Investing in councils can drive economic growth
Ahead of the Budget on 6 March, I have written on behalf of the LGA to Chancellor Jeremy Hunt about the financial challenges faced by our member councils.
Despite welcome new funding in the 2022 Autumn Statement and last month’s announcement of an extra £600 million (mainly for social care), a combination of sharply increasing cost and demand pressures means that the sector is in a parlous financial position.
In my letter to the Treasury, we set out how much-valued services, frequently focused on the most vulnerable in society, are under pressure and at risk, and how additional government support is needed to ensure local financial and service sustainability.
But we also highlighted and demonstrated the support and value that councils can provide in delivering the Government’s Budget and wider policy objectives.
As locally rooted bodies with a democratic mandate, councils have the legitimacy to work with residents and across public services to find ways to best meet communities’ needs, to drive change and make services better.
At the LGA, we think there is a compelling case for the Government to invest in councils to capitalise on these strengths, and that there are also gains to be had from empowering councils for no or only minimal cost.
Public services can be delivered faster, better and more efficiently at a local level.
Crucially, investing in and empowering councils can drive economic growth, and lead to better value for money for public spending. Council services can act to prevent more costly demand passing to other public sector bodies such as the NHS.
The LGA’s Budget submission letter spells out the significant challenges facing councils up and down the country in setting balanced budgets for 2024/25 without affecting local services.
The fundamental challenge is that cost and demand pressures are rising faster than funding.
Our analysis shows that by 2024/25, cost and demand pressures will have added £15 billion (28.6 per cent) to the cost of delivering council services since 2021/22.
Despite increased funding in both 2023/24 and 2024/25, we estimated in October 2023 that the sector was facing a funding gap of £2.4 billion in 2023/24 and £1.6 billion in 2024/25.
We have not revised this analysis following the Office for Budget Responsibility’s projections at the 2023 Autumn Statement: were we to do so, we would anticipate a greater funding gap in 2024/25 as inflation and wages are forecast to be higher than in our October model.
These funding gaps relate solely to the funding needed to maintain services at their current levels. The implication here is that councils do not have enough funding simply to stand still.
For example, increases to the National Living Wage (NLW) alone will add more to the cost of adult social care than councils can raise if they increase their council tax rates to the maximum 5 per cent before a referendum is required.
That leaves a reduced amount of funding to address the impact of NLW increases on other parts of the local government workforce, and the impacts of inflation, demand pressures and other cost drivers across all services.
In addition, there are individual service areas with cost and demand dynamics that are exerting higher cost pressures – particularly children’s social care, home-to-school transport for children with special educational needs and disabilities (SEND), adult social care, and homelessness services.
Councils have made huge efforts over recent years to manage their budgets.
Innovative actions such as transforming the way services are delivered through greater digitalisation and introducing shared service arrangements, alongside taking tough decisions over the range of services provided, have ensured that councils have been able to manage their financial pressures and to continue to deliver core services.
But the scale of pressures absorbed by councils, including a 24 per cent real terms reduction in core spending power from 2010/11 to 2024/25, means that financial resilience in the sector is at an all-time low.
Despite councils’ best efforts to protect services, their financial challenges are having a marked impact on provision, with funding increasingly concentrated on fewer people, growing concerns over the quality and scale of service provision, increasingly unsustainable workforce challenges, and reduced spend on preventative services.
While the LGA’s letter sets out the need for additional financial support, it also draws attention to the benefits and value for money that investment in councils can bring to the delivery of key national government policies.
There are three core areas where the LGA feels there is strong evidence for this: driving economic growth; delivering better life opportunities while protecting the public purse; and convening power and understanding place to improve public services.
Councils play a wide role in promoting growth and prosperity, directly affecting local economic activity through designing and delivering policy, deploying skills and capabilities, and developing key relationships, especially as they take on the functions of local enterprise partnerships (LEPs).
All councils would benefit from clarity on a joined-up, longer-term approach to funding, building on the Government’s Funding Simplification Plan; and from Whitehall departments adopting a ‘devolution first’ principle, entrusting councils with the powers and funding to deliver for their communities.
For example, councils need a long-term national commitment to support a council house building renaissance and improvements in existing stock.
Long-term certainty on powers and funding could help councils deliver an ambitious build programme of 100,000 high-quality, climate-friendly social homes a year. It would also improve the public finances by £24.5 billion over three years, including a reduction in the housing benefit bill and temporary accommodation costs.
Investment in council services is proven to lead to better outcomes and life chances for residents.
But in addition, there is also strong evidence that high-quality council services prevent demands and pressures being passed onto other public service providers, often requiring far more costly forms of intervention.
For example, research for the 2022 Independent Review of Children’s Social Care estimated the societal cost of adverse outcomes for looked-after children at £9 billion per year, while the ‘Big Five’ children’s charities found that a failure to invest in children’s social care now will lead to approximately £1 billion in additional costs to the Government over the next 10 years.
Councils have unrivalled local knowledge and sit at the heart of dense networks of public, private and third sector bodies. This means that further empowering councils and organising and delivering public services locally through them can deliver huge benefits.
For instance, devolved models for delivering net zero are more efficient and effective. Innovate UK modelled interventions in heat, buildings, and travel, and concluded local targeted action would hit net zero by 2050 while saving around £140 billion, returning an additional £400 billion in co-benefits.
The LGA’s Budget submission calls on the Government to:
- provide funding for councils that reflects current and future demands for services
- provide multi-year and timely settlements to allow councils to plan and make meaningful financial decisions
- ensure that funding is sufficient to recruit and retain appropriate numbers of skilled staff
- ensure that any new policy on the NLW is matched by funding to cover the cost
- adopt a renewed focus on prevention to address existing and future demand for services such as social care and homelessness support.
But it also asks the Chancellor to look beyond the financial challenges faced by local government and recognise the sector’s huge policy offer.
Investment in councils has the potential to reduce costs falling on other public services and to support the more efficient delivery of key government agendas such as economic and housing growth.
This is an edited version of the LGA’s 2024 Budget submission to the Chancellor, which can be read in full on our website.
