Despite confidence, most councils lack financial plans and partners to allay cuts
The vast majority of councils are confident that they will not reach a tipping point as a result of steep cuts to their budgets over this Parliament, despite most authorities already being as lean as possible in terms of back-office savings, new research has found.
A study by professional services firm Grant Thorton of 133 councils in England, including 108 responses from chief finance officers, found that 84% of councils expected to “continue to weather the financial storm” over the next five years. Just 15% conceded that it was probable or reasonably possible that they would be unable to balance the books.
But the research report said: “The question is whether this will require the public to change significantly their expectations about the range and depth of services they can receive.” It added that most councils now manage their finances proficiently and will thus have to turn to services to find further savings.
Paul Dossett, head of local government at Grant Thorton and a PSE contributor, said: “The achievement of local government in responding to the challenge of austerity has been costly in terms of staff reductions and some withdrawal of non-statutory services. To date, most people have seen little difference in the service levels that their local council offers.
“However, the scope for efficiencies through back-office rationalisation is diminishing each year and, from as early as next year, councils will need to focus their savings programmes on the services that they provide directly to the public.”
The study report also highlighted “greater financial uncertainty and risk” in councils’ strategic financial plans as they continue to search for opportunities to reduce costs, but with “far fewer options” than before.
“Consequently, most councils project significant funding gaps over the next three to five years and the main source of risk is the lack of detailed plans in place to address these deficits, particularly from 2017-18 onwards,” the report added.
Other concerns highlighted by the study include a shallow understanding of local government’s partners that can help deliver transformational changes to services, with progress still needing to be made in breaking down silos in the public sector.
Councils must also improve the level of consultation with residents when choosing which services to prioritise in order to shape development plans in accordance to what the public needs.
Further fiscal devolution
While the devolution of business rates was a positive step in the way of enhancing councils’ role in stimulating local growth and continuing to thrive, the company argued that this should go even further.
“It should be noted that this represents only partial fiscal devolution in relation to business rates. The government has not yet been willing to offer full fiscal devolution to local authorities on a scale that would allow them to optimise the benefit from local economic growth,” it said.
“Heavily centralised government is an outdated model. The current deals on the table are underpowered and represent only small steps towards devolution. Comprehensive fiscal powers – for example, the ability to levy and vary local taxation – would be transformative.
“The process is further constrained by complexities and misalignment across government silos. These result in unintended consequences, dampen growth and stifle public service reform.”
Examples of these alleged silos, the firm argued, included funding reductions for further education, multiple public sector assets duplicating functions and using up resources, expanding Right to Buy to registered social landlords reducing affordable housing options, reductions to public health budgets and major infrastructure projects, and forcing the NHS to look inwards to address its “financial meltdown”.
Dossett commented: “Local government has changed significantly in the five years since the 2010 Spending Review, and the pace of change is accelerating. It has a pivotal role in fostering vibrant local economies.
“The government recognised that centralised government for such a large population is an outdated model, but Whitehall needs to go further and faster in allowing localities to drive growth and public service reform, including proper fiscal devolution that supports businesses and communities.
Although Whitehall has been keen on reducing what the company called an outdated centralised model, it plans to achieve this by cutting off all central government grants councils currently receive. This means the local spending profile is expected to shift from centrally-funded to self-financed over the next five years.
As well as devolving business rates, other components of this shift include creating a social care precept and allowing councils to reinvest 100% of the receipts from the assets they sell. They will also receive £2.3bn in loans to regenerate their large estates in order to reinvest this money in new housing stock.
Another £31m will be used to extend the One Public Estate programme, which over 100 councils have joined, to support local authorities in designing more efficient asset management strategies.