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How the local government finance settlement would leave poorer authorities worse off

Conservative MPs are demanding emergency funding in response to devolved finance proposals that penalise poorer councils.

By Jonny Ball

This week, 44 Conservative MPs signed an open letter calling for Rishi Sunak “to provide additional funding for local government”. The letter highlights the difficulties that county councils will have in balancing the books under the proposed local government finance settlement published late last year.

Strangely, for five of the signatories, this isn’t the only round of open-letter-writing they have managed recently. For the extremely busy Ben Bradley (a member of parliament as well as leader of Nottinghamshire County Council), as well as Jake Berry, Karl McCartney, Priti Patel and Danny Kruger, not only have they written to the Prime Minister asking for a more generous financial settlement, but they have also recently signed a “tax pledge” promising to oppose any increase in the overall tax burden.

Needless to say, achieving the aims of the respective open letters would require either an increase in government borrowing or cuts elsewhere, meaning the MPs in question have either aligned themselves with a very un-Conservative approach to fiscal policy or taken the principled position of “cuts for thee, but not for me”.

Local government has been one of the biggest financial losers since the onset of austerity in 2010. Extra Covid-related grants in the early 2020s saw an uptick in the funding local authorities received from Westminster, but apart from this brief respite, the trend of the past decade or so has been an annual squeeze in incomes. This has added huge pressure to adult social care (and therefore the NHS) and already-stretched children’s services, and led to more closed libraries, more potholes, reduced waste collections, overgrown parks, dilapidated leisure centres and vastly reduced capacity to deliver even skeleton services.

[Read more: Councils are on the brink, but there’s no mea culpa from Michael Gove]

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When announcing the finance settlement at the end of last year, the Levelling Up Secretary Michael Gove said that “councils are the backbone of their communities”, and that his department “recognise[d] they were facing challenges”. The funding settlement was worth a total of £64bn, an increase of 6.5 per cent. 

But that will not be enough to cover councils’ shortfalls. Half of the 6.5 per cent increase will come from 5 per cent rises in council tax, rather than new funding from the government. The 6.5 per cent settlement is flat across the poorest to richest authorities, with no extra funding targeted to the most deprived areas. Demand for social care and children’s services is rising as the cost-of-living crisis bites, and the inflationary pressures faced by councils outweigh the extra funding set aside by the department. The planned rise in the minimum wage, while welcomed by low-paid workers, will add to the outgoings of councils with little to no headroom.

The Special Interest Group of Metropolitan Authorities, Sigoma, which represents urban-based councils, published a response to the finance settlement. It said it is “concerned at the extent to which increasing reliance is placed on using council tax (and business rates growth) to fund essential services”.

Since council tax is calculated according to property values, the ability of affluent areas to increase their local revenues greatly outweighs the ability of more deprived boroughs to increase theirs. As the grants from central government dwindle, locally raised revenues have become far more important. But councils like Kensington and Chelsea or Westminster will find it much easier to raise their intake from the myriad high-value businesses and wealthy homeowners in their boroughs, compared with local governments in Knowsley, Middlesbrough, Liverpool or Blackpool (the four poorest council areas).

“We fundamentally disagree with shifting the cost burden of providing essential local services from central government to local taxpayers,” Sigoma says. “Especially so when there is no recognition of the varying ability to raise council tax across the country.” According to data shared exclusively with Spotlight, the least-deprived decile of local authorities is able to raise on average £1,742 per dwelling, while the most-deprived decile of local authorities are only able to raise £1,015.

The final local government funding settlement is expected in February. On 24 January, in an unprecedented move, the government announced it would include a further £600m in funding for councils, with £500m of that allocated to upper-tier authorities with social care responsibilities. Some areas operate under a two-tier system of local government with a county council which runs larger services across a bigger area such as social care, waste disposal and road maintenance, and a district council which runs smaller, more local services such as planning, bin collections and housing. Other areas operate under a single-tier unitary council, which runs all the services in a local area. Unitary and county councils will receive this added funding for social care.

Stephen Houghton, the chair of Sigoma and leader of Barnsley Council welcomed the funding, and said it reflected “growing understanding within government about the crisis in local government finances”. But he cautioned that the increase will do little to “address the long-term funding gap” or the need to reform local government’s broken funding model.

Although this intervention may have provided some support for withering council finances in the short term, it remains to be seen whether the government will kick its gears into action to reform the overall landscape of local government funding to prevent a future snowballing wave of bankruptcies.

[Read more: Council bankruptcy tracker]

[Read more: More than a third of councillors say recreational, leisure and cultural services have been cut since 2010]

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