Written evidence submitted by Hampshire County Council [SRF 007]
- We are greatly concerned about the financial impact of Covid. Government funding has helped but is still short of the amount needed. In particular, the impact of lost council tax and business rates income remains to be addressed.
- Covid has highlighted that the reform of adult social care cannot be delayed any longer and a sustainable solution must be found. Annual growth pressures in social care for both adults and children have been an issue for many years and threaten the future financial sustainability of councils just as much as Covid. The pandemic has also shown the importance of investing in public health.
- Councils were under significant financial strain before Covid due to a decade of grant cuts and rising demand for social care. Councils in shire areas are under particularly high pressure due to receiving much less funding per person than councils in major urban conurbations. This needs to be addressed through the Fair Funding Review.
About Hampshire County Council
- Hampshire County Council is one of England’s largest county councils, providing upper tier local government services to over 1.3 million residents.
Impact of Covid
- We are deeply concerned about the financial impact of Covid. Adult social care and public health, both of which we are responsible for, have been heavily affected but the impact stretches well beyond them. The exact cost will depend on how the situation develops over the coming months but at the moment we expect Covid will cost the County Council about £180 million this year. This figure includes increased costs, lost income and delayed savings. On top of this, there will be a significant adverse financial impact on future years, such as reduced income from local taxes due to the economic damage caused by Covid. The overall burden from all of this threatens the Council’s financial viability.
- We are grateful that the Government has recognised the heavy financial pressure which local authorities are under and provided additional funding. However, even after taking the amounts announced so far into account, we still currently face a shortfall this year of about £40 million. The budget gap for the following three years totals around £210 million. More support is required. Furthermore, despite county councils being responsible for adult social care and tending to have populations with above average proportions of older people, the Covid funding formulas used so far have instead favoured councils in major conurbations, through the use of deprivation to allocate funding. Formulas used to distribute further funding need to correct this.
- Losses from council tax and business rates are a major issue where more help is needed. Increased unemployment has resulted in more people struggling to pay council tax or qualifying for council tax support which reduces their bill (which councils have to fund). Similarly, business closures have reduced business rates income. The precise impact will depend on how the Covid situation unfolds over the remainder of the year, but for council tax alone we will lose £6.7 million for each 1% reduction below what was budgeted for 2020/21.
- The Government’s current position, that collection fund deficits can be spread over three years, still leaves us with all the costs to cover. We were encouraged by indications from ministers that deficits will be funded but are concerned by recent reports that the Treasury is reluctant to provide funding. Resources for council tax support also need to be increased by the Government. Funding for this was significantly cut when responsibility was devolved to councils in 2013, with further reductions made later through Revenue Support Grant cuts. An economic crisis on the scale of Covid was surely not envisaged when these decisions were made.
- The ability of councils to absorb any council tax and business rates losses from 2020/21 is further reduced by the financial impact Covid will have on subsequent years. Everyone hopes that in the coming months vaccination will return life to normal but, even then, the Office for Budget Responsibility expects that unemployment levels will take several years to return to pre-Covid levels. Consequently, less in council tax and business rates will be generated than had been expected before Covid. The local government funding formula takes local tax raising ability into account, so the system will need amending for at least several years to reflect that this has been temporarily impaired.
- A wide range of council services have been adversely affected by Covid, such as concerns that lockdowns have increased the numbers of vulnerable children who need social care support. One issue which remains to be fully recognised is the significant impact of missed financial savings. Local authorities were already under heavy financial pressure before Covid hit, due to a decade of grant cuts and increased demand, especially for social care. We have constantly had to find savings in order to prioritise resources where they are most needed. In the decade up to 2019 we had to make £480 million of savings, with our latest round in the two years to 2021 requiring a further £80 million to be found. Covid has delayed their implementation, as services had to focus on responding to the pandemic. We currently expect to incur £40 million of additional costs due to delayed implementation of savings. Government funding to assist councils with these significant costs is needed.
Adult Social Care Reform
- The dreadful impact that Covid has had on those in care homes has made everyone aware of the urgent need to make reforms which fully and permanently make adult social care sustainable. Governments of all parties have kept putting this off in recent decades. We are grateful for the additional injections of funding the Government has made in recent years, but these can only act as short-term measures to plug gaps whilst longer term reform is awaited. The Government has been working on plans to reform adult social care and we would like to see ambitious plans published and progressed as soon as possible.
- These must include a sustainable solution to funding adult social care. Council taxpayers cannot keep on shouldering an ever-heavier burden. Adult social care costs will keep increasing by well above general inflation due to factors such as the ageing population and national living wage increases, so other sources of funding have to be found. It must be remembered that about half of adult social care budgets are spent on caring for younger adults. Financial pressures are also high in this part of the sector, so any reforms need to address the whole adult social care system, not just that for older adults. Annual growth pressures in social care for both adults and children have been an issue for many years and unless addressed threaten the future financial sustainability of councils just as much as Covid.
- Covid has highlighted the importance of public health services, especially those provided by councils. The local knowledge and experience of our staff is vital in tackling the pandemic. Furthermore, the impact of Covid has demonstrated the need to invest in prevention work to improve the nation’s health. Previous spending reviews have not sufficiently recognised this. Whilst resources for the NHS were increased, funding for public health was cut. Between 2015/16 and 2019/20, the public health grant for Hampshire County Council was cut by £8.3m. A modest increase was made in 2020/21 but this will solely help deal with this year’s pressures and not make up for past cuts. The Spending Review must make public health services one of the priorities for more resources.
- As with so many other government grants, county areas receive much less public health funding per person than major urban areas. These discrepancies were recognised when public health duties were originally devolved to councils, with some additional funding put in to move councils partly towards their target allocations. Progress then ground to a halt when the public health grant was cut. Therefore, in addition to putting more funding into public health overall, some of these resources must be directed to the areas which are currently underfunded. Furthermore, councils are currently constrained by the ringfence in how they can use public health funds. It would be helpful to remove this ringfence in order to give councils flexibility to use this funding in the ways which best meet the needs of the local community.
Financial Pressures Faced by Local Government
- The financial pressures faced by local government go well beyond those commented on above. Children’s social care services across the country have been facing increased demand for several years. This is due to a number of factors, including more vulnerable children requiring protection, increased demand from families for support and limited numbers of foster carers. Councils have had to make savings much larger than the size of their grant cuts in order to redirect resources to social care for adults and children. Even modest recent increases to grants have not taken away the need to find savings, with the £80 million of savings we need to find in the two years to 2021 already noted.
- We appreciate that Covid has strained the national finances but local government simply cannot take any more cuts without there being a harmful impact on services. Councils have already taken well more than their fair share of austerity over the last decade. The MHCLG’s local government budget reduced by 77% (£19.7 billion) between 2009/10 and 2019/20, a far greater amount and percentage than any other Government department. The ability of councils to find savings is becoming ever more difficult as so much has already been taken out. The Treasury needs to clearly understand that any more cuts will result in further reductions to services.
- Councils in shire areas are under particularly heavy financial pressure because they have long had to operate with much lower levels of funding per person than councils in major conurbations. In 2020/21, Hampshire County Council will not receive even a single penny of Revenue Support Grant, whereas Knowsley will receive the equivalent of £318 in Revenue Support Grant for every household (through its rates retention pilot). This is due to the use of a flawed funding formula which channels funds away from shire areas; unemployment is for instance one of the indicators used to allocate adult social care funding. The Prime Minister has correctly highlighted the need to level up funding for schools to address the past bias of numerous funding formulas against county areas. We strongly agree with this but the Government needs to go further and commit to redressing past under-resourcing for other local services by also levelling up their funding. This should include implementing the Fair Funding Review as soon as possible, which we are concerned to constantly see keep slipping back.
- The Government’s levelling up agenda is expected to be a strong feature of the Spending Review. We support spreading prosperity across the United Kingdom but this must not be done by levelling down the south east. There are pockets of deprivation across the country and even areas viewed as relatively prosperous have plenty of people who are paid relatively low wages. As previously noted, councils in shire areas already have to manage with much lower levels of funding per resident (even after taking local tax raising ability into account) than councils in major urban areas. Levelling up policies will be most effective (and generate the highest growth) if they aim to help all those who would benefit, wherever they live in the UK.