The LGiU and MJ council finances survey gives mixed reviews of how localist the government’s policies are and what the practical impact will be.
A clear majority believe the government’s finance bill is decentralising, but around half are concerned that they will lose out in changes to business rates. There is a concern amongst most finance officers that the localisation of business rates will, over time, lead to a tier-tier system of top-up and tariff councils. We found that 7 in 10 councils believe this will evolve over future years. One way of mitigating this risk is to pool business rates with neighbouring councils but only 16% of councils are intending to do this.
It is no surprise to find that 95% of councils will be adopting the council tax freeze this year, particularly given the recent pressure from Ministers and from prominent voices in local government, such as commentators on ‘Conservative Home’ the widely read activists website. However, a small minority of councils told us they do plan an increase, mainly because of the concern that a freeze means losing money from the base in future years. Looking ahead, over 80% of those we surveyed want the freedom to increase council tax in future years rather than being offered another sweetener deal by the government.
Finance officers can see many rising costs on the horizon and whilst there is a clear commitment to make savings and transform services to reduce costs, statutory duties and other legal obligations must be met. The most pressing medium term issues is the reduction in council tax benefit being passed down from central government. Only 15% of councils surveyed thought they could absorb the 10% cut in council tax benefit. This means the cut will be passed on to claimants in most areas.
Looking to the long term demographic change, particularly leading to rising demand for older peoples services, was overwhelmingly seen as the greatest pressure on funding. At the LGiU we are very aware of this and will be launching an Inquiry, backed by the All Party Parliamentary Local Government Group, to help shape the government’s social care funding White Paper.
Other long term pressures identified by finance officers included predictions of continued spending cuts by governments and the need to meet capital costs such as for replacing infrastructure. 6 out of 10 councils plan to borrow money over the next three years and whilst most envisage borrowing from the public service loans board, many will look to borrow from the capital markets, possibly through a bond issuance.
Only a third of councils plan to make use of the new Tax Increment Financing powers. There is little appetite for the localisation of other taxes although some are prepared to wait and see, depending on the impact of the business rates localisation. Those in favour suggested a hotel bad tax or a sales tax as options.
Overall, there is some good news for the government here, as identified by Bob Neill MP in the MJ’s report, but councils are clear that whether they win or lose financially they want greater freedom and flexibility to manage their local economies in the future.
We are grateful for so many councils taking the time to share their insights with us. The survey was conducted between 1 – 15 Feb and we had responses from 80 council finance officers.
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Related event: The LGiU are running an event on 27 March about the Local Finance Bill – for more information, please email email@example.com