Local government finance – the Core Cities’ perspective

In October, LGiU hosted a roundtable event at Nottingham City Council in conjunction with Core Cities. The roundtable was attended by Chief Finance Officers and was held as part of LGiU’s Local Finance Taskforce, a major project to elevate the profile of the funding crisis in local government and to present sector-led solutions for the future.

We are hosting events around the country to gather the views of senior decision-makers on the options contained in LGiU’s Local Finance Scorecard, published in June. From council tax revaluation to municipal bonds, tourism tax to nationally funded social care, we want to widen the scope of the debate and find a sustainable solution that serves local communities.

Introduction by Jonathan Carr-West, Chief Executive of LGiU

“There have been many years of cuts to local government and a partial transition to a new system of Business Rate Retention, yet we still don’t know the shape of local government finance post-2020. The current work on the Fair Funding Review, although much needed, is only tinkering at the edges; we are aiming to bring other ideas back onto the table through our Local Finance Taskforce. What do these issues look like from a Core City perspective?”

Discussion

The question was asked as to why did the big ideas for reform fail. The following answers were suggested.

  • Because we were shifting money around the system
  • Because the outcomes were separated from the budgets
  • Because there was never enough commitment from central government
  • Because there were too many schemes focusing on similar things in different Whitehall departments with different rules, and it is hard to link them up locally
  • Because of a lack of leadership, ownership and accountability.

Health + Social care

  • We must fix the relationship between health and social care. Without this, everything else is doomed to fail. Although it has always been the case that social care has dually funded by central and local government, the financial strain has made the line clearer. However, if we just focus on the acute side, we will just be opening up more spaces for people to fill – we need to ensure that preventative care and mental health are considered too.
  • NHS timelines and plans do not fit alongside councils’ social care plans which causes issues. We need more incentive for the NHS to link their work with council strategies – currently STPs are not achieving this.
  • Rather than giving social care to the NHS, we should be bringing accountability for health to the local level. Along with more cash, we need a concerted push from both central and local government and the NHS towards integration. Perhaps the extra cash could be linked to integration/collaboration outcomes?
  • There was sympathy from attendees with the challenges faced by hospitals because of the influx of acute/emergency admissions, which receive lower tariffs than planned treatments – this is driving a bad cycle. CCGs are also limited by cash spend rules which mean they are focused on annual spend and can’t hold reserves. Perhaps health services should be able to hold reserves to allow more alignment with local government.
  • The social care precept is not the solution to the funding problem because it adds an extra burden on people who can’t afford it and it is not linked to local need. We need to push back against assumption that the precept is a solution; we need systemic change instead.
  • We must remember that social care isn’t just about the elderly – much of the demand is driven by learning disabilities and working age illness/injury. Similarly children’s social care is a big cost driver; for instance services for children on remand can cause huge unplanned budget pressures. The Treasury doesn’t understand what is driving children’s social care demand or about contingent factors such as unaccompanied asylum seekers.

Revising the system

  • There was a feeling that we should start with what we already have and make improvements. What would a lot of small changes do?
  • Council tax and business rates are not perfect but most of the problems with them are solvable without scrapping them entirely. The borrowing rules and the prudential framework are sensible. Instead we should focus on where the existing public sector money is going as much of the problem lies in money being moved around the system.
  • When there was more resource in local government (money, staff) it was possible to connect things up behind the scenes to make pots of money work efficiently; but now we’re at the bare bones, the gaps are being exposed. We need to move to a more outcome-driven model instead of working with ring-fenced pots of money. This could entail getting rid of specific grants or perhaps using them more strategically to incentivise behaviour change and collaboration.
  • Councils want more flexibility in mandatory business rates relief to deal with cases of fraud and to accommodate local circumstances. For example, in university towns there is a perverse incentive for developers to build student flats in the city centre, displacing other rate-paying businesses, because they are not liable to pay business rates on accommodation. Councils see no income from these developments because the student residents are also exempt from council tax.
  • There is appetite for the ability to levy a hotel tax to capture value from non-residents but lobbying for this could be a distraction from the bigger, structural issues.
  • The PWLB monopoly is not good for the market. At the moment, the Government is not passing on their borrowing rates through the PWLB so councils aren’t benefiting from them.
  • Mental health is key to managing demand in many council areas but is being neglected because it falls in the gaps between local and central funding/duties.

Moving forward

  • It is difficult to get the public on side when the conversation is all about money and not services. Council services lack the visibility that education and health have so people tend to have less commitment to them.
  • We need to make the most of the crisis facing counties to make progress in reforming local finances. How do we create critical mass to make the issue sector-wide, not just about individual councils or tiers?
  • Relations with MHCLG and the wider government are difficult and opaque. It is hard to understand the relationship between MHCLG and the Treasury or to know who your peers are within MHCLG. There is also a lack of understanding within the civil service about how local government works and what it does. Added to this, the civil service has lost a lot of institutional memory through staff cuts and movement between departments so it is even harder for local government to build solid relationships.
  • More cross fertilisation between the civil service and local government officers would help to build mutual understanding and trust. There is already an emphasis on private–public knowledge transfer but not so much about exchanging ideas within the public sector and there is a lack of movement of officers between sectors in terms of career progression. More broadly there is a lack of career path coherence across the public sector e.g. care workers becoming nurses, health managers moving to social care commissioning.
  • With this in mind local government should be actively trying to reach out to MHCLG to facilitate this exchange and cities should present themselves as a solution. Officers in particular have a key role to play by using their networks to bypass the political angst and work on solutions to shared challenges to less emotive issues like housing/planning.

Future of devolution

  • Part of the problem with the way devolution deals are negotiated is the tendency to leap to a political/governance solution without having mature partnerships in place between councils. In Manchester, a chair of the combined authority was already in place before the elected mayor came along which meant the councils were already used to working in partnership.
  • We need flexibility on city deals in order to let the relationships develop locally and mature at their own pace. For instance, devolving parts of the BRRS has ended up fracturing nascent relationships in city regions because if differences between business rate bases. You also need staff with expertise in local government management in order to make devolution deals work, which is difficult if we’re cutting experienced staff.
  • Rather than asking for full devolution, perhaps we should be aiming for a middle ground, such as giving combined authorities more commissioning powers.
  • One area ripe for devolved management is DWP. Much of the demand led by service failure or skewed incentives, particularly in benefits, could be mitigated if it had local input and local flexibility.

This event was part of LGiU’s Local Finance Taskforce, a campaign for a fairer funding settlement for local government informed by the sector itself. Give your views on the options for reformthrough our online consultation form or tweet us @LGiU #FixCouncilFunding

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