Council funding will become “increasingly inadequate” because despite greater retention of business rates and increased council tax these revenues were “unlikely to keep pace with rising costs and demands”, according to analysis by the Institute for Fiscal Studies.
The IFS found that with annual increases to council tax of 3% - the maximum allowed without holding a referendum on the decision – increasing demand would see adult social care take up 60% of local tax revenue within 15 years.
Government plans will increase local authorities’ retention of business rates from 50% to 75% from April 2020 while central government grants will be cut.
Overall spending on local services fell by 21% between 2009-10 and 2017-18, the report, out today, said.
An increasing portion of budgets going towards social care would mean greater cuts to other areas of service provision, it added.
The think-tank said this leaves the government with two choices: provide councils with additional revenues or accept that councils can afford to provide fewer or lower quality services.
David Phillips, associate director at the IFS and author of the report, said: “Current plans for councils to rely on council tax and business rates for the vast bulk of their funding don’t look compatible with out expectations of what councils should provide.
“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 explicit decision being taken – until ad hoc funding is found as a response to political pressure.”
The analysis found spending cuts have not been distributed evenly with the most deprived fifth of councils experiencing a reduction in spend per person up to 1.5 times the level in the least deprived fifth between 2009-10 and 2017-18.
Expenditure has also varied across services with the biggest cuts hitting youth centres (-60%), planning and development and housing (-50%), highways and transport and cultural and leisure services (-40%). Spending on adult social care has fallen by 5% but it has gone up for children’s services by 10%.
“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,” said Neil Amin-Smith, research economist at IFS and author of the report.
A spokesperson from the Ministry of Housing, Communities and Local Government said: “Local authorities will have access to £46.4bn this year, a real terms increase that will strengthen services, support local communities and help councils meet the needs of their residents.”
Further reaction
Joanne Pitt, CIPFA policy manager, local government, said: “We are in complete agreement that councils’ reliance on council tax and business rates are inadequate to sustain local services as demand continues to increase, and believe that radical, long-term change is needed.
“Action must be taken to alleviate the fiscal pressures faced by councils through local and more equitable tax raising powers.”
Richard Watts, chair of the Local Government Association’s resources board, said: “If the government fails to adequately fund local government in the Spending Review then there is a real risk to the future financial viability of some services and councils.
“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.”
Jonathan Werran, Localis chief executive, said: “Our democratically-elected local leaders must have fiscal powers to sustain local services and support local economies and communities as well as the security to strategise long-term.
“Locking local government finance settlements into broader, ten-year cycles would account for the latter, with a transition towards fiscal devolution achieving the former.”
