Ahead of tomorrow's Spring Budget, Greg Stride from the Local Government Information Unit explores the state of local government funding, arguing that there is little evidence that Jeremy Hunt will make significant changes in England.
The State of Local Government Finance
Tomorrow, the Chancellor of the Exchequer, with much fanfare, will reveal the national government’s spring budget. But at the local level, and with considerably less fanfare, authorities across England have already been confirming their budgets over the last few weeks. Local authority spending decisions are not trivial. They determine the rate of council tax, spending on essential services like adult social care and education, and a host of other important revenue-raising and spending decisions that affect everyone at a local level.
The importance of these decisions is not reflected in the amount of attention they receive, especially not compared to a national budget. Which is partly why we at the Local Government Information Unit run our annual survey on the state of local government finance, where we ask senior local authority officials - council leaders, chief executives, finance officers and cabinet members responsible for finance - to explain the measures they are taking to balance their budgets and the pressures they are facing. We fielded the survey over 2 weeks in February, and received 160 unique responses from 138 different local authorities.
This year’s survey painted an unsettling, but perhaps not surprising, picture of how local governments are responding to an increasingly difficult economic environment. Local authorities have a statutory obligation to balance their budgets, alongside the responsibilities they have to provide essential services, and coupled with reduced spending power, and the limited number of options available to councils for raising funds, this has left many councils in a difficult financial position. Only 14% of respondents to our survey said they were confident in the sustainability of local government finance - demonstrating a remarkable consensus within local government that the current funding system has placed them in a precarious position.
This has resulted in local authorities taking major steps to balance their budgets. More than 90% of respondents said they would be increasing council tax, more than 50% that they would both be raising council tax and cutting services. For the average resident, this will mean the amount they pay will increase as the services their community has access to will decrease. The diagram below shows the relative frequency of each policy respondents said they were taking.
If these are the steps local governments are taking to balance their budgets, the question still remains, what are the pressures resulting in them taking these measures? We asked our respondents what the greatest short-term and long-term pressures on their council’s finances were. As the figure below shows, adult social care was the commonly cited long-term pressure, and housing and homelessness the most in the short-term. This differed significantly based on the type of local authority - upper tier authorities with social care responsibilities were much more likely to cite adult social care as their greatest long-term pressure (65%) and children’s services as their greatest short-term pressure (36%). In lower-tier authorities, the environment and waste was the greatest long-term pressure (29.5%) and housing and homelessness the largest immediate pressure (32%). This demonstrates the range of difficulties faced by different local authorities, although it also suggests that adult social care is an unusually prevalent financial pressure in those authorities with responsibility for it.
This will not come as a surprise to the government in Westminster, and an excellent recent House of Commons Library briefing has outlined the challenge of paying for social care and the steps that have been taken - or occasionally not taken - to deal with this issue. As our research shows, local governments are still not satisfied with the progress made - only 4.38% were happy with the progress the government has made on implementing a long term adult social care funding strategy.
The Centre and Periphery
The funding of adult social care was not the only area where our respondents demonstrated severe concerns about the actions of the central government. Only 8% of our respondents said they were confident that the government would prioritise considering local government in wider policy decisions, and only 4.38% that they were happy with the progress that had been made on delivering a sustainable funding system.
What steps has the central government taken before the budget? At the start of February 2023, the government announced the final local government finance settlement for 2023-2024. This included a funding guarantee that provided a 3% increase in core spending power for councils before taking into account any decisions on council tax. Our survey was taken after this announcement, and it does not seem to have had a major effect on confidence in the central government’s handling of local government finances. Although, it must be noted that the government’s efforts to meet the immediate funding needs for adult social care received a relatively high level of support from our respondents - 21.88%. But this is only relatively high, and still means four-fifths of respondents were unsatisfied with the government’s progress on this issue.
On the other hand, the government did not announce any significant changes to the way councils could raise funds. The settlement confirmed that under normal circumstances this financial year councils can only raise council tax by up to 3% without a referendum, a 1 percentage point increase from the last financial year. But in the very same statement, Michael Gove, the Secretary of State for Levelling Up noted that this was ‘significantly below headline rates of inflation,’ and urged: ‘[w]hen taking decisions on council tax levels, I expect councillors, mayors, police and crime commissioners and local councils to take into consideration the pressures many households are facing.’ This framing implies that local authorities are making decisions on council tax without considering their residents’ needs, rather than, as the results of our survey imply, because their responsibilities, coupled with severe financial pressures, leave them no real choice. From our research, there seems to be a severe difference in perspective between local governments and the central government on the overall state of local government finance.
The final question is, what could the spring budget do to change this? Most existing predictions on the spring budget do not mention local government finances, and the local government financial settlement was revealed only last month, so a significant shift in policy seems unlikely. There are some talks, reported on in the Times, that the mayors of the West Midlands and Greater Manchester may be given budgets of around £500 million in an effort to treat them more like government departments with independent spending powers. This would be an interesting shift towards greater fiscal autonomy in certain policy areas, and we will have to wait to see what the final policy will be. But, it would still only affect a small proportion of local authorities.
Our research explored the popularity of different types of fiscal devolution, finding that respondents were most likely to support 100% business rates retention - a policy previously trialled by successive Conservative governments - but whether this will reappear is yet to be seen. There is little evidence yet to suggest that the government is considering more significant changes to the structure of local government funding across England.
Greg Stride is a research assistant at the Local Government Information Unit (LGIU), which is a not-for-profit, non-partisan membership organisation dedicated to supporting local government.