The Local Government Association (LGA) welcomes the opportunity to submit a representation ahead of the Government’s March 2021 Budget. The LGA works to support, promote and improve local government. We will continue to contribute to Government’s national priorities and ambitions and support councils through challenging times by making the case for greater devolution, helping councils tackle their challenges and assisting them to deliver better value for money services that provide sustained outcomes for residents and communities. This submission has been approved by the LGA’s Chairman and leaders of all LGA political groups.
Introduction
The Local Government Association (LGA) welcomes the opportunity to submit a representation ahead of the Government’s March 2021 Budget.
The LGA works to support, promote and improve local government. We will continue to contribute to Government’s national priorities and ambitions and support councils through challenging times by making the case for greater devolution, helping councils tackle their challenges and assisting them to deliver better value for money services that provide sustained outcomes for residents and communities.
This submission has been approved by the LGA’s Chairman and leaders of all LGA political groups.
Summary
- This will be the Government’s first Budget following the end of the transition period of the UK’s Exit from the European Union, combined with the continued impact of the COVID-19 pandemic. This is an especially challenging time for us all – communities up and down the country will have suffered unique impacts and will have a unique set of opportunities to grasp as they look to the future. With sustainable funding accompanied by appropriate devolved powers, councils will be able to support residents through these challenges and seize the chance to deliver on Government and local priorities for communities and economic recovery.
- The pandemic has highlighted how the public service decisions taken closest to the people they affect improve outcomes and protect lives. Equally, the path to future prosperity cannot be planned for from the centre. Our international competitors have long been able to demonstrate the positive impact greater devolution has had on accountability, financial efficiency and growth. As we look towards the long process of economic and social recovery, this gap in local power and autonomy across England needs to be addressed if we are to keep pace on the global stage.
- At the time of writing, England is subject to a renewed national lockdown which could, potentially, last a number of months. With local economies at a standstill and a continued role for councils in implementing the measures and supporting residents, it is vital that funding dedicated to COVID-19 in both the remainder of 2020/21 and in 2021/22 is kept under review to ensure councils are compensated in full for the financial impact of the pandemic and for their efforts in helping government deliver the vaccination and test and trace programmes. We estimate that up to a further £2.6 billion will be needed to cover the cost pressures and non-tax income losses of 2020/21 in full.
- The impact of the UK’s new economic relationship with the EU and the potential decline of the COVID-19 pandemic due to widespread vaccination provides the Chancellor with an opportunity to use this Budget to give councils the funding and powers they need to underpin their key role in kickstarting the economic recovery. Councils are ambitious about delivering high quality services and maximising the economic growth potential of their areas, including redefining and revitalising high streets, whilst supporting communities to thrive. Their work supports national priorities, such as everyone having a home they can afford and employment they need.
- The 2020 Spending Review and the 2021/22 local government finance settlement have provided some financial certainty to councils, especially with the upfront payments to cover COVID-19 pressures. However, there is no basis on which to plan for 2022/23 and future years. The Government must deliver a multi-year Spending Review which allows councils to support their communities to rebuild and recover from the pandemic, covering the rest of this Parliament, as soon as possible in 2021. Recognising the important role of the LGA in supporting councils, a three-year Comprehensive Spending Review could further enhance outcomes and value for money for the Government if it came hand-in-hand with a three-year allocation of sector-led improvement funding.
- The Chancellor has committed to publishing a final report on its fundamental review of business rates this spring and the Budget is a prime opportunity to do so. Above all, local government needs a funding system that raises sufficient resources for vital local services in a way that is fair for residents and gives local politicians the tools they need to be the leaders of their communities. Alongside the outcome of this review, the Government should restart the Fair Funding Review.
- The pandemic has shown time and again the value of adult social care and also the precarious funding position that the sector finds itself in. Reforms to how adult social care works and is funded have been mooted for years and it is now time for the Government to engage with local government and the wider social care sector to finally set out the steps that ensure a sustainable adult social care system for years to come.
- Councils play a key role in ensuring children receive the best possible support while schools are closed as disrupted education can contribute to larger inequalities later in life. However, as the medium- and long-term impacts of the coronavirus pandemic become apparent, more children and their families are likely to need support. Councils urgently need funding to invest in the preventative services that their local children and families need, so that we can make sure help is available when it’s first needed – not later down the line when the situation has reached crisis point. Returning the Early Intervention Grant to 2010/11 funding levels by providing an extra £1.7 billion would enable councils to reinstate some lost services which help tackle and prevent emerging problems and avoid costs escalating later on.
COVID-19
Funding in 2020/21
Councils responded to COVID-19 in an unprecedented manner, even with pressures growing on increasingly fragile services that support the most vulnerable.
Despite these unresolved issues, at a time of national crisis, councils put their local leadership role first. They moved at pace, used innovative approaches and worked flexibly to set up completely new services to support the most vulnerable, reshaped and redesigned services such as waste collection to keep them going virtually unaffected, and were central to the economic support provided to residents and businesses. Government ministers have continued to highlight the important role councils play. Throughout the pandemic, councils learnt from and supported each other through sector-led improvement.
No other bodies understand local areas better than councils. The highly-valued services local government delivers – including public health, adult social care, children’s services, homelessness support, provision for the vulnerable and those in financial hardship – have been crucial to the initial COVID-19 response by protecting lives and livelihoods.
It is vital that the input of councils in facilitating the roll-out of the vaccines, supporting test and trace, delivering economic support, and other valuable work continues to be recognised as a new burden with cost and income implications that must be funded.
The latest figures from the COVID monitoring survey put the financial impact of COVID-19 on local authorities at an estimated £9.7 billion for 2020/21, with a further £2.8 billion of lost income from council tax and business rates.
However, these figures were reported before the rapid spread of the new strain was known, before tier 4 was introduced and before the new national restrictions were announced. This is a significantly different set of circumstances to when the 2020/21 funding package was last evaluated.
When the country was under national lockdown in the first half of 2020, councils’ monthly financial pressures (excluding lost tax income) were worth £1.0 billion. If this monthly financial pressure returned in the final three months of 2020/21 instead of pre-tier 4 forecasts, the in-year financial challenge (excluding lost tax income) would increase by a further £1.1 billion to a total of £10.8 billion.
Taking into account the funding that has already been announced for 2020/21, we estimate that up to a further £2.6 billion is needed to cover the impact on councils in full if 2021 national lockdown measures deliver a similar financial impact to the first national lockdown in 2020. The Budget is the final opportunity in this financial year to compensate local government for doing whatever it takes to help local communities through this pandemic.
Business support
Councils continue to work tirelessly to support communities and businesses through this crisis.
This includes using local knowledge and expertise to distribute more than £11 billion to 880,000 small businesses through grant schemes during the first 2020 lockdown, in addition to hundreds of millions of subsequent business support measures, such as local restriction grants. Emergency grants have been a vital lifeline to businesses struggling and worried about the future. With the new national restrictions set to add further pressure onto businesses, it is welcome that the Government has acted swiftly in announcing further business support measures.
Councils stand ready to continue to work with the Government to supporting businesses, but the funding amount needs to be kept under review to ensure it is sufficient to meet the demand for support. The Budget should aim to address any emergent gaps.
Leisure services
Councils are responsible for a third of all swimming pools, 31 per cent of grass pitches, 13 per cent of sports halls and almost a fifth of all health and fitness facilities. They also spend over £1 billion per year on sport, leisure and green spaces, parks and playgrounds, providing communities with access to vital facilities to improve their physical and mental wellbeing. As we face the biggest public health crisis in living memory, physical activity and sport have a critical role in building individual resilience to the immediate challenges of COVID-19, but also in tackling the loneliness and obesity epidemics that pose a longer-term threat to our nation’s health. Sport England has commissioned research into the costs of physical inactivity, which shows that NHS providers in England spent more than £900 million in 2009/10 treating people with diseases that could have been prevented if more people were physically active.
In light of their crucial contributions to public health, including resilience to COVID-19, it is therefore concerning that many leisure centres may not be financially viable for at least six to12 months. The Government’s promise to match 75 per cent of lost income is not applicable to the 70 per cent of the leisure services contracted out to charitable trusts or ‘for profit’ providers, leaving these services requiring an immediate investment of at least £700 million from Government if communities are to retain their leisure centres. The third national lockdown has thrown the future of facilities into further doubt.
It is therefore critical that the Government looks at extending the £100 million National Leisure Recovery Fund in recognition that they will have to remain closed during their peak recruitment period. Losing these services will leave many people and families in more deprived areas, rural areas and black, Asian and ethnic minority (BAME) groups, without access to affordable leisure provision – particularly swimming, exercise opportunities and community sports clubs.
Funding in 2021/22
Local authorities welcome the COVID-19 funding package for local government in 2021/22. It sends an important signal that the Government recognises the financial challenges facing the sector and shows understanding that these pressures will continue well beyond 2020.
However, the uncertain path of the pandemic means that the funding levels must be kept under constant review. For example, councils that are due to run elections this year will incur additional costs to prepare and administer them. The Government should provide funding in addition to the £1.55 billion grant to assist local councils with the additional cost of elections.
The Government’s pledge to compensate for 75 per cent of irrecoverable council tax and business rates income from 2020/21 is encouraging, particularly as income from these two local taxes accounts for over 80 per cent of Core Spending Power this year. Recently, the Valuation Office Agency (VOA) has been reviewing their valuation methodology regarding material change of circumstances (MCC) appeals due to COVID-19. We would like the Government to explicitly confirm that any losses arising from these appeals are also in the scope of the compensation scheme methodology set out.
It should be noted that the remaining 25 per cent of irrecoverable council tax and business rates not compensated by the scheme is a considerable amount. Based on the estimated benefit of the scheme included in the consultation, local government could still face a loss of more than £250 million which any changes to valuations, referred to above, would increase. The consultation offers no specific questions relating to the calculation and methodology of the scheme.
The extension of the sales, fees, and charges compensation scheme is an important recognition of the ongoing impact of this pandemic. Extending the scheme to fund a portion of councils lost income from fees and charges during the early part of the next year provides some much-needed stability but will need to be kept under review and should be extended to cover losses for the full financial year. As with the tax compensation scheme, councils are left to bridge the remainder of the funding gap. Recent analysis suggests councils will receive around £1 billion of compensation from the scheme in 2020/21. This represents only half of the income losses from sales, fees, and charges councils are projecting in 2020/21.
In addition to lost income from sales, fees, and charges, councils also estimate £0.5 billion of losses in commercial income. The Government has not announced a compensation scheme for lost commercial income, meaning the burden is falling fully on councils.
It is vital that the Government guarantees the financial challenge facing councils as a result of COVID-19 will be met in full, including funding for cost pressures and full compensation for lost income and local tax losses. This means that the Government should review and revisit the COVID-19 funding package for 2021/22 in the Budget and work with local government to ensure it meets the financial challenges of COVID-19 in full.
Tackling health inequalities – public health grant
Public health has been at the heart of the local response to COVID-19. Directors of public health and their teams have effectively led and coordinated the local health protection response, whilst keeping vital health improvement services, such as drug and alcohol and sexual health services, running with limited resources. The Budget should be used to strengthen local capacity and resources and ensure public health teams can continue to manage local outbreaks effectively and provide the vital public health services which support communities to be healthy and protect the NHS.
Looking even more broadly, every pound invested by government in council-run public health services is helping to relieve pressure on other services, such as the NHS. Just as pressures exist within the NHS and social care, pressures are also mounting within statutory public health services. Analysis shows that local authority public health funding is three to four times more cost-effective in improving health outcomes than money spent in the NHS.
The pandemic has shown that investing more in prevention would have led to better outcomes. There is clear evidence that some groups have been disproportionately affected by the virus, with obesity, poor mental health, socio-economic status and ethnicity and disability all increasing the likelihood that the COVID-19 virus is fatal. This is extremely worrying and underlines the need for a strong Government commitment to tackling health inequalities and the need for more council resources and flexibilities to tackle the underlying economic and social causes of ill-health and premature death. Tackling health inequalities must be an important part of the Government’s levelling-up agenda.
We know that one thing that marked England out as COVID-19 hit was our poor public health including our high rates of inequalities, of smoking, and of overweight people and obesity. Whilst the pandemic makes it vitally important that prevention is not sidelined, it should be given prominence at all times, with 40 per cent of avoidable deaths are as a result of tobacco, obesity, inactivity and alcohol harm. Increases in the public health grant are vital to improve these characteristics.
To match the growth in overall NHS funding as part of the Long Term Plan, the Government should commit to increasing the public health grant to at least £3.9 billion by 2024/25. This would allow councils to not only continue to provide current services, but also consider expanding other initiatives where financially possible and locally desirable.
Mental health
Targeted mental health support will continue to be needed for some groups who have been made increasingly vulnerable by COVID-19 and the measures needed to mitigate its spread. This includes those experiencing domestic abuse, the digitally excluded, vulnerable children, those who shielded, those with learning disabilities and/or autism and people affected by the economic consequences of the pandemic. Culturally appropriate responses are also needed given the disproportionate impact on BAME communities.
As a result, we are calling on the Government to recognise that the mental health and wellbeing recovery is best led locally by councils with their partners and for government departments to adopt a coordinated, all ages, whole family and whole household approach that complements locally-led approaches. This will be necessary to ensure appropriate support for people who have vulnerabilities, to respond to further local outbreaks, and to recover and rebuild resilience.
Underpinning this must be recurrent local funding for children and adult services to invest in effective mental health services to meet existing, new and unmet demand that has built up during the pandemic. Council funding should be increased so that councils can provide locally tailored, all ages and whole household, mental wellbeing approaches that can promote personal wellbeing and resilience and prevent the escalation of more severe mental health disorders, with the associated impact on NHS capacity, economic recovery and community cohesion. This will be especially important for children and young people and population groups most likely to experience adverse mental health impacts from COVID-19.
UK’s new relationship with the EU
Regulatory services
The versatility and value of local regulatory services, such as environmental health and trading standards, and the people working within them, has been demonstrated by their work on various COVID-19 activities including business closures and enforcement, COVID-secure regulations and health and safety, contact tracing and many other aspects of the response to which individual officers have contributed.
However, as we had already been warning prior to the pandemic, in many places, councils’ regulatory services are at tipping point.
Significant budget cuts as a result of reductions in local government funding, alongside the need to protect services, such as adult social care and children’s services, have led to significant reductions in officer capacity and a reduction in services.
At the same time, the number of statutory responsibilities being placed on these services has increased, adding to the pressure on already stretched services.
Even before the pandemic, this was not sustainable and reduced councils’ ability to protect their communities – but COVID-19 has brought into sharp focus the importance of maintaining resilience in services that help to keep us safe.
This will now be further challenged by the additional demands created by the need to implement the trade agreement between the UK and EU. The new Border Operating Model will require many more checks to be undertaken in comparison to the previous arrangements. In addition to a specific pressure on port authorities, all councils will face additional capacity and cost implications in supporting local businesses to adjust. This includes providing support and assistance to local exporting businesses with their export declarations.
The 2021 Budget should begin to address the challenges faced by council trading standards and environmental health services, among others. First and foremost, it is an opportunity to address the funding shortfall and provide the resources needed to help support these vital public protection services as councils continue to lead local work to tackle COVID-19 and implement the new trading agreement with the EU.
However, wider changes are needed to ensure services are placed on a sustainable footing. Capacity issues are systematic and require a new, longer term approach. New models of funding can help to support and strengthen services while reducing the burdens on taxpayers. This can also provide opportunities to create new jobs in local areas.
The Government should therefore progress the recommendations of the Regulatory Future review on implementing proportionate charges on the businesses that benefit from regulation – a principle that is already accepted in our licensing frameworks – in particular, following the polluter pays principle.
This can also help in addressing challenges with the pipeline of officers entering the workforce by supporting a sustainable funding model that can build future resilience, so that services with a key role to play in enabling the recovery from COVID-19 and supporting businesses as we implement the new trading arrangement with the EU are safeguarded into the future.
At the time of the 2020 Spending Review, we drafted a joint submission with the Chartered Institutes of Trading Standards (CTSI) and Environmental Health (CIEH) which outlined our calls for the Spending Review to address the challenges faced by council trading standards and environmental health teams in more detail. We strongly believe that the proposals and facts contained within the submission still stand today.
UK Shared Prosperity Fund (UKSPF)
At the 2020 Spending Review, the Chancellor announced the ‘Heads of Terms’ for the UKSPF, confirming that the fund will be worth at least £1.5 billion each year. We welcome this initial clarity the announcement has brought to local government.
The UKSPF is a significant opportunity to promote local growth, reduce regional disparities and drive a green and inclusive economic recovery. However, this can only be achieved by making UKSPF a localised, place-based fund that is accountable to local people and places.
The £220 million allocated in 2021/22 for running pilots and new approaches is welcomed and reduces the financial cliff edge. The Government must now work with councils and combined authorities to use this opportunity to design localised pilots and to ensure there is a smooth transition to the new funding regime.
As holders of the democratic mandate to represent their communities, councils and combined authorities should drive the design, prioritisation, commissioning and oversight of the UKSPF, which should be allocated in line with local need, deliver locally determined outcomes and support the move towards a single pot for growth funding that is long term.
It is vital that the Budget confirms that the UKSPF, as well as pilot schemes, will not be subject to a bidding process, with funding allocated to all areas, while respecting exciting devolved decision making. The fund should meet the quantum of the EU funds it is replacing and provide the same longer-term planning that the European Structural and Investment Funds (ESIF) programme provided.
Devolution, economic recovery and jobs
With millions displaced from the labour market and needing to find work and reskill due to the COVID-19 crisis, we need to urgently align job creation and employability measures including skills, so no community is left behind and policies are tailored to local needs. Even before the pandemic the UK’s centralised system of governance saw public spending associated with economic growth disproportionately spent in London and the south east. This has contributed to a growing gap in regional productivity, which has left some areas of England with productivity levels below Hungary, Slovakia and parts of Poland.
Councils are ready to play their part by working with the Government and industry to create new jobs and enable local residents to equip themselves with the skills needed to boost their employability. But to do this councils need appropriate funding and devolved powers.
A reformed approach to devolution should form a central part of the national recovery strategy, developed by national and local government in partnership. The 2021 Budget provides an opportunity for the Government to commit to the Devolution and Recovery White Paper being published by early summer.
The Government must reconsider the growth funding and policy landscape. They must move away from a pattern of piecemeal, fragmented, and short-term interventions driven by Whitehall silos, towards a localist settlement that gives councils the ability to drive green and inclusive growth that meets the needs of their communities. Recently published research highlights the link between fiscal decentralisation and growth: if the UK moved to the Organisation for Economic Co-operation and Development (OECD) average for tax decentralisation, all regions of England could see a gain in GDP, with on average a 1.79 per cent increase.
The devolution debate and reorganisation debate should not be conflated.
Indeed, the levelling-up agenda should be interpreted in multiple ways and not just the traditional ‘north-south’ divide. Across England there are many examples of neighbouring areas with very different circumstances in terms of jobs, economic growth, wealth, life outcomes and other inequalities that need to be tackled. The changes made by the Government to its Green Book for evaluating investments were a step in the right direction in this regard, and the same philosophy should underpin devolution and economic recovery work.
The following are just some examples of how councils can help deliver economic recovery, local jobs and opportunities if empowered and properly funded to do so:
- Skills and employment. We have developed Work Local as a practical vision for an integrated and devolved employment and skills service. Combined authorities and groups of councils, working in partnership with local and national partners, would have the powers and funding to plan, commission and oversee a joined-up service. This would bring together advice and guidance, employment, skills, apprenticeships and business support for individuals and employers. Based on analysis of an anonymised medium-sized combined authority, an integrated Work Local model could lead to additional fiscal benefits for a local area of £280 million per year, with a benefit to the economy of £420 million. This would be associated with an additional 8,500 people leaving benefits, an additional 3,600 people achieving Level 2 skills, and an additional 2,100 people achieving Level 3. If local government had the ability to devolve and integrate employment and skills provision, local areas would be in a far better position to match skills demand with supply. For instance, according to research for the LGA by Ecuity Consulting (see below), demand for low carbon jobs is projected to increase substantially over the next decade and across all local authority areas. This could be a huge opportunity to generate green jobs across England, support economic recovery and help level up across our towns and cities, however traditionally the national skills system has failed to adequately keep up and meet employer demand. We must start planning for these jobs now to ensure that wherever these jobs are created across the country, residents in those areas have the potential to equip themselves with the skills to compete for them. This will be a crucial means of achieving an inclusive green recovery and the Government’s levelling-up agenda. Local targeting is critical (see Net Zero below for more information on green skills).
- Roads and local infrastructure. Implementation of the proposals in the National Infrastructure Assessment of guaranteed five-year capital infrastructure spending pots for councils would allow them to support locally long-term investment in public transport infrastructure and plan a holistic pipeline of infrastructure and capacity improvements focused on the needs of local networks as a whole. With further funding alongside these powers, a significant inroad into the £11 billion backlog of local roads could be made. A more significant local investment programme would unlock further employment opportunities quickly, as it is far easier to kickstart local projects than large, national investments.
- Public transport. Coronavirus restrictions and the need for social distancing on buses destroyed the commercial funding model for bus services. At present, bus services are completely dependent on emergency government funding support, much of which is paid through councils. However, the emergency has also shown that essential workers need the bus to get to work and places cannot function without a bus service. Getting by without a bus service is simply not an option. Yet, concessionary fares were underfunded by approximately £700 million per year before the pandemic. This meant that local funds were being used to prop up a national scheme. The shortfall should be permanently addressed through the Budget. The bus also needs to play a bigger role in the future if we are to make rapid progress towards decarbonisation. This will require a concerted effort to rebuild confidence in bus services in the medium term and to address the shortcomings of service provision. An initial step towards this ambition could be the devolution of Bus Services Operators’ Grant payments to councils. We have long argued that the current system of subsidising fuel does not target money effectively and works directly against our clean air goals. Devolving the money to councils to support socially useful services would be a more effective measure.
- Housing. Investment in new housing supply of all tenures, from both the public and private sector, has an important part to play in a shared local and central government ambition to stimulate economic growth. New homes add important value to our economy, delivering £47 billion of output in 2019, of which 15 per cent was delivered by the public sector. Investment in social housing has an additional benefit of being able to provide jobs during an economic downturn when private developers could scale back their plans. Focussing a larger share of the 2021-26 Shared Ownership and Affordable Homes Programme on funding homes for social rent alongside increased grant levels per home to maximise the number of viable schemes, together with local retention of 100 per cent of Right to Buy receipts, would unlock these opportunities. Further value for taxpayers’ money can be unlocked by joining up disparate streams for new housing, such as the Housing Infrastructure Fund, growth funds, Homes England funding and related infrastructure pots so that they are all focussed on the same delivery-based goals. This has to come hand in hand with appropriate contributions from developers and proper funding for the social housing sector as outlined above, so that all parts of the housing market receive a boost.
- Planning. The pandemic has also highlighted health inequalities due to insufficient access to green space and poorly designed homes and places. A key part of the recovery is therefore the delivery of quality homes and the supporting infrastructure to create sustainable, resilient places. Councils need to be supported and properly resourced to make locally-led planning decisions for their current and future residents. This includes having the ability to set planning fees locally. With nine in 10 planning applications approved by councils, and more than a million homes given planning permission in the last decade not yet built, it is clear that it is the housing delivery system that is broken, not the planning system. Only a locally-led planning system in which councils and the communities they represent have a say over the way places develop will ensure the delivery of high-quality affordable homes with the necessary infrastructure to create sustainable, resilient places for current and future generations. Reforms that restrict the capacity for councils to plan for high quality development will also exacerbate the very issues the Government wishes to address, including restricted and unaffordable housing supply, growing inequality, the need to grow our green skills and economy, and improving our health and wellbeing. Should the Government take forward the proposals as outlined in the White Paper, this will result in long-term fundamental structural changes to the planning system in England. This will inevitably have significant cost implications from day one of their introduction as councils make the transition from the existing system to the new system. Any new burdens introduced for councils as they implement any new system will need to be fully funded, and the Government will need to ensure that councils have access to the right capacity, skills and training support. In particular, it is vital that councils are involved in the design of any new system for securing developer contributions for infrastructure and affordable housing.
- Net Zero Carbon. The Prime Minister’s Ten Point Plan and Energy White Paper provide investment and support for developing the low carbon economy. Ambitions such as the wide installation of 600,000 heat pumps, the roll out of EV charge points and heat networks, and the need for resilient and affordable energy, will require the support of councils to deliver. Net-zero can only be achieved with decarbonisation happening in every place across the country – that’s every household, community and local economy. Councils share the ambition for a green revolution and want to work with government and businesses to establish a national fiscal and policy framework for addressing the climate emergency, supported with long-term funding. Government’s ambitions for green job creation are also critical to the commitment to levelling up and a green recovery from the pandemic. A green economic recovery presents a unique opportunity to make great advances in skills and green jobs, as well as other national and local priorities, such as inclusive growth and meeting future housing needs. The LGA’s ’Local green jobs: accelerating a sustainable economic recovery’ report, developed by Ecuity Consulting LLP considers the projected net zero total jobs needed in each local authority area across England by 2030 and 2050 to support national commitments. It covers sub sectors across low carbon power, energy efficient products, low carbon heat, and more. As a significant majority of the homes that will be in place by 2050 have already been built, capital investment for the delivery of environmentally friendly homes and commercial buildings should also cover retrofitting existing homes as well as new builds. In particular, the Government should work with councils to urgently bring forward its commitment for a £3.8 billion capital Social Housing Decarbonisation Fund. This would provide a national stimulus to kick start the deep energy retrofit of all homes by investing in an energy revolution in social housing and provide jobs.
- Waste and recycling infrastructure. Councils have a strong track record in delivery, diverting millions of tonnes of household waste from landfill. In 2018/19, 2.8 million tonnes of household waste was sent to landfill compared to 14 million tonnes in 2012/13. The right investments in waste and recycling infrastructure will help towards the net zero target and the circular economy for resources. Councils are ambitious about delivering the Resources and Waste Strategy, including introducing a deposit scheme to collect back more recyclable and reusable materials, but require capital investment to meet the practical challenges of providing food waste collection services, transferring more material from residual waste to recycling and offering a consistent core set of dry materials for household collections. More broadly, further investment in the capacity of the UK’s recycling infrastructure is essential if Government wishes to expand the core set of materials collected from households and achieve its ambitions on increasing recycling rates for plastic, particularly low-grade plastics that do not currently have a ready market.
Planning for the longer term – 2021 Spending Review
The previously planned 2020 Comprehensive Spending Review was replaced with a one-year Spending Review in November. While the reasons for this change are understandable as the continued impact of COVID-19 makes the public finance situation difficult to predict, councils are now going through a third year in a row of short-term budget setting.
In addition, the 2021/22 financial year was meant to see the culmination of the Fair Funding Review, the move to 75 per cent business rates retention and the business rates revaluation all being implemented from next April. All of these have now been postponed – the revaluation will be introduced from 2023 and the other reforms have yet to be provided with a specific time frame, even though it has now been more than six months since the announcement.
Without even considering the impact of the pandemic, such a lack of financial planning information does not allow councils to make meaningful and sustainable decisions. For example, councils might have to consider making service cuts which would otherwise not be necessary if they had better information about the medium term. The risks connected to the long-term impact of COVID-19 on local income make this even more challenging.
There will now have to be a further Spending Review in 2021. With the expected subsidence of COVID-19 due to the vaccination programme, the Budget must commit to a three-year Comprehensive Spending Review which draws a line under short-term budgeting and allows councils to set reliable medium-term financial strategies for the rest of this Parliament. This should encompass general grant funding, specific grants such as the public health grant, and tax reform.
A truly Comprehensive Spending Review should look at the following:
- Sustainable and sufficient funding for councils in the longer term. Work by the independent Institute for Fiscal Studies prior to the 2020 Spending Review suggested councils face a funding gap of at least £5.3 billion by 2023/24. The LGA will be working to refresh the funding gap analysis ahead of the 2021 Spending Review, but we believe that the decisions made in the 2020 Spending Review, while helpful to meet the financial challenge in 2021/22, have not resulted in much change to the medium-term financial problem, especially given the high uncertainty about the continued impact of COVID-19 as covered above.
- A renewed focus on prevention, backed by government investment. A sure-fire way to address existing and future demand for services such as social care, homelessness support and community safety is to invest in lower cost approaches which help strengthen people, communities and local infrastructure. However, with council budgets stretched, a challenge of this scale needs to be kickstarted with government investment.
- Reducing the fragmentation of government funding. Research commissioned for the LGA found that in 2017/18, nearly 250 different grants were provided to local government. Half of these grants were worth £10 million or less nationally. At the same time, these grants are highly specific – 82 per cent of the grants are intended for a specific service area. Around a third of the grants are awarded on a competitive basis and often the small amount of grants means that more is spent by councils on preparing bids than is received back. All of these factors mean that if fragmentation and ringfencing of grants is reduced, the system of local government finance can provide much better value for the same amount of funding.
- Bringing budgets together in a place. The approach to tackling fragmented funding can go much further, by looking beyond just local government funding. We need to allocate money to places and not departmental silos. A shared financial and governance framework will mean that services can better align with local priorities and local duplication of efforts can be eliminated. The 2021 Comprehensive Spending Review should place emphasis on communities and place by introducing multi-department place-based budgets, explicitly built around the needs of diverse local communities using equality impact assessments.
Sector-led improvement
The record of sector-led improvement (SLI) is impressive. It delivers good value for money, pays for itself multiple times over through realised savings, has shown to be flexible to changing priorities such as COVID-19 and climate change, and there is evidence that it reduces the likelihood of the need for intervention in councils.
A three-year Comprehensive Spending Review could further enhance outcomes for councils and value for money for the Government if it came hand-in-hand with a three-year allocation of sector-led improvement funding.
As a recent independent review of SLI by Shared Intelligence concludes, the current annual grant settlements drive a short-term focus constraining both the impact of SLI and the sector’s ability to evidence that impact. This is not compatible with the reality that action to influence councils’ effectiveness, improvement and innovation is not a quick fix. The annual cycle also mitigates against securing meaningful sector engagement in shaping the SLI offer.
The Budget should confirm that the 2021 Spending Review will include a three-year settlement for sector-led improvement for councils. A longer-term settlement for SLI would facilitate a longer-term view of the impact of SLI. This would allow SLI to deliver outcomes planned over a longer timeframe, giving councils the certainty they need that SLI will be there to support them over the next three years.
Local government finance reform
Business rates review and alternatives
In the 2020 Spending Review, the Government committed to publishing a final report of its fundamental review of business rates this spring.
The impact on the local government funding system must be an important consideration in reviewing the tax. Above all, local government needs a funding system that raises sufficient resources for vital services in a way that is fair for residents and gives local politicians all the tools they need to be the leaders of their communities. It is therefore important that the tax system, including business rates, provides as much certainty as possible.
However, it is also an important opportunity to take a fresh look at the business rates system as it is being stress-tested by the impact of the pandemic and also consider potential alternatives with a view to achieving further fiscal decentralisation.
Recent econometric analysis drawing on the OECD’s fiscal decentralisation index highlights the extent to which the UK is an international outlier and argues that if the UK moved to the OECD average for tax decentralisation, all regions of England could see a gain in GDP, with on average a 1.79 per cent increase. Currently only 4.9 per cent of taxes in the UK are set locally, whereas the OECD average is 15.1 per cent.
It is widely accepted that taxes should adhere to certain principles of good design. Applied to the local government context, they are:
- Sufficiency – financing for local government services must be sufficient.
- Buoyancy – rises along with economic activity with protection for local government from losses in income given the need to support local government services.
- Fairness – the taxpayer makes a fair contribution and the taxbase is not too narrow.
- Efficient to collect – any tax should be efficient to collect; if the costs of administration and collection of a tax are high then the net yield will be lower than it would be for a more efficient tax.
- Predictability and transparency – income from a tax should be predictable and it should also be relatively straightforward to work out how the tax has been derived.
- Incentive – incentives should be provided to both business and local government.
Property continues to provide a good basis for a local tax on business. Business rates are efficient to collect and has been relatively predictable and buoyant in recent years.
However, the changing nature of business alongside the nature of demand pressures on councils means that we cannot look to business rates to form such a substantial part of local government funding in the future and alternative means of funding councils will be needed instead, or as well as, a reformed business rates system.
One such example is the emergence of online businesses posing a challenge to traditional businesses on the high street and to business rates as a tax. If an activity can be carried out online without the requirement for premises this will reduce the yield of business rates which goes to both central and local government. However, it may lead to other activities that will pay business rates, such as distribution warehouses or businesses which start off online and then decide to open physical premises.
In January 2020, we launched a report which looked at the potential for an e-commerce levy, which concluded that it is deliverable and offered a number of options on how it could be implemented. The proceeds of such a levy should be retained by local government as a way to diversify the local taxbase and protect against further shifts in the balance between traditional and online retail.
One other way to achieve further fiscal decentralisation would be to assign each local area a proportion of nationally collected taxes paid by citizens in a given area. It would be for local politicians in partnership with local providers to decide on priorities and the allocation of funding. Equalisation would be built into the apportionment formula to account for relative needs, but even so there would be a greater degree of fiscal independence, with areas spending the taxes raised in their communities.
An online levy and assigned taxation are just a few of the options and the right mix of taxes and services should be subject to a full national debate. Some areas will want to think further about options for rebalancing local and national taxation. They will be seeking the freedom to collect different taxes in different ways to support local priorities, or introduce new local levies, such as a tourism tax.
Fair Funding Review
The impact of the pandemic has not changed the reality that the way general government grants are distributed between councils remains complex, opaque and out of date. It is not possible to succinctly explain why the funding allocations for different councils are what they are.
We are calling on the Government to resume the Fair Funding Review, but with a guarantee that the transitional mechanisms will not only ensure that no councils experience a loss of income but should also protect councils from reductions from the path laid out by a future three-year settlement, so that they can plan with confidence. The same provision should apply to any business rates reset.
Councils had to revisit and revise many of their services to react to the impact of the pandemic and it is yet to be seen how permanent some of those shifts are. This means that, when the Fair Funding Review is relaunched, the Government needs to review progress made to date to ensure that it is still fit for purpose, or flexible enough to deal with any such shifts in council service models. One example could be the council tax adjustment (especially the council tax support and collection rate elements).