Reflecting on 2024, it's fair to say it was a year of change for the sector, but unfortunately this trend did not apply to local government finances and the system in which councils operate.
While the Provisional Local Government Finance Settlement provides some welcome additions to grant funding beyond that announced in the Budget, no one should be surprised at the absence of a step shift in funding, given the bigger picture on public finances and the Government's commitment to consider further reforms during the Comprehensive Spending Review this spring.
The status quo is comprehensively failing to empower councils to deliver for their communities – resulting in weakened public services, hampered economic growth, and reduced resilience for residents.
But the sector cannot wait much longer for the many challenges facing council finances to be fixed. The £2.3bn funding gap facing the sector in 2025-6 is itself a symptom of a deeper problem in the finance system, which is fundamentally broken and structurally unfit to meet the increasing demand and cost pressures of today, let alone the future.
The status quo is comprehensively failing to empower councils to deliver for their communities – resulting in weakened public services, hampered economic growth, and reduced resilience for residents.
Most councils will be able to balance their budgets – but only by making further cuts to already reduced local services and so storing up more trouble for years ahead in the form of increasingly complex service demands which could have been prevented.
Worse still, other councils will be forced to pull the s114 lever which will inevitably further undermine services for residents. While we must recognise that a handful of councils are in this position due to internal governance failures, the wider systemic driver of ever more councils hitting the budget buffers is the inadequacy of the local government finance system.
This is why Solace, alongside the Local Government Association and the Chartered Institute of Public Finance and Accountancy, have produced a joint report outlining potential reforms to the local government funding system in England, both short term to enhance system stability, and a wider debate on more fundamental reform options.
We're pleased to see ministers have recognised the need for change and committed to several reforms outlined in the report, including multi-year finance settlements, an update of needs assessments, and a further reduction in wasteful competitive bidding pots. There are also positive signals that ministers are considering more structural co-designed improvements with the launch of the Government's consultation on principles for finance reform, to which Solace will be responding.
However, despite these positive moves, there are important omissions from the Government's ambitions for reform. A fundamental component of the change needed is reform to council tax, which has long been outdated and inadequate for the needs of today.
Similarly, while many of the devolution measures proposed in the English Devolution White Paper are welcome, a more empowered local government sector will require more options for new, bold and creative devolved funding streams, such as income tax, local taxes and fees or transfer of departmental budgets to local control.
At the same time, we recognise that if the Government delivers significant fiscal devolution, ministers are likely to seek reciprocation in the form of enhanced levels of assurance.
Rome wasn't built in a day, and the same will hold for a sustainable local government finance system given the scale of change needed.
As the Government progresses with its consultations on finance reform and the Spending Review, the sector must seek to build consensus and prepare to compromise in the interests of creating a more sustainable system for all.
At Solace, we will continue to work with ministers and officials to reach a sensible programme of reform which can provide councils, and their communities, the sustainability they need.
Patrick Melia is Solace spokesperson for Local Government Finance and chief executive of Sunderland City Council
