CCN Blogs | 19 June 2018
Financial sustainability in local government is a hot topic. The issuing of the Section 114 notice at Northamptonshire County Council and the subsequent Best Value Inspection has escalated it even further, as they did not paint a happy picture of financial management at the authority. The report led to a proposal to abolish the county and district councils and replace them with two unitary councils; albeit this is a proposal that lacks any local democratic legitimacy at this stage.
2018 has also seen the publication of reports from both the LGIU and the NAO which set out some fairly grim financial prospects for the sector. The NAO report in particular looked at the inexorable rise in the number of councils dipping into their reserves, as they struggle to balance the twin challenges of continued reductions in Revenue Support Grant and rising demand in areas such as adult social care, children’s services and homelessness.
These issues are enough to keep most council leaders, CEOs and Section 151 officers awake at night. But on top of all of this, the biggest political challenge of perhaps a generation – the negotiation of Britain’s exit from the European Union – is likely to also have a significant local impact on businesses and both public services funding and staffing.
The question now is – “What is to be done?”
I think there are two key things that need to happen over the next five years to keep local public services on track. Firstly, local government needs some emergency funding to see it through the next five year cycle (just like the NHS has received on a regular basis). There are a number of ways that this could be funded including specific grants, council tax increases or business rate retention decisions, but there needs to be some level of certainty so that councils’ long term planning can be meaningful.
Counties with ageing demographics face some particularly severe challenges. Nobody wins when we move into a period stalked by fears of another section 114 notice, advisory notices from auditors and public interest reports, and where risky investments are seen as a key part of the solution. The LGA estimates a local government funding gap of £5.8billion by 2020. I do not believe this amount to be an exaggeration – it simply reflects the huge impact austerity has had during a period of population growth and a changing demographic.
Secondly, we need to take a radical look at how public services are delivered and funded. In 2018, local public services are still delivered in silos by a wide range of organisations, as they were when the NHS was created in 1948, – DWP, NHS, education, probation – the list is endless. We need to see increased place-based collaboration between local public bodies – including the NHS and education – along with a breakdown of the centralised way services are currently funded, with more tax raising powers given to councils to help meet local needs.
Working in silos is grossly inefficient, as they all then draw on a huge amount of public funding to provide the required services. Significant reductions to adult social care funding has meant that demand for hospital admissions has gone up, which then puts even more pressure on the public purse. Further falls in housing benefit levels has also seen an increase in homelessness which is hugely expensive, and reductions in legal aid and probation means our prisons are overcrowded, all at the expense of the public purse. A decline in further education funding also means we are facing a growing skills gap.
Above all, as a nation, we have moved away psychologically from the statist concepts of the 1940s and its siloed delivery mechanisms. We need locally funded, joined up services based on collaboration and mutual understanding and respect. Without this, the gap between the funding available and the costs of providing public services for an ageing country will continue to grow.
Partner and Head of Local Government
Grant Thornton UK LLP