SIGOMA vice-chair on Labour's plan for local government finance
Posted on August 02, 2024
There are many problems in store for the new government if it wants to fix a broken local government system, writes the vice chair of the Special Interest Group of Municipal Authorities and Labour Nottingham City Council councillor.
With Wes Streeting and Rachel Reeves’ revelations about broken and underfunded public services, it is now safe for a Labour politician to be more candid without rocking the electoral boat, so here goes.
If, as the health secretary declared, the NHS is broken, so is local government. There is not one facet that hasn’t been either neglected or distorted over the last 14 years and many councils are in crisis.
But Labour’s response to-date has been underwhelming. It consists of a vague offer to change the business rate system, warm words about devolution and long-term settlements, and a recent announcement about integrating social care funding into mainstream grant - welcome but in the end, tinkering, with no new money when the problem is structural and chronic underfunding. And none of it featured in the chancellor's black hole.
So, it would be naïve to think that the new government is going to pour short term buckets of cash into the sector. That applies even to the councils in greatest need.
So, we are left with what can be done at ‘no net cost to the Treasury’. In the short-term there are two priorities.
Business rates reset
The first is to restore the ‘needs’ factors in the grant distribution model. The Conservative government diluted the needs element in favour of greater distribution by headcount. This has meant that deprived areas have suffered disproportionately. Between 2010 and 2024, Knowsley MBC, the third most deprived area in England lost £1,271 per household. Wokingham, one of the least deprived authorities, gained £61 per household.
The current level of expenditure on child protection, sometimes more than £200k per child, is extortionate
Second, compounding the distortion, is the failure of the Conservatives to reset business rates. Resetting is the mechanism whereby the growth in business rates, greatest in well-off areas, is rebased to even up distribution. This should have happened in 2020 but has not.
The above measures are essential to help those councils under greatest immediate pressure, but they are not a long-term solution. In the long-term there are at least four areas to address.
Business rates: the government is right, business rates need reform. But there are so many options that implementation will get bogged down in a search for the ideal. So, a system which retains an element of the present property-based system at reduced rates, a tax on online delivery and a reassessment of Amazon-type warehousing rateable values would probably do the trick.
Council tax: Labour has said that it has no plans to tamper with the bands. It has not said that it will not revalue the property base. Revaluation is the least that can be expected.
Children’s services and adult social care: many top-tier authorities are spending 70% of their budget on these two services. The current level of expenditure on child protection, sometimes more than £200k per child, is extortionate. There needs to be a statutory cap on the market price and a plan to establish in-house provision backed by transitional, repayable funding to establish an alternative council-run market.
With adult social care, though reforms have been postponed yet again, there is likely to be an eventual recourse to the Dilnot recommendations. But Dilnot does not address the current chasm in council funding and additional external funding is necessary.
Contradictions and problems
And this exposes only one of a series of contradictions and problems in store for Labour.
The definition of ‘no net cost’ will have to be stretched to mean no net cost to mainstream sources of tax
First, any attempt in the short term to restore needs-based funding or reset the business rates may be morally and practically right but it will not go down well amongst the losing councils, some of which, even though better off, are struggling. Moreover, some of these areas are now represented by Labour MPs who are unlikely to relish the prospect.
Second, if grant redistribution is to be addressed without too much impact on disadvantaged authorities, then all local government needs to be better funded. But if it is to be done on a ‘no net cost to the Treasury’ basis, any business rates and council tax changes need to bring in substantial additional income. Charges cannot be restricted to the current levy envelope.
And this raises a further issue. To avoid creating yet greater income disparity between councils, the only solution is redistribution based on a system of national pooling, which is the antithesis of the devolution Labour says it wants.
Third, central government tax increases: if children’s services were reformed and a cap put on the extortionate costs of child placements, there would probably be sufficient budgets not to increase the existing funding allocations; not so adult social care. An injection of new income is necessary. So, the definition of ‘no net cost’ will have to be stretched to mean no net cost to mainstream sources of tax – VAT, income tax, NI – upon which Labour campaigned.
Muddling through not sustainable
In this context, it is reasonable to factor in an individual’s assets as now, but also to look at the hypothecation of some additional taxes particularly on the well-off elderly. The reductions in winter fuel allowance have already been banked. But there are more:
- Means testing free TV licences
- Imposing national insuranmce contributions on earnings after state pension age
- Ceasing capital gains tax exemption at time of death
- Imposing national insurance contributions on private pension payments.
However, even though technically Labour has not ruled out some additional taxes, such a move would be perceived, especially in the Conservative-leaning press with elderly readership, as breaking a commitment.
The necessary measures are going to be tough. But what is not sustainable is muddling through as we are. Highly visible and valued council services are being squeezed - clean streets, pothole-free roads, prosecutions for anti-social behaviour, well-maintained parks. And voters won’t forgive a government that hasn’t made a substantial improvement in five years’ time.
The question is, will Labour be willing to bear the pain? On the other hand, what is the alternative?
Read the full article, here.