Our finances are flashing red: local government must be funded properly

27 Feb 15

Whoever wins the next election needs to put the brakes on austerity. It’s time to press the reset button on local government finance.

Watching the deteriorating state of local government’s finances is a bit like a scene in a thriller where the nuclear reactor’s dial flickers in the red zone. Meltdown is imminent.

It seems that hardly a day goes by now without some think-tank or professional group warning about the financial challenge facing local government. Repetition of the warning doesn’t make it any less important.

The Special Interest Group of Municipal Authorities is the latest to argue that local government’s finances need to be put on an even keel.

Of course, councils have made massive strides in curtailing their overheads and cutting their cloth to fit the budgets we have. Now, the material is stretched so thin it’s translucent.

As CIPFA has previously found, council funding from central government has been cut by nearly a third since 2010.

Here in Liverpool it’s worse. We face dealing with a reduction in our central government funding of 58% between 2010 and 2017 – a loss of £330m to our local economy.

Whoever wins the election, local government needs the brakes slamming on austerity.

We have tried being as strategic as we can. Last year, we set a three-year budget, the first local authority to do so. We are making best use of our property and assets to save money and ensuring our council tax collection rates are among the best in the country. We’re also reconfiguring services to lower costs while maintaining standards.

But the next government cannot ignore the glaring mismatch between what councils are expected to do and the money they are given to do it with.

We’ve long ago recognised that current communities secretary, Eric Pickles, turns a deaf ear to all of this. His advice to councils like Liverpool has been to raid our reserves.

The difference of emphasis between DCLG and the Treasury could not be starker.

The chancellor says we should have fixed the roof while the sun was shining. Pickles urges us to make the hole bigger while it’s raining.

This week, after much deliberation, I decided to invest £2m from our reserves to keep our network of children’s centres open. For me, this is a classic invest-to-save measure.

Supporting families and young children at a critical point in their development is not only what public service is all about for me; it is also financially prudent in the long term if we equip them to make a strong start in life.

So we have worked hard to pull in money from our local clinical commissioning group and registered social landlords to diversify funding for the centres, but the council still needed to step in to make up the shortfall or risk closing ten of them, many in deprived areas of the city.

But we will not be in a position to make these types of interventions beyond 2017 unless the next government presses the reset button on local government finance.

As I told parents and staff from our children’s centres, all I can offer is a reprieve for two years unless central government ends its financial masochism.

If not, councils like mine we will barely be able to fund statutory services in future, meaning disaster for children’s centres, leisure services, libraries and so much more that we all value.

This is why I am calling for three simple commitments from the next government:

In-year review of local government funding formula. In Liverpool’s case, if we received the average national funding reductions we would be an additional £80m a year better off. These grossly unfair settlements must be addressed.

Immediate financial support for adult social care. In recent years we’ve promised clients greater personalisation of adult care support. Now we’re in danger of offering them penury as budget pressures tighten. If the most vulnerable are not to be adversely affected, this must be top of the list for new ministers in DCLG.

Ring-fencing of children’s centres. At the other end of the age range, we must tackle childhood inequality and improve social mobility in deprived communities by supporting the valuable work done in children’s centres.

As Westminster fixates on the nation’s public finances, the dire situation facing councils like Liverpool cannot be overestimated. The stakes could not be higher. Will the parties heed our call?


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