The Local Government Association said funding cuts had forced councils to divert ever-dwindling resources from other services to prop up adult social care and children’s services.
“Ultimately, the review will not be successful and lead to a sustainable outcome if it is not introduced alongside additional resources,” the LGA wrote in their response to the fair funding consultation, which ended on Monday.
“We estimate that councils face a funding gap of over £5bn by the end of the decade, on top of a £1.3bn pressure to stabilise the adult social care provider market.”
It called for 100% retention of business rates to try to plug the gap. The government confirmed in the draft local government settlement in December last year it is reducing the amount of grant it gives to councils and will allow them to keep 75% of business rates by 2020-21.
But the LGA said business rates retention and the calculation methodology for the four-year settlement had introduced “further layers of opacity” to a system already complicated by the use of 15 formulae and 120 indicators.
“It is positive that the government is attempting to reduce the number of cost drivers and formulae used in the relative needs assessment,” the LGA said. “It is important that complexity is only added where it is unavoidable and where it has a material positive impact on fairness.
“However, the right number of formulae and cost drivers must ultimately be driven by evidence or the outcome will not be seen as ‘fair’.”
The County Councils Network said any new formula arising from the review “must be capable of addressing spikes in demand for social care services”.
Its finance spokesperson Nick Rushton, leader of Leicestershire County Council, said: “This is a once in a generation opportunity to reform the system for the better.
“If we focus on the evidence and avoid introducing unnecessary complexity we may actually make something that stands the test of time. If not we will be back here sooner than we think.”
The District Councils Network said most districts would stop receiving revenue support grant by 2019-20 and were "continuing to see reductions in their core spending power for the whole period, compared to other councils who are all seeing an increase”.
It added: “The financial uncertainty facing local authorities makes financial planning meaningless without some guidance from government on what could be expected [after 2020].”
Core Cities UK said the idea of ‘spending’ on public services “always implies a cost” and said this should be redefined as investment in places and recognition of how skills and employment raise productivity.
Its vice-chair Nottingham City Council leader Jon Collins said: “Ultimately, we need more local control of the taxes raised in cities to spend on local priorities, moving away from depending on complex and unfair central government spending formulas.”
The Association of Directors of Children’s Services said it was “worrying that funding for essential local government services will be based on an area’s ability to raise funds via business rates and council tax”, which it said would mean areas with the highest levels of deprivation but lowest tax bases would raise the least money from these sources.
The association said: “While the review may help to deliver a more simplistic and transparent distribution system for local government finance, it remains that children’s services, along with wider local government services, face significant financial pressures which must be addressed.”
The fair funding review will set new baseline funding allocations for local authorities, which will be calculated using the most up-to-date data possible of their relative needs and resources.
