problems “It would be better to adequately and sustainably fund councils and to rely less on one-off pots of cash. If necessary, any additional funding should be distributed as quickly and efficiently as possible with any bidding process kept to a minimum.”
Reopen discussions around devolution deals with clear criteria and taking a collaborative, open-minded and transparent approach “Devolution of more responsibilities and revenue-raising powers to local government has the potential to improve the financial sustainability of the sector and allow better and more integrated services for the public. It would also take the pressure off over-stretched Whitehall departments and ministers. However, it does present challenges—devolution of revenue raising is likely to result in increased divergence in the resources available to different areas and it may not be appropriate for some councils (for example those with a low population and tax base) to take on these risks. We intend to undertake a review of the progress of devolution in England which will examine a range of issues including access to new sources of revenue.”
Consider devolving responsibility for aspects of central government work to local government, such as infrastructure, transport and the Local Housing Allowance “MHCLG and the Department for Work and Pensions should consider creating a pilot scheme to see whether allowing local government employees to take more of a role in the benefits system would make the system more efficient and provide a better service for the public.”

Find out more about the Local Finance Taskforce and tweet your support using the hashtag #FixCouncilFunding

Read our press statement here.