The local government funding system is broken. The policy statement shows the government is serious about trying to fix it.
Over the last 14 years there has been fundamental breakdown in the relationship between funding levels and need. The most deprived authorities have seen the biggest cuts in funding as the share of income that is grant has fallen and the share of income that is from council tax has grown. More deprived, grant dependent authorities don't have the tax base to be able to replace lost grant with increased council tax and have also not benefited from the business rates retention system.
Given how unfair and unbalanced the system has become, it was very welcome to see the new government committing to target funding ‘to the places that need it most' and committing to a ‘deprived-based approach'
This has resulted in significant differences between changes in funding levels for the most and least deprived authorities over the last decade. Councils in the most deprived decile have experienced real-term cuts three times as large as the least deprived decile since 2010/11.
This isn't a case of correcting for overfunding of deprived areas pre-austerity. The Institute for Fiscal Studies found in their report on local spend that funding allocations for local government ‘did not properly reflect differences in assessed needs' and that the most deprived quintile received a share of funding that was 9% lower than what they should receive based on their relative level of need, while the least deprived quintile areas received 15% more.
This is most starkly represented by Wokingham, the least deprived upper-tier council in England. Wokingham receives a share of local government funding that is 45% higher than its share of estimated needs, has seen a real-terms increase in funding since 2010/11, raises double the SIGOMA average per household when increasing council tax, and has also benefited hugely from arbitrary reforms in the system such as the elimination of ‘negative RSG'.
Given how unfair and unbalanced the system has become, it was very welcome to see the new government committing to target funding ‘to the places that need it most' and committing to a ‘deprived-based approach'.
The policy statement, just published, backs up this welcome language with concrete help for the most deprived areas and signals a return to funding based primarily on need.
The £600m ‘Recovery Grant' will be highly targeted at deprived areas and recognises that the ability to raise council tax varies hugely across the country. It is very welcome that the policy statement explicitly recognises that deprivation is a significant contributing factor to demand on services and that deprived councils experienced ‘substantial central government funding cuts' during the 2010s. We look forward to seeing allocations of this funding at the local government finance settlement.
The £250m Children's Social Care prevention grant is a good first step alongside the previously announced reforms that can start to help councils get to grips with spiralling costs. The repeated emphasis on prevention and early intervention is really encouraging.
The commitment to finally deliver a fundamental review of the local government finance system is good news and something that is way overdue. It is fantastic to read that the department intends to ‘reset' the business rates retention system which is something that Sigoma have long been calling for. This will shift a significant amount of money to the most deprived areas and alongside council tax equalisation can ensure that the system delivers fair, sufficient and sustainable funding for councils.
Cllr Sir Stephen Houghton is chair of the Special interest Group of Municipal Authorities (SIGOMA)
