Claire Ward, partner and local government sector specialist at Anthony Collins, discusses the state of local government finances ahead of the Spring Budget.
With the Spring Budget this week, the Chancellor has an opportunity to intervene to stop the cycle of decline, which is undermining the viability of local government. Greater certainty over future funding could alleviate some of the financial pressure and enable councils to plan ahead.
The LGIU’s report, published last month, confirms that two thirds of councils in England are planning to cut services in 2024-25 due to financial pressures. Nine in 10 are intending to increase council tax, as well as increasing fees and charges in other areas, such as environmental waste and parking. Many are finding that they have to dip into reserves to pay for statutory services, which is not sustainable, and doing so has put some councils at risk of issuing section 114 notices.
In the Spring Statement, there is an opportunity for Government to intervene to break the cycle of decline. It could do this by immediately putting in place a root and branch review to understand the demand pressures that councils are facing, and the service levels needed to meet them.
Currently, one-off funding announcements are fueling a culture of short-term measures that are only providing a sticking plaster solution. They are forcing councils to consider cutting discretionary preventative services, even though they know that this is likely to increase demand for statutory services in the future, and pressures over time.
The provision of the many additional in year funding streams is compounding this problem by increasing competition between councils. This is a drain on council time with resources spent fighting for funds instead of tackling issues in the local area.
As such, Government needs to re-introduce multi-year settlements with immediate effect and commit to review how local government is funded. With costs rising sharply due to the high inflation rate, councils know that one-off funding packages are not enough and can’t be relied upon. Whilst the £64bn additional funding package for councils announced by Michael Gove in December 2023 was welcomed, the introduction of a holistic approach would provide greater certainty over future funding provisions. Councils would be able to better understand the long-term financial parameters they must work within to deliver services and limit time spent on securing additional funding streams.
Should Government take this route in the Spring Statement, councils will have an opportunity – and crucially the time – to be more innovative in their service delivery. Taking stock of the services they are providing and identifying where there is scope to do things differently would help to improve financial planning for this year and in the long term. The need for a more equitable and certain approach to local government finance is urgent, and the Spring Budget is an ideal window to introduce positive change.
To support a new approach and innovation of service delivery, greater understanding at a local government level of the legal nuance between statutory and discretionary services is necessary. Councils will have the time and ability to map out their resources in a wholescale manner, ensuring they are meeting their statutory requirements, and complimenting these by funding key discretionary services to avoid knock-on effects further down the line. In the short term, many councils will have to make difficult decisions to deliver services differently to balance budgets for 2024-25, and we are expecting more enquiries about ways to achieve this whilst reducing the risk of legal challenge.
Whilst many councils have now set out their budget plans for the financial year ahead, Government could use the Spring Statement to alleviate the cumulative impact of funding cuts and commit to review the current arrangements. The hard work is about to begin for delivering the 2024-25 budget and the Government’s statement will determine just how difficult a grind it’s going to be.
