Councils need financial certainty to maintain public services and help deliver growth
The news that government departments have been tasked with identifying efficiency savings from public sector budgets has sent a collective shiver down the spine of local government.
It comes at a time when the future financial sustainability of councils and local services is already on a cliff-edge.
Recent signs had been encouraging, with the Government using last year’s Spending Review to rightly ensure councils had enough funding to meet the extra cost pressures they were expecting to face this year and keep services standing still, at least.
However, the dramatic rise in inflation has undermined councils’ budgets. Alongside increases to the National Living Wage and higher energy costs, this has added at least £2.4 billion in extra costs onto the budgets councils set in March this year.
While recent announcements on the energy cap and national insurance rise are helpful, these only go a small way to bridge the gap.
Councils are now having to try to find ways to meet these costs this year and limit the damage to the local services that so many people rely upon.
Some are planning to use reserves to plug funding gaps, stop capital projects or make cutbacks to services to meet their legal duty to balance the books this year.
However, with local government facing a funding gap of £3.4 billion in 2023/24 and £4.5 billion in 2024/25, the Government needs to come up with a long-term plan to manage this crisis.
Inflation is not going to come down overnight; reserves can only be spent once; a local service cannot be cut twice.
In the past decade, councils have done more than their fair share of the heavy lifting when it came to putting public finances on a more sustainable footing, having faced a £15 billion real terms reduction to core government funding between 2010 and 2020.
The Government needs to ensure councils have the funding to meet ongoing pressures and protect the services that will be vital to achieve its ambitions for growth and to produce a more balanced economy, level up communities and help residents through this cost-of-living crisis.
Alongside adequate funding, having certainty to plan is just as vital. Financial turbulence and uncertainty are as damaging to councils as they are for our businesses and financial markets.
For the past four years, councils have had to rely on one-year funding settlements. At the LGA’s annual conference in June, the then Levelling Up Secretary Michael Gove promised the next local government finance settlement in December would be for two years.
Days later he was gone, but this is a promise that we urge our new Secretary of State, Simon Clarke, to deliver on.
“The dramatic rise in inflation has undermined councils’ budgets”
Without this, councils may end up planning on the assumption that they will have less funding available to them than is actually the case, needlessly scaling back services and making redundancies.
Without certainty of adequate funding for next year and beyond, and given the funding gaps councils are seeing, councils will have no choice but to implement significant cuts to services including to those for the most vulnerable in our societies.
But with certainty and long-term funding – to cover increased cost pressures and invest in local services – councils can make innovative and meaningful decisions over their finances, change lives and communities for the better, alleviate pressures on other parts of the public sector and support growth.