Difficult questions lie ahead for Government and the sector

By Graeme McDonald | 19 May 2020
  • Graeme McDonald

In just a few short weeks the COVID-19 crisis has taken a hammer to an already fragile economy. Very necessary public health measures have placed many parts of our once normal working lives on ice, and we are all uncertain what the economy might look like when lockdown measures are (possibly slowly) removed. All signs point to us entering an economic depression not seen in any of our lifetimes. The Chancellor has put in place unprecedented measures to supporting businesses and individuals with the aim of avoiding the worst-case scenarios and attempting to foster recovery as quickly as possible. But current indications are that a ‘v-shaped’ economic recovery is unlikely.

Local government has also been hit hard. Recent weeks has seen the true scale of the challenge emerging, with huge demands placed on workforces, costs spiraling and income streams in a nosedive. The response from the sector has been incredible. However, the last 10 years of local government policy has clearly had an impact on both the scale and scope of the response possible. In the most simplistic terms, as a sector we have 900,000 fewer employees to redirect to take on the coronavirus fight or support our community’s recovery.  

But perhaps the more significant change has been self-sufficiency and the very deliberate shift by the Government away from a grants-led system. As direct funding from Whitehall has fallen, both explicit and implicit incentives have been introduced to increase local places generating their own incomes. This has been best reflected in policies such as new homes bonus, local business rate retention and successive Governments’ encouragement of commercialisation. As early as 2012 the Government’s infamous ‘50 ways to save’ document encouraged councils to sell services and rent property to commercial organisations. The shift away from the traditional needs-based model, towards a US style self-sufficiency model (although without the genuine autonomy that American local government has), has created more opportunities for some individual places but inevitably created more financial exposure and risk as it has done so.

Coronavirus has already had a profound impact of councils’ finances in the US. In April a National League of Cities Survey in US found that well over 50% of municipalities with populations above 50,000 were furloughing staff due to coronavirus. While more than a third were laying off staff as a direct result of the impact of coronavirus – rising to 47% in councils with populations in excess of 500,000. In response, Senate Majority Leader Mitch McConnell has rebuffed federal aid for state and local government and suggested those with budget shortfalls should instead declare bankruptcy.

The UK does not yet have a local government finance system comparable to the US, but we do have some important decisions to make and a challenging new future to plan for. Will Westminster fulfil its promises and cover the full cost of the crisis for local councils? Can we end the inefficient reliance on one-off pots handed out as short-term fixes to systemic problems? To what extent will either local places or the whole sector be expected to be self-sufficient now and in the future? What role should a reformed council tax, business rate or a new model of local taxation play in funding council expenditure? Will the approach encourage resilience, while being equitable and sustainable over the long term?

These are all questions that need answering very soon. Indeed, they have needed answering for some time now, and their persistence underlines the piecemeal approach to local government finance from successive Governments over decades. In May 1976, the Layfield review of Local Government Finance emphasized the need for a long-term, coherent system with a clear definition of responsibility for expenditure – and little has changed on its 44th anniversary. As we emerge from the current crisis, in order to continue to provide basic services and support the recovery of local communities, we need to put together something robust and effective from what is now a fragmented and failing local government finance system. Councils will be unable to do that with the threat of section 114 notices hanging over them. There some difficult questions ahead for both Government and the sector, and they will need answers quickly.

Graeme McDonald is managing director of the Society of Local Government Chief Executives (Solace)

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