Blog - 2nd December 2024

Blog - 2nd December 2024

Last week the government announced reforms to local government finance that are intended to ensure better value for money alongside the announcement of more money for councils. In this blog I summarise the main announcements and offer some thoughts of my own.

Local Government Finance Reform

Deputy Prime Minister Angela Rayner said that:

“For too long councils have been let down by an outdated and inefficient funding system which has led to public services creaking and taxpayers’ money not being spent efficiently. Whilst there’s no magic wand to fix what we’ve inherited, we’re taking the necessary steps to fix the foundations of local government by creating a fairer system and ensuring every penny is spent on the services so many people rely on every day.”

The government intends to launch a consultation later this month on its long-term proposals that are intended to create a fairer system that matches funding with need. This will be subject to consultation with local authorities. It is intended to ensure that public money is spent more efficiently on improving services. It will build on the lessons learned through the previous government’s review of Relative Needs and Resources, better known as the ‘Fair Funding Review’ that highlighted the problem of how councils are funded and the need for change but was delayed and never implemented.

 Civic Centre, Newcastle-on-Tyne

Further consultations are planned before the final proposals will be developed, published and again consulted on ahead of the provisional settlement for 2026/2027. Government states that this will ensure that the views of local leaders are reflected, in another demonstration of the their push to reset relationships with councils.

Implementation of these reforms will take place alongside multi-year funding settlements, the first in 10 years come 2026-2027, allowing local authorities the certainty to plan and invest for the long-term. The number of funding pots will also be reduced to allow councils to have more flexibility to judge local priorities, to meet the needs of local people, and to decide how best to deliver on national priorities. This long-term certainty, combined with flexibility will be welcomed by councils.

The government also gave a commitment to overhauling the local audit system and to hold talks with local government over reorganisation if appropriate. The local audit system is well overdue for reform with scandalous delays in completing local government audits being commonplace. The government’s views on local government reorganisation follow those of its predecessors in favouring unitary local government over the two-tier system and favouring the introduction of combined authorities and directly elected mayors.

Information about my work with the Local Government Association on the Fair Funding review can be found by clicking here.

Provisional Local Government Finance Settlement

The consultation will be launched alongside another on the Provisional Local Government Finance Settlement for 2025/26 that will include a new £600million Recovery Grant for areas most in need, an increase to the Social Care Grant by £680million, a new £250million Children’s Social Care Prevention Grant and the repurposing of grants to offer better value for money for the taxpayer and deliver better outcomes for local people, including the most vulnerable. This review is well overdue as the current funding system for local government is widely regarded as unfit for purpose.

Overall, local government is expected to receive a real-terms increase in core spending power of around 3.2% and the government says that no council will see a reduction in core spending power after taking account of any increase in council tax. However, a 3.2% increase may prove to be insufficient to meet increasing service pressures let alone reverse the adverse effects of the austerity that has been experienced since 2010.

 Civic Hall, Leeds

The £680million increase for the Social Care Grant is intended to help local authorities address social care pressures, while the new £250million Children’s Social Care Prevention Grant is intended to help ensure children stay with their families or in safe loving homes where possible as part of a planned overhaul of the system. Adult social care and children’s social care are both services that are facing considerable financial pressures and whether this additional funding will be enough to enable councils to ‘stand still’ is in doubt.

One of the reasons for spiralling children’s social care costs is the increase in the fees in private care homes. Some commentators have complained about them profiteering from providing services to vulnerable children. Legislation will be brought forward to crack down on this and ensure local government can deliver safe, loving homes for children in care.

The Budget also set out more than £4billion of investment in local government – of which £1.3billion will come through the Settlement – to build new homes, invest in Special Educational Needs and Disabilities, improve homelessness services, and tackle potholes. How the new money for new homes will be managed has yet to be decided but it is difficult to see how the amounts announced this week will be enough to fund the construction of the 90,000 new social homes that most people in the sector think are the minimum necessary. Similarly, the additional funding for special educational needs, disabilities, homelessness and potholes may not be enough to meet increasing needs let alone enable councils to tackle housing waiting lists.

The Provisional Local Government Finance Settlement for 2025/26 will further maintain the previous government’s referendum threshold for council tax at 3% with 2% for the adult social care precept, balancing the need between protecting local taxpayers who are still feeling the impact of the cost of living and funding local public services. Those who favour devolution and local democracy will argue that the level of council tax increase should be a matter for the judgment of local councillors and electors without an arbitrary maximum being imposed by central government.

Several grants including the Rural Services Delivery Grant and the Services Grant will be repurposed. The government will ensure the impact of rurality on the cost of service delivery and demand is reflected in the public consultation next year. Places with a significant rural population will still on average receive around a 5% increase in their Core Spending Power, which is a real terms increase. No council will see a reduction.

Councils will also receive over £1 billion in total through the Extended Producer Responsibility for Packing scheme that will cover the existing costs they incur for managing household packaging waste, provide additional funding for new legal duties, and support much needed investment in the waste and recycling industry.

The government also confirmed it will: provide support to the public sector, including local government, to meet the increased costs of directly employed staff arising from changes to employer National Insurance Contribution (although town and parish councils will not be protected from these tax increases); plans to merge grants and simplify funding.

Information about services that I offer to local government can be found by clicking here.