Resetting the funding system is vital
Posted on April 07, 2025
Regular readers of my column in The MJ will know that we at SIGOMA have long said that the local government funding system is broken and not fit for purpose. We have criticised the massive cuts to grant funding, increasing reliance on council tax, and reforms to the system that have penalised the most deprived areas while the most affluent areas have been largely protected.
The system now has a very poor relationship between levels of need and levels of funding – something recognised by many bodies including the Institute for Fiscal Studies. The Government have made steps to begin to fix the system, with the Recovery Grant a very welcome intervention. Our report Towards a Fairer Future, sets out how the Government can build on the Recovery Grant to create a more sustainable and equitable local government funding system.
'Council tax is now where the majority of local government funding comes from, replacing needs-based grant funding. The failure to reset the system for more than a decade has meant that we have not been able to break the cycle that has seen the poorest areas fall further behind.'
In our report, we contrast the experience of the last 14 years for two boroughs at either end of the scale in England – Blackpool, the most deprived authority, and Wokingham, the least deprived authority. Blackpool has significantly worse education and economic outcomes, almost six times as many children in care, and an 18-year gap in healthy life expectancy. And yet, since 2010, Blackpool has seen a real-terms reduction in core spending power of 23.5% while Wokingham has received a real-terms increase of 5.1%. Perversely, the gap in outcomes has been widening, just as funding levels have been widening.
This story has been told right across England during austerity – a growing gap between the richest and poorest areas with a vicious cycle of reduced services (especially preventative ones) leading to increased demand, resulting in reduced services and so on. To make matters worse, taxpayers in the poorest areas end up paying more, subsidising the bills of wealthier taxpayers as councils in the wealthiest areas are more able to keep bills lower due to higher natural growth and more higher banded properties.
Council tax is now where the majority of local government funding comes from, replacing needs-based grant funding. The failure to reset the system for more than a decade has meant that we have not been able to break the cycle that has seen the poorest areas fall further behind.
This is why our report calls for 100% Council Tax equalisation (a full recognition of an areas ability to raise local income) and regular resets (every 3-years) to ensure this situation doesn't happen again. Equalisation at a lower level and less frequent resets would mean that the vicious cycle would continue.
We also need to reflect rising demand for services in the most deprived areas by a proper deprivation weighting in the new formulas and ensure there a regular full resets of the business rates system – these should be every 3 years to tie-in with multi-year settlements and revaluation cycles.
These distributional changes are absolutely vital and will correct the mistakes of the previous decade. They will lead to a more efficiently allocated funding system and allow for significant investment in the most deprived communities. However, it is also clear that the system as a whole needs more funding.
The Spring Statement contained some welcome news on additional funding for affordable housing, but little in the way of assurance about overall funding for public services. In our spending review submission, we called for MHCLG to be considered a ‘protected department' and to be safeguarded against any cuts in funding.
Given the significant cuts suffered by local government during the 2010s and the increases in demand for key services including for social care, vulnerable children and for homelessness and temporary accommodation, real-terms cuts in budgets would be devastating for the sector and the country, as well as significantly setting back progress against the government's missions. As such, alongside a fairer distribution of funding, the sector needs sustained real-terms increases in funding over the multi-year settlement period.
Cllr Sir Stephen Houghton, Chair, Special Interest Group of Municipal Authorities (SIGOMA)
You can read the article in the MJ here.