A devolution solution to funding challenges | Cllr Tim Oliver, leader, Surrey County Council
By Cllr. Tim Oliver, Leader, Surrey County Council
That local government finances are challenging is not in doubt. There have been significant reductions in central government grants to councils of all types since 2010 as well as an increasing number of local authorities needing commissioners to come in to help restore sound financial budgets.
This has coincided with increased costs of the various services that councils provide, partly through rising demand and partly because of cost-of-living pressures. Many areas, therefore, have had to resort to their reserves, thus putting their future financial resilience in jeopardy in the event of large-scale financial shocks.
Service deficits
Local authorities are facing estimated deficits in their Special Educational Needs and Disabilities (SEND) budgets of £1.9bn in March 2022, projected to rise to £3.6bn by 2025. A related issue is Home to School Transport (HTST), where costs have risen 33 percent in the five years to 2021/2 and have been particularly challenging in counties where that increase has grown disproportionately given their geographies and the longer distances.
In terms of Adult Social Care, whilst the government’s plans for social care reform were welcome, the delay to the implementation of the charging reform is allowing local authorities to properly prepare. However, the system and any reforms must have the right funding settlement. It is obviously welcome that the full £12bn in extra support will still be provided even though its original funding mechanism, the Health and Social Care Levy, was discontinued by the Truss government. In Surrey, though, the gap for ASC funding is expected to continue to rise, hitting £20m in 2023/24.This is due to increases in caseloads and in adult social care staff numbers needed to provide the care and support required. This financial gap could rise to as much as £380m by 2033.
Efficiencies and new funding
Clearly, these financial challenges are unsustainable and must be brought under control. This is why councils have embarked on sweeping transformation programmes that deliver both efficiencies and modernisation, while still maintaining quality services for residents. Over the past five years, Surrey County Council has delivered £276m of efficiencies, successfully filling the annual budget gap since 2018, increasing reserves to a sustainable level whilst maintaining financial resilience despite significant impact of the Covid-19 pandemic on financial pressures.
In addition, in December, the government unveiled a provisional settlement for local government that recognised these pressures and, in part at least, attempted to help councils. It saw an average increase in Core Spending Power (CSP) of 9.2 percent nationally. This increase in resources will go a significant way to easing the financial pressures facing councils next year but councils still face very tough budget decisions particularly post-2025.
Achieving this maximum increase in CSP is, for instance, reliant on councils raising council tax by five percent, the maximum increase permitted without needing to hold a referendum. Research by the County Councils Network found that 80 percent of its members currently propose to do just this. Additionally, while the average is rising nationally, there are still 12 county councils that are actually seeing below average increases in CSP.
It is regrettable that this is the case. Any council tax rise during the current cost-of-living crisis is a difficult choice but it is one most councils are seriously considering to ensure they can maintain vital frontline services to benefit their residents and businesses. This, however, is just a short-term fix and if the system of funding local government is going to be sustainable for the long-term, we can do more.
Council tax and business rates
As a starting point, we need to have a serious and non-partisan conversation about the future of council tax and business rates, both of which are based on antiquated valuations. This is especially important if the government is to continue to announce new funding for local government that simply empowers local authorities to increase council tax rates.
Producing a modernised tax system through reforms and re-ratings would ensure that taxation is based on (i) the ability to pay, (ii) a fair share of consumption of local services, and (iii) bringing in more revenue. It would also present a more accurate picture on where extra government support is required and ensure funding is allocated to areas where it will do the most good.
However, extra revenue from local taxation is only a start and the expected increase will not meet the full challenge or match across to local need. What is required is a more wide-ranging set of reforms to the way local government is perceived, what it is allowed to do and how it is empowered to fund itself.
Devolution
On devolution, robust and extensive County Deals are needed to help make the most of public spending efficiency. A more ambitious and accelerated programme to roll them out across the country would empower more local communities and authorities to deliver the desired and required services and amenities.
Currently, on average less than one percent of day-to-day public spending and less than five percent of capital spending is devolved from Whitehall, even in the case of mayoral combined authorities. Instead, most funding is piecemeal with competing criteria and allocations, which only leads to duplications and gaps. Millions are spent every year by councils applying for the various pots of funding, often with no guarantee that applications will be successful, money that could be better used investing in our communities.
In addition, the power to pool funding streams will give councils more strategic control to address local need with targeted solutions that cost the exchequer less, rather than centralised spending, which is unwieldy, difficult to monitor, and not sufficiently targeted. Recent experiences of funding allocated during the Covid-19 pandemic shows that local authorities are better placed to make decisions on targeted spending and where better outcomes can be achieved.
New taxes
Part of the conversation about devolution should also include consideration by government that local authorities need increased powers to open new revenue streams, such as new local taxation. It could also include further powers around economic development and skills, enabling areas to provide more attractive propositions for business investment and improve opportunities for the local workforce.
New taxes linked to local consumption and service utilisation, for example tourist levy, land value tax, or local VAT, could generate millions to meet rising budget pressures but also support service modernisation locally going forward. This would enable areas to become more self-sufficient and allow government to prioritise areas that really need central support.
These local taxes would be specifically earmarked for improvements to local services, from roads and high streets to parks and healthcare as well devolved to town and parish councils, which would then empower local residents to do more at the hyper-local level.
On social care
Any adult social care reforms that are proposed need to bring about fairness in the system and to go further to plan for an ever-expanding aging population and an increasingly complex set of needs from childhood to old age. This includes ensuring that there is a clear workforce strategy to encourage people into jobs in the sector, providing them with an adequate wage for skilled work and career progression.
The social care system cannot be the poor relation of health, pitted against the NHS for funding, as it is at present. Health and social care are complementary demands which residents rely on in equal measure during their lifetime and must be put on a sustainable financial footing.
Because income tax and council tax cannot generate the revenue to cover rising demand and the ambitions of reform, England should perhaps be looking at more radical options. For example, a national risk-pooling insurance model where everyone can start paying toward the inevitable need for care sometime in their lives. Modelled on the German system, this would create more fairness while ensuring sustainable universal provision.
On business partnership
As part of devolution and reform of Local Enterprise Partnerships, there needs to be a new partnership between business and government. This must be constructed to ensure that there is a system of support services which people can rely on, and which are diversified and balanced.
Government cannot be the only solution to problems, and more can be done with firms who realise that it’s good business to work with staff to improve areas like mental health, obesity, and making greener consumption choices. Helping people make healthier choices and improving air quality, among other things, will give them longer, more productive, healthier lives.
To help make this a reality, councils and businesses need more delegated authority to create funded private-public partnerships on welfare, sustainability, and other areas, making the most of public funds as well as securing private money to support expanding demands. These partnerships can enable more integrated planning and strategy, give people more choice and deliver a better quality of life.
The challenges facing local government around funding are real, but they are solvable. What is required is the recognition of the vital role that councils play in supporting their local communities, that they are best placed to decide what is needed in their localities and for central government to share the load by devolution of more powers and responsibilities to local government.
Cllr. Tim Oliver, Leader, Surrey County Council