A review of local government finance is long overdue
Late last year, the LGA, published ‘Reforming the local government funding system in England’.
A joint report with Solace, the network for local authority chief executives and senior managers, and the Chartered Institute of Public Finance and Accountancy, it contained suggestions for improvements to the current system and for longer-term reform.
In that report, we said that councils need a significant and sustained increase in overall funding to stem the emerging risk of system-wide financial failure, and to ensure that councils can meet growing demand for the vital services needed by their communities.
But there is growing evidence that the local government revenue funding system itself desperately needs reform, and a fresh urgency needs to be added to the search for new funding streams for local government.
When considering revenue sources for councils, these should, when taken together, reflect a number of principles: sufficiency, buoyancy, fairness, efficiency, predictability, and transparency – and they should provide incentives.
They should also work with whatever structure emerges from the English Devolution White Paper. However, changes to local government structures are highly unlikely, by themselves, to address the deficit in ongoing revenue funding needed to sustain local services.
The Government’s recent consultation, ‘Local authority funding reform: objectives and principles’, picked up many of the themes in the LGA report, including: updating the system for allocating funding; resetting the business rates retention system; and giving certainty over funding streams, such as the New Homes Bonus, as well as on sales, fees and charges reform.
In the LGA’s response to the consultation, we suggested new funding streams for councils could come from e-commerce levies and/or assigning each local area a proportion of nationally collected taxes, such as income tax, stamp duty, vehicle excise duty or inheritance tax.
It would be for local politicians, in partnership with local providers, to decide on priorities and the allocation of funding.
It is vital that any discussion on council funding focuses not just on how best to fund councils’ current activities, but also considers whether there are other areas of existing public spending that would be best devolved to councils.
There was no mention of public health within the consultation, despite local government’s hugely important role in improving healthy life expectancy. We said we look forward to seeing the public health grant announced at the same time as the local government finance settlement, and as part of a multi-year settlement.
Our response highlighted other service areas facing financial pressures that would benefit from reform, including internal drainage board levies, special educational needs and disabilities, housing revenue accounts, and capital financing.
We also commented on government proposals on relative-needs funding formulae, area cost adjustments, assumptions about council tax levels, and transitional arrangements, and reiterated our calls for competitive bidding and ring-fence funding.
The local authority funding system is out of date, opaque and overly complex. The LGA has long called for reform and, therefore, we welcome this review.
However, transitional mechanisms should provide sufficient funding to ensure that no council experiences a loss of income as a result of changes and updates to the way needs and resources are assessed.
- See ‘Consultation on local authority funding reform: objectives and principles’ for the LGA’s response to the now closed government consultation on funding reform. The joint LGA, Solace, and CIPFA report, ‘Reforming the local government funding system in England’, is on our website.