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Local government funding: getting it right

Source: PSE April/May 2018

Simon Edwards, director of County Councils Network (CCN), calls on Whitehall to harness the opportunity to reform the local government funding system for the better.

As the sector continues on a journey towards a new methodology to fund local authorities, colleagues from across the sector met to discuss how we can speak with one voice.

Whilst we will all have our own view on what fair actually means, I believe that we can agree that the current system is opaque and inequitable – and this is a once-in-a-generation opportunity to reset.

CCN and our member councils have been clear: they want a simpler, more transparent methodology with a clearer set of formulae that will reflect the real drivers of expenditure for all local authorities in 2020.

The government’s proposed Foundation Formula sets out steps in this direction, and all of us should welcome the direction of travel laid out in this latest consultation.

It is encouraging that the consultation paper highlights the issue of rurality as one of the three main cost drivers, alongside population growth and deprivation. This is important for our member councils, with clear evidence that there are added costs in providing services in rural settings, not least in home to school transport, waste collection and social care. But deprivation, where it accurately measures rural deprivation and social inclusion, and population are also important factors for CCN member councils.

Social care spend

Population growth, and specifically growth in differing age groups, is crucial for county authorities as their adult social care costs are a direct result of spikes in demand through population increases.

Recent CCN analysis shows that counties now spend, on average, 45% of their budgets on adult social care – far higher than any other upper-tier local authority type.

There is a direct correlation between elderly population growth and increased expenditure on care services, with counties having to re-route expenditure from other highly-valued service areas, such as children’s centres, libraries and highways.

By the time the formula will be reset in 2020-21, population data will not have been updated for seven years. In this time, counties’ over-65s populations have increased by almost half a million in just a three-year period (2013-16), but this has not been reflected in any uplift in funding.

Financial sustainability

Whilst a recognition of population growth as a key cost driver is something that will be welcomed by our member councils, CCN argues that government should seek to implement a system that can address and is capable of funding demographic spikes, particularly in over-65s and over-85s.

Financial consultants note that counties, due to being home to the largest elderly populations, could be “exposed to considerable financial risk” due to these demographic spikes, exacerbating the financial position they are in.

Indeed, local government finance has been in the national spotlight over the past month, firstly with the news in Northamptonshire, and secondly with the National Audit Office’s (NAO’s) latest report on the financial sustainability of councils.

The NAO report clearly illustrates that upper-tier social care authorities are the ones under most pressure, and even goes as far as to say that one in 10 of those could become “financially unsustainable” in the next three years under current trends of reserves usage.

This is important in sharpening the minds of ministers and those holding the purse strings in the Treasury ahead of the Autumn Budget and this summer’s social care green paper.

CCN’s own evidence shows that counties face a £2.54bn funding gap by 2021 through demand-led pressures and the costs of the National Living Wage. Whilst the fair funding review does offer the opportunity to create a new and fairer system, it will not eradicate this gap.

Therefore, we also join with colleagues from across the sector to argue for an uplift in the quantum of funding for local government. One option is for additional revenue raised locally through business rates to be retained without the imposition of yet new burdens and additional responsibilities for councils. There will need to be a redistribution of rates to ensure equity across the system but, first and foremost, this funding should be utilised to ensure local government is sustainable and able to continue to deliver essential services relied on by our residents.

In analysing the responses to this consultation, it is clear there is some disagreement between parts of the local government sector, particularly on deprivation weightings.

Whilst this is unavoidable considering the landscape of local government, we must remember the bigger picture, too. This is a golden opportunity to reform the system for the better – ensuring that councils are funded on their genuine need, both in the present and in the future.

Arriving at a formula that is evidence-based, built on transparency and fairness, and can truly stand the test of time should be a premise that the whole sector can work towards. When taking on board the NAO report’s warnings, the need to get this review right becomes more paramount.

(Top image © LanceB)




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