Local government reorganisation: the financial case for maintaining county boundaries

16 Nov 16

As many plans for council restructures are considered, the evidence shows basing plans on county boundaries would bring the greatest savings and support public sector reform

The recent EY study on structural reform for CCN has generated plenty of debate

While the study was far more wide-ranging than a narrow focus on the numbers, it is right to look at what the figures tell us and how they should inform an evidence-based debate going forward.

The report from EY is the most comprehensive to date, examining the potential impact of six different unitary and two-tier governance scenarios. 

In examining the financial evidence, creating a single unitary authority in a county area has the largest capacity for savings – £106m for the average county over five years.

EY conclude that a key component to creating higher efficiency savings is the economies of scale that are achieved by governance models that retain existing county footprints.

The national savings of £2.9bn in creating 27 unitary councils, over the shortest payback period of just over two years, can be explained by streamlining senior management, rationalising multiple frontline and support service functions, and optimising the integration of housing, waste and, regulatory and planning services on a county-wide foot print.

Unsurprisingly, the findings show that single unitary is the most cost effective option; 54 or 81 new authorities would clearly generate fewer senior management savings, more buildings to occupy and higher member costs.

But acknowledging the impact of disaggregation and wider implementation costs are critical in understanding the financial and non-financial rationale that leans towards maintaining county footprints as the default starting point for reforming local authority structures – whether single unitary or reformed two-tier.

Put simply, sub-county or cross-county boundary reforms would cost taxpayers significantly more to implement and would be highly disruptive. 

If structural reform were to take place, the report argues there is greater ease in rationalising and incorporating district based services, that while challenging at scale, involves considerably less cost at a time of rising demand and higher cost pressures in services such as children's and adults social care.

EY estimate disaggregation costs – the costs of splitting and reforming county council services – would reach £2m for the average county. Add to this a significant increase in implementation costs and reduced efficiencies, and the research shows that the single county unitary model saves 68% more compared to two separate unitary authorities. Moreover, the model that splits counties into three unitaries potentially results in a net cost over five years – with a payback period of seven years.

Such a significant difference in savings cannot be easily dismissed at a time of austerity and growing demand for services.

Not only does the level of saving directly impact on the ability of reorganisation to maximise the investment of resources into frontline services and absorb transitional costs, but the efficiencies created in the single unitary model gives the new authority the ability to have the choice to harmonise council tax to the lowest level.

The wider analysis by EY further demonstrates the financial argument for maintaining the scale provided by the county council, rather than disaggregating and fragmenting service provision or replacing the upper-tier with an alternative strategic body.

Merging districts rather than full unitary status under scenario three would secure higher savings. This could result in a saving for the average county of £52m, which surpass the lower range of savings from creating two unitary authorities in each area.

Moreover, the radical option of creating three unitary authorities supplemented by a combined authority and alternative service delivery model for strategic services – as proposed in Oxfordshire and Buckinghamshire – could result in a net cost due to implementation costs of £33m for the average county.

Another critical financial consideration this study evaluates is the impact on business rates retention. As independent research for CCN by Pixel Financial Management showed, business rate income within a single county area is highly variable district by district. For example in Worcestershire, Redditch has seen a rateable value reduction of 4% since 2010, compared to a 20% increase in Bromsgrove.

EY conclude that there is an inherent sustainability risk in splitting a county structure into multiple new organisations. New authorities that are potentially viable in 2017 could be rendered unviable once the new system for full business rates retention is introduced – trapped in a cycle of low growth and high service demand.

Looking beyond the numbers, the report concludes that there is a direct correlation between the options that deliver the highest level of financial savings and sustainability and the options which most positively relate to the key drivers for public service reform.

Local government secretary Sajid Javid has rightly said it is up for local areas to decide whether to pursue reform and that he won’t impose change. By asking EY to analyse a broad range of options, CCN has laid out important impartial evidence to inform and guide the debate both nationally and locally.

Overall, the evidence shows that far from being an administrative convenience, maintaining county footprints as the default starting point for reforming local authority structures has a compelling financial, non-financial and sustainability narrative, grounded in the realities facing local government and the wider public sector today.

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