Opinion: Local Authority Funding – A Perfect Storm Is Almost Upon Us

Published on: 31 Dec, 2023
Updated on: 2 Jan, 2024

Bernard Quoroll

Bernard Quoroll is a former local authority CEO and was an independent person at GBC. In this article, he gives a well-informed insight into the grave and urgent situation that faces those in charge of local authority funding. It is an important issue that will affect us all and Guildford is in the line of fire. Please read on…

R4GV leader Joss Bigmore is right to point out the existential threat facing local government and it is a matter of regret that so few of his fellow councillors, including the current GBC Leader, seem to understand and speak coherently about its consequences.

See: R4GV Leader Gives Grim Warning in the Wake of GBC’s Latest Financial Settlement

This is not a new story. Long before the crash of 2008, local government had already lost any claim to be financially independent.

Prior to that date, most of its funding came via redistributed central taxation under a complex regression analysis formula which few people, (including allegedly, its inventors) could understand.

The formula was, and is, based upon hundreds of different factors such as population size, age, unemployment, rate base, mortality etc. The idea behind it is that areas in greater measurable need should be given a larger share of the available national pot. So on the face of it, you have a fair and politically impartial means of allocating limited national resources geographically.

“…long before the crash of 2008, local government had already lost any claim to be financially independent”

The balance of local expenditure comes from the business rate which is politically unstable and which councils do not control locally. The rest comes from locally generated income such as from charges for services and car parks.

These can vary massively from area to area, depending on local circumstances. Bath for example was reputed at one time to earn more from its car parks than from all other income sources put together. (It has been Guildford’s biggest income earner too, in recent years.)

In practice, this system also provides a convenient smokescreen behind which to allocate more money to councils that are politically aligned, although that was always denied.

But the fact remains that by changing the priority attached to different measures of deprivation, monies can be moved to areas the government of the day wants to help and the formula is so complicated that it is almost impossible to challenge.

Of course there also needs to be enough money in the national pot to attempt to match the aggregate local need and accommodate the vast differences which prevail in different areas. That is an unlikely scenario with all the other pressing demands on government finances but when the gap becomes unbridgeable as now, we are heading, locally, for a perfect storm.

Governments of all persuasions have in the past developed ways of circumventing the allocation process, the most pernicious of which was the Private Finance Initiative, now discredited but once promoted as the best thing since sliced bread. The second way and something which still continues, I will call “bidding”.

“…the underlying story is one of distraction and distortion”

When governments want to promote a particular theme, shall we say rejuvenation of high streets, it creates a central pot and asks all councils (there are nearly 400 of them) to bid for it in competition. Councils, keen to get funding for something useful then divert resources into making the case for an allocation. But creating a business case is expensive and diverts resources from other more local priorities.

Only a few councils win and the cost of bidding for losers is invisible. In this way, governments get good publicity for themselves at the expense of the losers. Even the winners may lose out because, after the beauty competition, the amount they win is rarely enough and carries a long tail of expenditure not funded by government.

The underlying story is one of distraction and distortion. Local councils should be trusted and empowered to know best what their priorities should be locally, not be diverted by every new centrally-inspired big idea.

Potholes, the bête noir of many voters

And the most recent expression of this political game-playing is the funding of potholes, the bête noir of many voters, so a politically charged subject.

Filling potholes is part of the day job of highway authorities but always suffers at budget time compared with competing demands such as care services and special educational needs. So instead of ensuring that councils are adequately resourced to undertake all their statutory responsibilities, the government gives them ad hoc allocations to keep the political wolf from the door and present themselves as saving the day.

Central government has better things to do than playing Father Christmas with potholes. Worse, filling potholes is just another smokescreen for the failure to maintain highways properly which is building up a massive bill, alongside that for water and sewerage infrastructure.

With all that as background, we now need to look at what has happened since 2008. Under the banner of austerity, local government has taken the hardest hit among all public services. That is because local government, viewed from the centre, is regarded as politically easy meat.

…we are heading, locally, for a perfect storm

There was of course a case for austerity but this government has arguably taken advantage of it to rip away any conception that local government is adequately funded. Many, many councils are now tottering on the edge of bankruptcy. Their statutory services are important and the loss of them will be noticed. Their discretionary services are often just as important to local people but they are, of course, the first to go.

Councils have had more than a third of their income taken away at a time when deprivation is rising and the population is ageing. The Local Government Association, which is politically led, has failed to shout foul for far too long and councils themselves have cooperated in trying to put a brave face on it.

“Many, many councils are now tottering on the edge of bankruptcy.”

It is a tribute to their hard work and ingenuity that the perfect storm has taken so long to arrive. Many have been encouraged to embark on get-rich-quick investment schemes with inadequate understanding of the risks while the Audit Commission whose job would have been to point all these problems out was abolished years ago.

Others have sought to save money in the short term by sharing management costs and creative accounting to balance the books but in doing so have arguably diminished their presence as community leaders in favour of trying to maintain basic services. We are nearly at the point when there will be no money for discretionary services anywhere including local funding of the voluntary sector.

“We already live in one of the most centralised states in Europe.”

There have been many attempts to reform local government finance over the years but no government has in recent times, had the courage to do so and memories of the poll tax still burn in the minds of all political parties. One reason for that is that it exposes a debate about the respective roles and autonomy of central and local government which no party wants to address.

The solution is to establish in a national debate (Royal Commission) what is expected of our representative bodies at central government and local government levels and how local government is in the future to be funded.

We already live in one of the most centralised states in Europe. Without a measure of independence and the ability to respond sensitively to local circumstances, the future looks progressively more centrally driven and authoritarian.

Meanwhile, councils should not be absolved from the duty to balance their books on a yearly basis. Nor should it be accepted that by finding a bit more money centrally to get through the current year, the future can be fixed. The situation is far too serious for that.