Making social science accessible

24 Aug 2023

Constitution and governance

Economy

Jack Shaw examines the condition of local authority budgets – which are in an increasingly parlous state – arguing that change is now urgent and that the current crisis offers the opportunity for a more fundamental rethink.

One consequence of the government’s decision in 2010 to reduce grant funding to local government is that local authorities have increasingly adopted a series of strategies – which until now have been effective – aimed at balancing their budgets.

‘Salami-slicing’ – code for scaling back services – and identifying ‘efficiency savings’ have become central features, as have increases in council tax year-on-year (though council tax increased faster under Labour than it has under the Conservatives). When these strategies haven’t been enough, local authorities have brought an end to non-statutory ‘discretionary’ services – from employment support to health interventions – and have instead introduced voluntary redundancies, recruitment freezes, a plethora of paid services, strict spending controls and over-optimistic investment strategies.

At the same time, the absence of government reform has remained problematic. The Institute for Fiscal Studies reported last week that disadvantaged communities receive less investment, which is largely a result of the government’s failure to reform the formulae that underpin its grant allocations.

First proposed in 2016, the long-awaited Review of Relative Needs and Resources – better known as the Fair Funding Review – was designed to rectify this ‘geography of misallocations’, but it will take place no earlier than 2026. The government’s messaging on tax-raising, reserves and commercialisation have been inconsistent and the politicisation of allocation and spending decisions – most notably when Rishi Sunak told the residents of Tunbridge Wells that allocating funding to “deprived urban areas” needed “to be undone” – have been a cause and effect of its failure to reform.

This has been further exacerbated by an uncertain policy environment. New responsibilities handed down by the government to local authorities have not always been adequately funded – what Andrés Rodríguez-Pose describes as ‘unfunded mandates’.

An increasingly complex funding regime has emerged which has made it more onerous for local authorities to secure investment. Funding settlements have been short-term and have not kept pace with inflation. Piecemeal reform to social care has not stopped a rising proportion of budgets being spent on a comparatively small number of services and rampant profiteering by children’s care providers remains unchecked. Local authorities have been left to pick up the pieces.

As a result of these shortcomings, the public services provided by local authorities are now at an inflection point. The scale of local authority deficits are wholly unsustainable: they are no longer able to manage decline. And the responses required to address them have evolved. The incremental scaling back of services is now giving way to the ‘fire sale’ of community assets en masse.

Wirral Council is selling two dozen assets, including a library, café and Bromborough Civic Centre. Kent County Council is planning to sell part of its nineteenth century Maidstone County Hall. Hastings Borough Council is selling two sites to reduce the cost of rising homelessness, despite those sites having planning permission for 54 households.

Meanwhile, local authorities are drawing down on reserves at an unsustainable rate, with reserves at Bradford Council now at a ‘historic low’ following the decision to spend £110 million last year.

The issue with the approach taken by local authorities is that assets and reserves are finite one-time-use resources. This short-termist approach may enable authorities to balance their books this year, but it doesn’t address the structural deficit they’ll face next year. Yet many feel they have no other options available.

As a result, we are witnessing a sharp increase in the number of critical failures. Most notably, Conservative-run authorities Thurrock and Woking and Labour-run Croydon and Slough have issued bankruptcy notices.

This is unsustainable. Inaction will not prevent more local authorities from declaring bankruptcy and there is a long-standing, cross-party consensus that change is now urgent. Who is responsible for that change, when will it take place and what form should it take?

A short-term cash injection by the government is one option. A second option is reforming the funding formulae. And fiscal devolution is a third – though how politically convenient it is to give local authorities powers to introduce new forms of taxation in a cost-of-living crisis is an unresolved tension. In the long-term, the viability of public services will require action on all three fronts and there is no solution that does not involve more investment in local authorities.

These crises also offer the opportunity for a more fundamental rethink. They pose a broader set of questions about what the public value and what purpose public services should serve.

A critical reading of the academic literature suggests that social innovation has given way to ‘municipal financialisation’. In short, local authorities have become preoccupied with economic growth over and above their responsibility to deliver services. There is truth in this reading, though it reflects a direction of travel borne out of necessity.

More important – at least to the public – is the quality of services local authorities run. Satisfaction is the lowest since 2012 according to the Local Government Association. Trust in local authorities to make decisions about those services is also the lowest in a decade. Action to improve this picture requires investment, but inaction is not cost-free either.

The government might do well to reflect on the words of President Biden: “show me your budget, and I’ll tell you what you value.”

By Jack Shaw, Affiliate Researcher, Bennett Institute for Public Policy, University of Cambridge.

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