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Home Publications English local government funding: trends and challenges in 2019 and beyond

English local government funding: trends and challenges in 2019 and beyond

Tom Harris, Louis Hodge and David Phillips

The 2010s have been a decade of major financial change for English local government. Not only have funding levels – and hence what councils can spend on local services – fallen significantly; major reforms to the funding system have seen an increasing emphasis on using funding to provide financial incentives for development via initiatives such as the Business Rates Retention Scheme (BRRS) and the New Homes Bonus (NHB).

Looking ahead, increases in council tax and additional grant funding from central government mean a boost to funding next year – but what about the longer term, especially given plans for further changes to the funding system, including an expansion of the BRRS in 2021–22?

This report, the first of what we hope will be an annual series of reports providing an up-to-date analysis of local government, does three things in this context. First, it looks in detail at councils’ revenues and spending, focusing on the trends and choices taken over the last decade. Second, it looks at the outlook for local government funding both in the short and longer term. And third, it looks at the impact of the BRRS and NHB on different councils’ funding so far, to see whether there are lessons to guide reforms to these policies.

The report focuses on those revenue sources and spending areas over which county, district and single-tier councils exercise real control. We therefore exclude spending on police, fire and rescue, national park and education services and the revenues specifically for these services. When looking at trends over time, we also exclude spending on and revenues specifically for public health, and make some adjustments to social care spending to make figures more comparable across years. Public health was only devolved to councils in 2013–14, and the way social care spending is organised has also changed, with councils receiving a growing pot of money from the NHS to help fund services.

Key facts and figures

1. Cuts to funding from central government have led to a 17% fall in councils’ spending on local public services since 2009–10 – equal to 23% or nearly £300 per person. Almost this entire cut took place in the first half the 2010s. Indeed, spending is budgeted to have risen modestly since its nadir in 2017–18 as business rates revenues, council tax rises and ring-fenced funding for social care have offset continued cuts to general-purpose grants from central government.

2. Local government has become increasingly reliant on local taxes for revenues. Council tax paid by local residents makes up almost half of revenues – up from just over a third in 2009–10 – and retained business rates account for 30%, up from nothing. After most councils froze their council tax during the first half of the 2010s, over the last four years council tax revenues have grown nearly 15% per person in real terms. This reflects an 8% realterms increase in tax rates since 2015–16 and at least a 4% real terms reduction in how much councils spend on helping low income households pay their council tax bills.

3. Councils’ spending is increasingly focused on social care services – now 57% of all service budgets. This reflects the fact that councils have cut what they spend themselves on housing, transport, planning, and cultural and leisure services by 40% or more per person in order to limit cuts to social care services – although income from fees and charges means overall spending on
these services has not fallen quite so much. As a result, spending per person on acute children’s social care services is budgeted to be 2% higher than in 2009–10, and will probably be even higher given councils have overspent relative to budgets by 8% on average over the last four years.

4. A 4% boost to funding next year would still leave spending per person at least 20% lower than in 2009–10. And in the longer term, billions of pounds of additional funding from government grants or new devolved taxes will likely be needed to meet the rising costs of service provision – even if council tax increases at double the rate of inflation each year.

5. Councils in more deprived areas have done less well from the NHB than those in more affluent areas, in part because bigger payments are made for new properties in higher council tax bands. In contrast, they have retained at least as much business rates revenue growth, on average. In areas with two-tier local government, districts have retained the bulk of NHB payments and business rates growth and many rely on this for a large share of their overall funding. In contrast, counties have seen less funding than they would have if equivalent funding had been allocated according to spending needs assessments.

Find out more

Newspaper article
The Spending Round announcement last week seems a positive move for the sector on the face of it, but raises questions over the the future balance between central control and local discretion writes David Phillips in this article for the MJ.
In this presentation given the at the Local Government's Winter Finance Conference on 6th January 2020, David Phillips looks at the outlook for local government funding, arguing that unless current plans are topped up, local government could face a renewed funding squeeze from 2021-22 onwards.
Newspaper article
In this article for the Municipal Journal, David Phillips examines the choices the next Government will face, including whether (and how much) to raise taxes. What it decides could have big implications for councils and those who rely on their services.
Newspaper article
It seems unlikely that business rates and council tax will keep pace with costs and demand writes David Phillips in this article for the Local Government Chronicle.