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18.02.15

Councils on ‘cliff edge’ as funding model not fit for purpose

The funding model for local government in England is no longer fit for purpose and in need of urgent reform, ministers are warned today.

Councils are on a “cliff edge” due to past and upcoming cuts and services such as adult and child social care face crisis unless local authorities are given the freedom to decide their spending priorities, according to the Independent Commission on Local Government Finance.

It was tasked with making recommendations for the reform of local government finance and finding better ways to fund local services and promote economic growth in England. Its final report, ‘Financing English Devolution’, sets out plans for a 10-year programme of devolution under which more than £200bn of public money is put in councils’ hands.

Darra Singh, chair of the commission, said: “Local government and the services it provides are on a cliff-edge.

“Councils’ success at implementing cuts over the past few years has shielded people from the stark reality that the services they use can’t carry as they are for much longer.

“The urgent need for reform is going to be one of the biggest and most important challenges facing the next government. Without it, many of the key services which have been part of everyday life for generations may not be there much longer.”

The commission calls for a variable approach, allowing those councils who are able to be ‘Pioneers’ and lead the way reforming at a faster pace, while other authorities will have more time to implement the changes.

Reforms the commission suggest for all councils are:

  • An independent body to review the functions and sustainability of local government assessing the capacity of the sector to meet its key responsibilities including those on adult social care in advance of the next spending review; and advise central government on funding for local government — reporting to parliament on the reasonableness of central government’s decisions.
  • Freedom to set council tax and council tax discounts and the retention of 100% of business rates and business rate growth.
  • Multi-year settlements.
  • The ability to raise additional revenue through relaxation of the rules on fees and charges.

Reforms for Pioneers include:

  • Single place-based budgets covering a full range of public services.
  • The opportunity to manage equalisation across a sub-national are.a
  • Further council tax reforms including the ability to vary council tax bands and to undertake council tax revaluations.
  • Newly assigned and new taxes such as stamp duty, airport taxes and tourism taxes.
  • The establishment of Local Public Accounts Committees to oversee value for money across the totality of the place-based budget.

The Local Government Association welcomed the report, saying that for many areas it is now “devolution or bust”.

LGA Chair Cllr David Sparks said: "With rising demand, more complex needs and less money to go round, the time for merely talking about changing the way we do things is fast running out.

"The services councils provide will not be able to withstand another five years of cuts without radical reform, and it will be people who rely on good roads, public facilities and care who pay the price.

"It will be vital that this and the next government take heed of the commission's recommendations. The call for a variable pace of reform is an entirely sensible one. As this report makes clear, it will be important that pioneer areas which first take on new freedoms represent a broad range of types of local authority across all parts of the country.”

Graeme McDonald, director of Solace described the report as a "clear and unambiguous statement of the unsustainability of the current local government financial settlement".

He added: "It persuasively sets out the need for a comprehensive and urgent review of the functions and financial sustainability of local government and makes a strong case for fiscal devolution and greater autonomy for local places. We are clear that fiscal sustainability must be right at the top of any incoming minister's in-tray."

Kris Hopkins, the Local Government minister, said: “There is certainly scope for decentralising more funding to councils, by extending the successful introduction of incentives like local business rates retention and the New Homes Bonus. Such measures allow councils to increase their revenues - not by higher taxes, but by growing the pot through supporting job creation, construction and enterprise.”

Cllr David Hodge, chairman of the County Councils Network, added that the report is a “great contribution” to this “incredibly important national debate”.

He added that it starkly conveys the scale of the financial challenges facing local government, but also its ambitions for using devolution to adapt to these challenging circumstances.

“Counties are feeling a particular strain on our budgets as the demand pressures on our services are higher and our funding allocations much lower than in some urban areas,” said Cllr Hodge. “Our ambitions are correspondingly high – Counties are ready for devolved powers and funding to transform our approach to promoting growth, delivering services and providing transparency to local residents.”

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