Skip to main content

Local services will continue to decline until Government tackles £5 billion funding gap

21 August 2019

  • Decade of funding cuts and uncertainty over financial settlement for 2020/21 has left council services at breaking point
  • Social care system on verge of collapse. Transport, culture, housing and planning spending slashed by over 40%.
  • Government must act quickly to end needless uncertainty over spending and provide a long term funding settlement to enable councils to provide high quality local services.
  • Funding gap for local authorities widely calculated at £5 billion and growing.

Key findings

The Government has been derelict in its duty to local authorities by failing to set out a funding settlement that addresses immediate service pressures or plan for future challenges. In a report published today, the Housing, Communities and Local Government Committee calls on the Government to end its piecemeal approach to local authority funding and revenue raising. It calls on the Government to provide a financial settlement that adequately supports local authorities to serve their communities and close the multi-billion gap in local authority funding.

A decade of funding cuts and increasing pressures on ‘safety net' services, particularly social care, has gutted funding in a range of ‘non-essential' services including transport, housing and culture. This is likely to be exacerbated by the Government's failure to set out plans for future funding, with the current four-year funding settlement coming to an end this financial year without a replacement in place.

The rising demands for social care, for both adults and children, is placing an intolerable financial burden on local authorities. Years of reviews and deliberation have failed to produce concrete measures that adequately address the level of day-to-day demand or plan for future need. Without new dedicated revenue sources at a local and national level, social care will continue to dominate local authority spending at a cost to other services.

According to LGA figures, the annual funding gap is £5 billion and growing. The continual squeeze on funding has given local authorities little choice but to provide ‘bare bones' levels of service. The Government must clarify what services it expects local government to provide and be prepared to set a level of funding sufficient to facilitate it.

Business rate retention lacks transparency in how it operates and is too complex in trying to promote development at the same time as rebalancing funding across local authorities. The Government should consider bringing back the Revenue Support Grant to give extra funding to struggling councils.

Review of the Council Tax system is long overdue. It has become a regressive tax disconnected from the true value of properties. A review should consider the case for creating new tax bands at the top and bottom of the scale. Any changes should be implemented without dramatic increases for individual households and be revenue neutral at a national level, however they must produce a progressive tax system in the long term.

In the longer term, local authorities must be given greater freedom to pursue their own solutions to ensure financial stability. The Housing, Communities and Local Government will continue investigating how devolving greater powers and responsibilities, particularly over revenue raising, in its current inquiry into devolution in England.

Chair's comments

Chair of the HCLG Committee, Clive Betts MP said:

“There is a disconnect between the services taxpayers expect their local authorities to provide and the level of service possible under current Government funding. People expect well maintained roads, regular refuse collections and cultural services, yet funding rarely stretches beyond meeting the urgent needs of social care services.

“The largest proportion of spending goes on services that most people do not use. Taxpayers are paying more but getting less, and this comes at a cost to continued confidence in local authorities to provide the services they need. Democracy and accountability in local government is paying the price for central government spending decisions.

“The Government has a duty establish a funding settlement that enables local authorities to provide services to meet the needs of their local communities. Over the last decade we have seen a regular chipping away at funding, while adding further statutory obligations for them to meet.

“This constant stress on local government is now compounded by a failure to even set out how much money they will be allocated in the next financial year. The time has come for the Government to get real with local government funding. They must make clear exactly what services they expect to be provided and dedicate sufficient funding for this to be achieved.

“The battle to meet ever increasing demand for social care has left few further sources of revenue to divert towards it and will now need a dedicated funding solution. The haphazard approach to broader funding has equally created an opaque source of revenue, partially funded by tax systems that don't spread the burden equally. The Government's attention has been elsewhere for too long and it must now establish a system of funding that both addresses immediate need and supports local authorities in meeting challenges of the future.”

Further information

Image: Pixabay