Economy and Infrastructure

14.09.17

Councils raise service quality concerns as budget pressures start to bite

Councils have this week expressed serious concern that they will not be able to maintain high service quality under the current rate of budget cuts from central government.

Research conducted by the Institute for Fiscal Studies (IFS) looked at surveys from the Local Government Information Unit (LGiU) and PwC to get a clear picture of local government’s views on how cuts have affected service quality, and the impact of the business rates retention scheme on (BRRS) revenues and incentives.

Though 89% of respondents to the LGiU’s survey said service quality was maintained in the last year, many councils reported not being confident that this could be kept up in the future.

Just one in three said they were confident that significant reductions in quality could be avoided over the next three years, with the figure falling to one in six over the next five years.

And respondents from ‘upper-tier’ councils with responsibility for social care stated that they were even less confident of services being run smoothly in the short term. Three quarters of these respondents said that cuts to budgets would be apparent to the public in 2017-18 as service quality dropped due to a lack of funds.

PwC’s survey also raised more worries about the lack of clarity around the upcoming reform to business rates retention.

Two-thirds of decision-makers said they were currently unable to ascertain whether their council has gained or lost financially from the BRRS, possibly because they are unsure what the funding system would otherwise have looked like, or due to the complexity of the scheme.

In addition, though 40% of councils expected that 100% retention would incentivise local economic growth, only 23% expected their authority to financially gain from the policy change.

This latest warning comes in the same week that a Basildon councillor criticised Sajid Javid for failing to respond to his letter asking for clarity on council finances and upcoming business rates changes.

“Officials and politicians from councils that we estimate have done well out of the business rates retention system so far, and where recent economic growth has been faster, are significantly more confident that the proposed 100% rates retention scheme would benefit their council,” said David Phillips, associate director at the IFS, and an author of the report.

“This is perhaps unsurprising. But such confidence may be misplaced. Other research shows that over the period 2008 to 2015, at least, there was remarkably little link between local economic growth and increases in the business rates tax base.

“In other words, rapid economic growth does not guarantee good business rates performance, and vice versa.”

Jonathan Carr-West, chief executive of the LGiU, argued that councils currently had little certainty as to how they will be funded beyond 2020.

“The impact of 100% Business Rate Retention looks increasingly uncertain. For councils, who have been told in recent years that they should be investing in their local economy so that they will be able to fund themselves through business rates post-2020, the current lack of policy direction adds yet another layer of uncertainty and complexity to their financial planning,” he explained.

“There is now an opportunity to have a rethink about how we broaden the local tax base to create a sustainable way of funding services in the long term. More creative approaches to fiscal devolution were ruled out of the initial round of devolution talks: it’s time to revisit them.”

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