William Eichler 29 May 2019

Council funding system ‘unsustainable’, financial experts warn

Spending on local services by English councils has fallen by more than 20% over the last decade and the funding available to local authorities will become ‘increasingly inadequate’, according to financial experts.

A new analysis from the Institute for Fiscal Studies (IFS) has calculated that overall spending on local services fell by 21% between 2009-10 and 2017-18, with some – such as housing services – falling by over 50%.

Spending cuts in some areas, such as planning and development, have enabled councils to protect social care services. Spending on adult social care fell by 5% between 2009–10 and 2017–18 and acute children’s social care services spend rose by 10%.

The IFS warn that the Government’s policy of reducing funding and leaving councils to rely on council tax and business rates will mean that the funding available to councils will be ‘increasingly inadequate’.

The rising costs and demand means that adult social care could require 60% of local tax revenues within 15 years, up from 38% now. This will mean that other services will be cut.

Even if council tax was increased by 4.7% a year, which under current rules would not be possible without a referendum, adult social care could amount to 50% of local tax revenues.

‘Current plans for councils to rely on council tax and business rates for the vast bulk of their funding don’t look compatible with our expectations of what councils should provide,’ said David Phillips, an associate director at the IFS.

‘A proper national debate on how much we are willing to pay and what we expect of councils is therefore needed. Without it, we will default to a situation where the services councils can provide are gradually eroded without an explicit decision being taken – until ad hoc funding is found as a response to political pressure.

‘Such an approach would not be conducive to long-term planning by either councils or the government.’

Neil Amin-Smith, a research economist at the IFS, commented: ‘It is equally important to consider how funding is allocated between councils, and how willing we are to tolerate bigger differences in tax and spending between different parts of England in order to give local councils more control and stronger financial incentives.

‘Without debate, the risk is that we continue with reforms to the funding system that emphasise local financial incentives, while trying to regulate for common service standards in the context of a funding system that is just not set up to deliver them.’

Responding to the IFS' report, Cllr Richard Watts, chair of the Local Government Association’s Resources Board, said: 'With councils in England facing an overall funding gap of £8 billion by 2025, the IFS is right to reinforce our warning that unsustainable funding cuts and demand pressures are pushing local services to the brink.

'Pressures continue to grow in children’s services, adult social care, and efforts to tackle homelessness. This is leaving increasingly less money for councils to fund other vital services, such as the maintenance of parks, certain bus services, cultural activities and council tax support for those in financial difficulty to try and plug growing funding gaps.'

'Fully funding councils is the only way to ensure councils can continue to provide all of the valued local services which make such a positive difference to communities and people’s lives,' he added.

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