As cash-strapped councils face ever-tightening budgets, the LGA has called on the Government to put in place a new system for assessing the cost of new burdens, in an effort to make sure authorities are properly funded, writes Stephen Jones
The LGA has identified that councils are managing a growing number of new burdens across a range of service areas.
In many cases, there is a lack of clarity about whether the costs of these new burdens have been funded fully, in part, or at all.
Examples of recent new burdens include the extension to the concessionary fares scheme, and increased costs of family law court fees. Councils and the LGA will need to monitor these over the next three years to compare funding with actual costs and identify any shortfalls.
In licensing services, research has previously confirmed that the extra funding provided to councils following the extension of licensing laws does not meet the total additional costs incurred by councils.
While many of the new burdens councils are managing are not individually hugely expensive, collectively, they begin to add up to a significant sum.
The annual shortfall on funding for licensing services amounts to £90m a year.
The increase in the rate of landfill tax over CSR07 will cost councils £350m more than the previous rate. These two new burdens alone amount to almost £30 per household, with many councils expecting that the extension of the concessionary fares scheme will significantly add to this figure. Of equal concern, however, is the current process in place for assessing new burdens.
Broadly, government makes an estimate of the cost of a new burden once it is identified – the relevant department is responsible for identifying a sum, although it is supposed to seek the views of the LGA and councils in doing so.
The amount identified is then added to the local government settlement or provided through a specific grant.
This, though, is effectively the end of the process. Once a sum has been transferred, there is no subsequent analysis of whether the funding proved to be adequate – or too much – or of whether it got to the places it needed to. There is widespread support for ‘evidence'-based policy. So why should we not have evidence-based funding?
Why should council taxpayers pick up the tab if the funding for a new burden is too low? And if funding proves too generous, why should we continue in what amounts to a misallocation of public money?
A further problem with the current system is that where it proves difficult to reach agreement on the value of the new burden, discussions between officials can be protracted, time consuming and ultimately, costly, without any established process for reaching agreement.
The LGA believes that a better system for assessing new burdens would involve independent input and include a retrospective review element.
An independent, impartial input into the process of assessing the cost of new burdens would provide reassurance to both councils and government that new burden claims are being fairly and independently assessed.
The LGA's view is that this role should be undertaken by an independent commission with a wider local government finance role.
However, there are alternatives. In Denmark, the Treasury oversees negotiations between spending departments and councils, acting to broker agreement if this cannot be reached.
An automatic retrospective review would ensure that, where the costs of the new burden do not match expectations, funding could subsequently be revised to ensure it does match the activity resulting from the new burden.
This could mean more funding being made available to councils, funding being redirected within the sector, or even returned to the Government, if the burden has been overestimated.
Whatever the specific outcome from a retrospective review, an ‘after the event' evaluation would ensure greater transparency and match-funding to activity.
Combined with a formalised role for an independent overseer, it offers scope to reduce the cost of the current process to councils and the Government, with both parties knowing that there is an agreed process in place to ensure that money goes where it is needed.
These changes would provide better value for money, and are vital if we are to ensure that new policies are being adequately funded.
Stephen Jones is director of finance and performance at the Local Government Association
