Research report by The Institute for Fiscal Studies
See attachment
Executive summary
ï‚— On average, local government spending
on services has fallen by 21% in real terms since 2009–10.
However, those cuts have not been equally distributed across the
country, and have been larger in more deprived than more affluent
areas. This pattern of cuts has meant that spending per person in
the most deprived fifth of councils has fallen from 1.52 times to
1.25 times the level in the least deprived fifth between 2009-10
and 2017-18.
ï‚— Cuts have also varied significantly
across services, with councils prioritising services like adult
social care (down 5%) and children’s social care services (up
10%). In contrast spending on children’s and youth centres is
down more than 60%, planning & development and housing down
more than 50%, and highways & transport and cultural and
leisure services down more 40%.
ï‚— Cuts to overall budgets seem to be
ending. But revenues from council tax and business rates – the
two sources councils are set to rely on for the vast bulk of
their funding in future – are highly unlikely to keep pace with
rising demands and costs for public services. For example, even
if council tax were to be increased by 4.7% a year (which is the
average increase this year) every year, adult social care could
account for more than half of revenues from these taxes by the
mid 2030s, even without increasing service provision. This would
leave little in the way of additional revenues for other
services, including children’s social care, public health and
housing.
ï‚— This means either that we will have
to accept lower levels of service provision or that councils will
have to be provided with additional funding. This funding could
be raised via national taxation and given to councils in the form
of grants or by devolving additional tax revenues and powers to
councils.
ï‚— If one wanted to devolve a
significant additional revenue source to councils, then a local
income tax looks to be the most sensible option and would give
councils additional discretion to choose tax and spend levels.
However, it would entail additional administration and compliance
costs, and require a system to redistribute revenues from richer
to poorer parts of the country. This is because some areas – such
as Blackpool, Blackburn and Hull – could raise less than half the
average revenue per person from a flat-rate local income tax,
while other areas – such as richer parts of West London and
Surrey – could raise more than twice the average.
ï‚— The government is already committed
to increasing the proportion of business rates retained by
councils to 75%, but this is being paid for by cutting grants to
councils. At the same time, it is proposing some sensible reforms
to the business rates retention scheme (BRRS), which include
centralising the risk associated with challenges and appeals
against businesses’ property valuations (which is a risk outside
councils’ control). Big decisions remain about how frequently and
fully to ‘reset’ the system to redistribute revenues according to
spending needs – which involves a trade-off between providing incentives for
revenue growth and helping to ensure councils can afford
comparable services even if their business rates revenues perform
very differently. ï‚— In what it terms
the Fair Funding Review, the government is also reviewing how it
assesses spending needs and accounts for how much councils can
raise themselves via council tax. Its proposals for council tax
are broadly sensible, and plans to use spending needs formulas
for social care services based off analysis of individual and
small-area data are welcome.
ï‚— However, the statistical analysis the
government has conducted is not, on its own, a good rationale for
basing the spending needs formulas for a raft of other services
(including environmental, planning & development, culture
& leisure and housing services) on population only, as it has
suggested. Indeed, determining councils’ spending needs is not
simply a statistical exercise, but necessarily relies on
contentious subjective judgements.
ï‚— Overall, big choices loom for local
government – both on the level of funding, and how it is raised
and distributed. Are we willing to accept higher taxes or
cutbacks elsewhere to pay for the rising costs and demands for
council services? How do we balance local discretion and
incentives versus consistency in services across the country?
Such questions do not have just one right answer, but we cannot
continue to muddle on as we are. The reform of the local
government finance system is not just a technical issue – it will
have profound implications for the type of country England
is.
