Written evidence submitted by the District Councils Network [SRF 010]

 

About the District Councils’ Network

 

The District Councils’ Network (DCN) is a cross-party member led network of 187 district councils. We are a Special Interest Group of the Local Government Association (LGA) and provide a single voice for district councils within the Local Government Association. District councils in England deliver 86 out of 137 essential local government services to over 22 million people - 40% of the population - and cover 68% of the country by area. District councils have a proven track record of building better lives and stronger economies in the areas that they serve. Districts protect and enhance quality of life by safeguarding our environment, promoting public health and leisure, whilst creating attractive places to live, raise families and build a stronger economy. By tackling homelessness and promoting wellbeing, district councils ensure no one gets left behind by addressing the complex needs of today whilst attempting to prevent the social problems of tomorrow.

 

We welcome the opportunity to contribute to the committee’s inquiry, and invite the committee to refer to our submission to the Comprehensive Spending Review for more detail.

 

Introductory remarks

 

District councils represent the best of local government. We are innovative and collaborative, strategic leaders and trusted deliverers, rooted in community and connected into every business, we drive growth and support some of the most vulnerable, we are pragmatic focusing on outcomes, and we are deeply embedded in the fabric of the communities, towns and cities serving 20 million people across the country. In market towns and new towns, in cathedral cities, coastal communities and the countryside, our district councils hold the statutory, regulatory and licensing levers to rebuild the national economy one local economy at a time.

 

The response to COVID-19 and the lockdown has proven the importance of local knowledge and relationships, and the unique role which councils offer, not just in a crisis districts are custodians of place and play a critical role in growing local businesses and generating economic growth. ONS data shows that non-metropolitan areas contribute 56% of England’s Gross Value Added (GVA). Between 2010 and 2015, these areas increased their GVA per head by 13%, which was double the growth rate for London.

 

Using their local knowledge and statutory levers as the licensing, and revenues and benefits authorities, districts have tapped into local networks to provide for vulnerable residents and support thousands of rough sleepers. They have delivered food parcels for shielded individuals, set up buddy systems where food parcels are delivered to those who fall through the provisions set by the Government, and by 1 September had made 368,000 payments to businesses, worth £4.4bn. As we moved to reopen over the summer, districts supported business to comply with the requirements of this new normal and worked to build a safe environment for our high streets. Heading into a second period of local and then national restrictions, districts have re-mobilised their community support, and are preparing to administer the new package of support to businesses.

 

Although it is too early to understand the full economic impact from covid, early evidence demonstrates significant variations between district council areas. The variation between district councils within shire county areas is not only more significant than between county areas but also between county areas and London and the Core Cities, indicating that connection into local economies at district level will be crucial to our national recovery.[1]

 

As recovery from COVID-19 begins, this new way of working centred around the local state, strengthened with greater devolved authority, must form an essential part of England’s social and economic recovery. The devolution of funding, resources, freedoms, and powers will be vital in levelling-up our economy and allowing local communities to take control of their own fate.

 

Districts have worked hard to make savings and become self-sufficient over the past decade; by diversifying our income streams and reducing costs. However, demand for our services has increased and districts have also faced the biggest reduction in spending power since 2015 compared to any other type of council. The financial consequences of responding to the COVID-19 crisis have been especially acute for district councils. Between March and September:

 

 

In addition, analysis from the Local Government Association shows a 9% increase in the number of people claiming a discount on their council tax in the first quarter in 2020/21 against the same quarter in 2019/20. Districts with council housing stock saw £34m of lost income from residential rent arrears between March and September. And analysis from a survey of our members forecasts a financial hit to outsourced district council leisure centres of around £324 million this year – which will send many out of business.

 

Table 1: Income losses due to COVID-19 by class and source of income (£ millions)

 

 

Mar-20

Apr-20

May-20

Jun-20

Jul-20

Aug-20

Sep-20

Business rates

9.903

62.258

69.382

59.417

48.957

45.102

43.232

Council tax

6.257

83.060

95.010

74.295

60.047

50.638

47.475

Sales fees and charges

20.361

74.888

73.051

62.514

51.084

39.878

38.292

Commercial income

5.673

17.185

15.006

12.793

9.969

8.470

11.947

Other

2.731

6.311

6.376

4.877

3.445

3.579

3.300

Total

44.925

243.702

258.825

213.896

173.503

147.667

144.245

Source: MHCLG Data returns rounds 1 – 6 March 2020 to September 2020

 

And while housing and homelessness, and environmental services have seen increased expenditure as you would expect during this time, the Delta returns indicate the impact is much more broadly felt across all district services and showing limited signs of recovery, as increased demand for housing and homelessness services, and increased pressure on environmental health officers continues. When the furlough scheme and support for businesses end, districts fear their lost tax income will struggle to recover, and pressures on housing and homelessness will continue to increase. The spending review commitments to underwrite 75% of business rate and council tax losses is welcome news, but still leaves local authorities to fund the remaining 25%, and it only covers losses incurred this financial year – with unemployment forecast to peak next year, we fear the impact will continue beyond 2020-21.

 

It cannot be over-emphasised how important longer-term financial certainty, stability and local flexibility will be an essential basis on which districts can achieve these aspirations for our citizens and businesses. And yet at present, districts have no certainty in their planning. With a one-year spending review, and no plan for social care; setting a path towards a sustainable future is a long way away. Meanwhile districts in 3 county areas are also facing government-driven reorganisation – a huge distraction at a time of crisis.

 

Our response to the committee’s questions

The approach the Government should take to local government funding as part of the 2020 Spending Review and what the key features of that settlement should be.

 

The chancellor’s announcements for new housing and capital investments, a levelling up fund and investment in jobs, will provide critical new investment in our economies and jobs, and districts will look forward to playing a lead role in delivering great returns on that investment for our residents and businesses, and leading us towards net zero. These decisions should be taken locally, by those who know their communities best. We are pleased that there will be no business rates reset in 2021/22, and the rolling over of the New Homes Bonus, which will encourage businesses to grow, and maintain these powerful incentives to build the homes we need.

The financial support provided by the Government so far has been substantial, and the Spending Review’s further announcements on this are welcome. We’re pleased that MHCLG will be underwriting 75% of irrecoverable business rate and council tax losses for 2020/21 and that the income guarantee will be extended into the first quarter of 2021/22. The lack of certainty and clarity around the grant funding has been a key frustration, so this upfront confirmation of additional covid funding for 2021-22 is a positive step.

 

And yet the coming months will still be incredibly challenging. While a potential increase of 4.5 per cent in council core spending power is positive news, this is for local government as a whole, the district proportion is likely to be far less, and the burden of this will fall on our council taxpayers, during what will be very difficult months ahead, and where the income that can be generated, will not follow the need. We also need government to confirm the council tax principles for 2021/22. retaining the crucial flex of ‘2% or £5, whichever is higher, for shire district councils.

 

As the chancellor said, the economic challenge is just beginning. Large gaps in financial support remain – there has been no financial support to date for councils with Housing Revenue Accounts. And yet the Delta returns to MHCLG losses for these districts of just under £43m between March and September, of which £34m were due to residential rent arrears. Support for leisure remains a postcode lottery where the management arrangement in place determines whether districts receive any support from the income guarantee. While £100m has been promised to outsourced leisure providers, we know this is inadequate, and likely to be subject to exactly the type of bureaucratic application process that local government can well do without. DCN analysis from a survey of members forecasts a financial hit to outsourced district council leisure centres of around £324 million this year – which will send many out of business, just as we need them most.

 

Mixed messages from Government are unhelpful – councils were encouraged to be innovative and self-sufficient, and subsequently developed new income streams to replace lost funding from central government. And yet now government is putting in place restrictions on their ability to borrow to invest – directly and indirectly - because of the changes being brought into the PWLB lending terms, without any move to a more sustainable funding position for the longer term. There is an opportunity for government to give urgent consideration to the role of the PWLB and how it could better support district councils – particularly as we look towards economic recovery where it is district councils that hold the legal levers, the local connections and the place power to drive forward the national economy.

 

The current plethora of grant schemes, particularly around housing and homelessness, can be simplified. For example, Disabled Facilities Grant funding should be given directly to district councils, and the audit regime associated with housing benefit grant is considered excessive.  More recently, while government funding for the reopening of the high streets was welcome, the arbitrary restrictions on eligible expenditure have been less helpful, with a bureaucratic claims process that adds another administrative burden onto districts. Complex bidding processes are unhelpful – bureaucracy should be kept to a minimum, and democratically-elected local authorities should be trusted to deliver.

 

We would like to see districts councils having more freedoms and flexibilities to generate revenue. District councils are elected bodies, directly accountable to their local communities, and should have more autonomy over how local funding is raised and utilised to drive growth and deliver the services that matter most to their communities. Research undertaken for the DCN by Professor Colin Copus confirms that by comparison to overseas local government taxation regimes, English local government has one of the narrowest sets of local taxation powers – council tax and business rates - and one heavily restricted and controlled by the centre. Greater fiscal autonomy will strengthen local government when faced with crisis, such as the Coronavirus outbreak, as existing finances will be more resilient and additional sources of finance will be available without the need to wait for the centre. Greater fiscal autonomy, for example, would have enabled local government to develop their own financial packages to support local businesses and their employees and to support communities with financial assistance. All of this would have supported the government’s own initiatives and, given local government’s closeness to its businesses and communities, councils are able to respond quickly with vital support.

 

Looking forward, confidence in business rates as a sustainable source of funding for districts has reduced during the pandemic, as the economy is changing rapidly. In its review of business rates, government must ensure that businesses continue to contribute to the provision of local services, ii) the quantum received by districts must not reduce, and local government should have the freedom and flexibility to set the level of tax locally.

 

The DCN would like to see an increase in the supply of social housing being at the heart of the recovery and urge the government to act on the committee’s recommendations calling for 90,00 additional social rent homes per year. The recently published Social Housing White Paper represents a missed opportunity to prioritise the supply of social rented housing, as LGA analysis indicates council housing waiting lists could be set to nearly double to 2 million households in the next year[2].

 

A downturn in the property market puts affordable housing delivery via the planning system at risk. However, the opportunities are at their greatest now; capitalizing on low interest rates to invest in social housing to deliver significant returns on investment, mostly through jobs and growth and increased tax receipts, and housing benefit savings. Previous research by Capital Economics demonstrates investment in social housing ‘could return £320 billion to the nation over 50 years[3]’, and that ‘each new social home would generate a saving of £780 per year in Housing Benefit and generate a fiscal surplus through rental income’.[4] While the DCN supports the aim of the government’s First Homes policy to help more people buy their own homes in their local area, we are concerned the policy may squeeze out other more appropriate forms of affordable home ownership and affordable/social rented accommodation. Councils should be given the flexibility to set local policies for First Homes, and affordable housing in general, so they can better reflect local housing markets.

 

We also know that districts are ambitious to play their full role to combat climate change. 4 out of 5 districts have declared a climate emergency and are taking action through such activities as supporting retrofit of buildings or improved standards through planning policy, and supporting active travel, connectivity and home working. We welcome the Government’s 10 Point Plan for a green recovery, and urge this to provide a springboard for the devolution of funding and skills to develop locally-led skills and jobs, and investment in decarbonising our housing and public sector buildings, with devolved investment in the infrastructure that will be needed to deliver on this critical priority, at pace. 

The current financial situation of councils, how this has affected their ability to deliver services and the demand for services, including Adult Social Care.

 

District councils have faced the biggest reduction in their spending power since 2015 compared to other types of councils. District councils have worked hard to make savings and develop new income streams to become self-sufficient as funding from central government has fallen, while demand for services has increased. They have been able to protect their core statutory services, as well as their valued discretionary services as a result. And yet, even before the pandemic, over one third of districts held significant concerns about their ability to protect key services in the following four years, with housing and homelessness, waste, and culture and sport being the service areas districts were most concerned about. This LGA survey also demonstrated that around a third of districts had already been faced with noticeable cuts to service provision impacting sports and leisure, and funding for the voluntary sector.

 

Districts saw a 13.9 per cent real-terms reduction during the previous spending period, bearing a disproportionate share of the local government reductions. The majority stopped receiving revenue support grant by 2019/20. With spending per resident cut by over 40% since 2009-10, districts will be facing little option but to cut services, and/or use up reserves – with little potential in sight of rebuilding these reserves ready for the challenges ahead, and the next emergency situation. The IFS tell us 4 in 10 councils would still face a shortfall if they used all the reserves they consider available.

 

Proposals for a sustainable funding framework for adult social care absolutely cannot be delayed any longer. Districts play a key supporting role in supporting social care – particularly through their housing responsibilities, and delivery of measures such as the provision of Disabled Facilities Grants. But their role is also felt more widely – helping people to age well through the provision of parks, leisure and culture facilities, social prescribing, and welfare. Through schemes such as ‘walking for health’, districts help beat loneliness, connect people to nature, and keep people active. For instance, in research commissioned by the LGA, Shared Intelligence note that a study by the Fields in Trust estimated that parks and green spaces save the NHS around £111m per year, based solely on a reduction in GP visits[5].

 

Districts anticipate increases in demand – as unemployment rises, people struggle to pay rents and council tax, and more people turn to their district councils for support with housing. Meanwhile where businesses fold, this hits districts own income base. The wider economic picture is likely to reduce districts’ council tax base from next year. For 2021/22, councils are likely to be predicting a smaller base, and therefore receiving less year on year from any increase in council tax than they would otherwise have forecast pre-covid. Limiting increases to 2% will generate less revenue for districts, resulting in less and less money for core services. We know also that many districts may consider that now is not the time for higher council tax increases, given the difficulties faced by their communities. But with flexibility to determine any increase, districts will have the discretion to determine a local approach, and be accountable to their electorate for doing so.

 

What the financial challenges facing councils are as a result of the COVID-19 pandemic, including lost income and local tax losses.

 

The unprecedented levels of support provided by government to date have been welcomed by districts, but there is a long road ahead. The IFS reports that compared to pre-covid plans for income generation, income from Sales Fees and Charges from culture and leisure services is forecast to decline by over 50%[6]. The regular monitoring of additional costs and income losses that MHCLG initiated is very positive, it has helped them build a high degree of understanding of the financial impacts locally and helped to inform the grant funding provided. The extension of the scheme into the first quarter of 2021/22 is welcome news, and we would urge MHCLG to continue to keep this under review, as it may need to be extended.

 

To help district councils during this time, and for future crisis situations, Government can provide further short-term support to districts during this period by;

          Reform the PWLB to offer short-term, low rate borrowing to support cashflow in times of financial stress.

          Introduce a zero- or low-rate borrowing facility from the PWLB, for revenue or cash flow if required. This would need to be accompanied by a temporary change to capital finance system to allow borrowing for revenue purposes.

          Permit a two-year holiday on Minimum Revenue Provision (MRP), which would provide short-term revenue relief and enable councils to take a longer-term view on debt repayments.

          Consider providing incentives to councils such as a discount on the cost of early repayments on existing debt.

 

What the impact is of another one-year spending review and a further delay to a multi-year settlement and the Fair Funding Review.

 

A one-year spending review, in the context of the current uncertainty, is understandable, but what districts need more than anything is certainty to set meaningful, long-term financial plans. The spending review’s promise to bring forward next year proposals for a sustainable future for adult social care, is one promise that government absolutely must keep. And this must form part of setting a multi-year financial settlement, accompanied with a commitment to increasing our freedoms and flexibilities, devolving powers and funding, reducing the plethora of short-term and one-off funding streams, and avoiding the huge distraction of local government reorganisation.

 

It is essential that districts have certainty to plan for a longer-term sustainable future so that they can continue delivering quality, much needed services, as well as providing headroom to restore resilience – rebuilding depleted reserves, and with headroom to support communities and business during the next, challenging, 12 months and beyond.

 

 

November 2020


[1] Placed based recovery, Grant Thornton, 2020 https://www.grantthornton.co.uk/globalassets/1.-member-firms/united-kingdom/pdf/publication/2020/place-based-recovery.pdf

[2] https://www.local.gov.uk/topics/housing-and-planning/building-post-pandemic-prosperity

[3] https://www.local.gov.uk/delivery-council-housing-stimulus-package-post-pandemic

[4] http://d3n8a8pro7vhmx.cloudfront.net/themes/5417d73201925b2f58000001/attachments/original/1519256246/CapExRents.pdf?1519256246

[5] http://www.fieldsintrust.org/Upload/file/research/Revaluing-Parks-and-Green-Spaces-Report.pdf,  p6

[6] https://www.ifs.org.uk/uploads/R-174-COVID-19%20and%20English-council-funding-how-are-budgets-being-hit-in-2020%E2%80%9321.pdf