Written evidence submitted by St. Helens Borough Council [SRF 030]
St. Helens Borough Council welcomes the opportunity to submit written representation to the Housing, Communities and Local Government Committee on Local Government finance in order to inform government policy towards local government funding as part of the Spending Review.
In doing so, the Council presses the Government to recognise the current financial cliff-edge that local authorities are facing following a decade of austerity, which has led to structural and social collapse, coupled with significant rising demand for services and the impact on local areas of the COVID-19 pandemic. A reversal of this policy is crucial; the National Audit Office (NAO) has already warned Ministers that they must quickly produce a long-term funding plan for councils in England because years of cuts have put their finances in a perilous position.
For a council such as St. Helens, the impact of these reductions in local government funding have been exacerbated by the uneven distribution of funding cuts across the sector; despite being one of the areas of the country which requires Government support the most, St. Helens has had its core spending power cut by £104 per person more when compared to the England average, having suffered reductions in Government grant funding of over £510 per head in the period 2010-2019.
Local Government has made by far the biggest efficiencies in the public sector since 2010, and the consequences of those funding cuts are really being felt. The Local Government Association (LGA) calculates that councils have lost 77% of their budget by 2020 and face a £5.8bn funding gap.
Despite the overall scale of cuts, spending on children’s social care has risen alarmingly, while spending on adult social care has been cut by much less than the average. The result, of course, has been severe cuts in almost all other services - in light of such reductions in funding, councils are left with no choice other than to continue to divert ever-dwindling resources from other local services, including maintaining our streets, parks & green spaces and providing leisure centres and libraries, to try and contain ever increasing demand pressures in the areas of adult social care and children’s services.
Quite simply, the present system of local government finance is not sustainable. Continuing the recent practice of unplanned top-ups in a forlorn attempt to address increasingly overstretched social care services must be avoided. The need for adequate and permanent funding for local government has never been more apparent, overwhelming or urgent, and it is imperative that funding gaps must be properly addressed to ensure a local government that can continue to deliver the quality services that its local communities require.
Without resource injection, and when faced with a desperately strained social care system trying to look after elderly people, and increasing numbers of children being taken into care, issues such as recycling rates cannot possibly be considered as a priority. This is no better illustrated than in the NAO report on the Financial Sustainability of Local Authorities that shows disturbing trends, at a national level:
- a 33.7% fall in the number of households with weekly bin collections;
- a 40.9% drop in food hygiene checks of cafes and restaurants;
- 48.4% cuts to bus route subsidies;
- a 22.3% rise in reported fly-tipping incidents, but a 42.6% reduction in enforcement actions over the same period;
- the closures of 10.3% of libraries; and
- the issuing of 67% fewer health and safety enforcement notices
This bleak future for local government finances has been expanded upon in other reports including:-
As well as these reports, organisations such as the Institute for Fiscal Studies, the London School of Economics, the King’s Fund and the Local Government Information Unit have published articles about the financial pressures that local authorities currently face.
Background – St. Helens The Place
In providing representation, it is considered important to provide some illustration of the type of socio-economic factors impacting on service demand and the Council’s ability to generate income and growth:
The Council looks forward to the Government’s further discussion and technical consultation papers on the distribution of resources. However, given the timescales associated with the Spending Review, when considered in conjunction with lack of clarity over how Government will replace current European Union structural funding; the distribution of funding to local authorities after the Fair Funding Review; developments in relation to business rates retention; the significant current year and ongoing impact of COVID-19; and the one-year settlements Government announced for 2020-2021 and 2021-2022 and other vital funding streams (e.g. additional Better Care Fund monies); the Council is extremely anxious in relation to its financial position. The extent of such significant uncertainties is unparalleled, even in the turbulent years that austerity has brought about.
Question 1) What approach should the Government take to local government funding as part of the 2020 Spending Review and what the key features of that settlement should be?
Greater Local Authority Funding is required
After a ten-year period of UK government austerity policy, by far the largest cuts have fallen upon local government. These cuts have been very uneven, both between local authorities and in which services have suffered the greatest cuts. This unfair allocation of funding reductions has led some authorities to move to a position of only providing the most basic functions and dropping many preventative interventions.
At the same time, and inherently linked to this reduction in interventions, demand from the most vulnerable members of society is increasing and leading to significant pressures in care services; the number of authorities who are having to resort to utilisation of reserves to address these budget pressures is increasing and is not sustainable.
Furthermore, the financial challenges that the Council already faced have been exacerbated by the impact of the COVID-19 pandemic, which has had a significant negative financial impact in 2020-2021 and is forecast to continue to impact negatively, with the great uncertainty being to what degree.
As previously stated, the current funding offer continues to be inadequate to support the continued provision of services at the current levels and St. Helens Council calls on the Government to reassess the quantum of funding available to provide essential services and champion the cause of those most in need and least able to help themselves.
A Fair Funding allocation is required
It is critical that funding is allocated to those who need it most.
Austerity budgets and the current funding methodology have exacerbated the division between those areas which have the economic resilience to withstand the cuts and those that are unable to do so. Funding has been taken away from areas with the highest need and the only replacement available is in the form of locally raised taxation, which is most difficult to raise in areas with the greatest need. The Spending Review 2020 announced an increase in Core Spending Power for Local Authorities of 4.5%; however, this is predicated on over two thirds of the increase being raised by Council through the application of a 2% Council Tax increase and levying a 3% Adult Social Care Precept.
Government needs to address this imbalance via the Fair Funding Review by:
Negative impact of incentive based funding (New Homes Bonus)
Since the introduction of New Homes Bonus (NHB) in 2011/12, the Council has been vocal in its opposition to the methodology applied to the distribution of funds under the NHB Scheme due to its inherent inequity. The decision to fund the scheme through top-slicing Revenue Support Grant has led to a redistribution of funds away from an allocation based on need to those areas where there is a greater scope and demand for higher value housing. Such an approach has, in practical terms, led to funding that would otherwise have been used by authorities such as St. Helens to tackle the immense pressures in both adult and children’s social services, being diverted to authorities with an ability to grow their tax base, irrespective of their underlying need for additional resources.
In its responses to previous Government consultations the Council previously advocated that all the NHB funding should be returned to the settlement to help authorities address areas where pressures are increasing, such as those relating to social care and local council tax support
Question 2) The current financial situation of councils, how this has affected their ability to deliver services and the demand for services, including Adult Social Care.
Current financial situation of Councils and ability to deliver services
Vulnerable residents are most at risk
As a result of cuts being deepest where need is greatest, local authorities are now having to prioritise their spending on their most vulnerable service users – such as the elderly, children in need and those who are vulnerable through physical or mental infirmity.
St. Helens, like many other responsible local authorities across the country, has done all it can to change the way it does things in response to the depletion in funding. However, this simply cannot continue. It is essential for the Government to reassess the quantum of funding available to provide essential services and to support those areas which are most in need and are least able to help themselves. Failure to do so will put the most vulnerable adults and children in society at risk.
The most significant pressure that the Council currently faces, excluding the direct financial consequences of COVID-19, is from supporting people with Learning Disabilities in both Direct Payments and Supported Living. This service area has seen growing demand and increasing costs of providing support.
Children’s Social Care – Budget Pressures
There are an increasing number of children and their families who are dependent on support from the local authority. The real term cuts to local government funding since 2010 have had a devastating impact on services to these vulnerable young people and funding has failed to keep pace with the increase in demand.
The National Audit Office reported that the number of children being taken into care had risen by 15% between 2010/11 and 2018/19. For St Helens, the issue has been significantly more pronounced, with an increase of 40%, from 355 at 31 March 2010 to 496 at 31 March 2020. Costs over a similar period have more than doubled for St Helens. The trends re: number / cost / comparative rates of Children Looked After for St Helens can be clearly identified in the following charts. Comparative data in respect of 2019-20 has not yet been published by the Department for Education.
The report by the NAO concluded that a fundamental reason for this increase was the response from local authorities to reductions in spending power, which was to cut spending on non-statutory preventative children’s services like children’s centres and increasing spending on statutory social work. Without an increase in funding being provided via MHCLG, local authorities will continue to have insufficient resources to be able to deal with the immediate pressures that exist and put in place preventative measures to address the longer term underlying issues with a view to reducing numbers and costs.
The underlying issue is that local authorities are not adequately funded by central government for children’s social care, and this has been compounded further by how the available funding has been distributed. Research that has been undertaken by SIGOMA (Special Interest Group of Municipal Authorities) estimates that by 2020, deprived areas outside London had lost out on almost £1 billion since 2010 as a consequence of proposals and policy decisions, which channel more funding into some of the country’s most affluent areas.
The cost of supporting vulnerable residents in deprived areas is greater than that experienced in more affluent parts of the country. Research undertaken by Coventry University has highlighted that children living in areas of highest deprivation are up to 10 times more likely to come into care than those living in areas of lowest deprivation. The research identified an irrefutable link with wider social and economic factors that require a more coordinated response from across government. Consequently, the funding arrangements for local government need to reflect this.
Although the Authority has increased spending on children’s social care, along with many local authorities, this has been at the cost of using one-off reserves, which is clearly not a sustainable long-term position. Many local authorities regularly report the need to overspend against their children’s services budgets. Adequate funding to support the children, young people and their families who are in need of the vital social care services provided by local authorities needs to be provided by central government. The LGA estimate that Councils faced a £2 billion funding gap for children’s services by 2020 and it is imperative that this gap is addressed.
In addition, resources need to be devolved to local authorities to enable them to establish a robust early intervention offer to help stem the escalating level of children and young people entering the care system. Previous decisions to erode the level of funding received through the former SureStart and Early Intervention grants have had significant impacts on the delivery of vital preventative services.
As a consequence of austerity measures and the actions the Council has had to put in place to address cuts in funding levels, the Council has an increasing need to direct funding to statutory service delivery and in response to increasing service demands, at the expense of investment in other priority services.
Question 3) What the financial challenges facing councils are as a result of the COVID-19 pandemic, including lost income and tax losses.
COVID-19 Impact and Response
After a decade of austerity and with significant increases in demand across care services, the outlook for local authorities was already extremely difficult. With the impact of the COVID-19 pandemic upon local communities and the general economy, and with significant uncertainty about the future impact of the virus, the ability of local authorities to continue to provide the level of services that they have, to the standard that communities expect, deserve and, most importantly, require will prove impossible without a significant commitment from Government, via the CSR, to support local authorities.
With the significant reductions in government funding provided to local authorities, councils have become more reliant upon receipts from Business Rates and Council Tax than ever before. However, official figures from MHCLG show that the COVID-19 pandemic has had a stark impact on receipts of Business Rates, with a reduction in the first quarter of 2020/21 of 47.5% compared to the same period last year.
Whilst Council Tax receipts only dropped by 1% year on year, this hides the real level of loss as it ignores the average increase in Council tax from 2019/20 to 2020/21 of 3.9%. Estimates are that the real drop in income is around 4.6%.
Whilst these reductions in receipts are already at a level that present a huge problem for local authorities (with current Government support announced at the Spending Review 2020 within the policy costings not coming close to addressing the quantum of reported Collection Fund losses), it is inevitable that the losses will become even greater moving forward. With the Government’s furlough scheme due to end, local and further national lockdowns in place and worries about potential further waves and enhanced restrictions, the harsh reality is that more businesses will struggle and unemployment will continue to rise, impacting further upon both Business Rates and Council Tax receipts.
In figures presented by the Chancellor as part of the Spending Review 2020, unemployment is forecast to peak at a rate of 7.5% during the second quarter of 2021, with a forecast reduction in the economy of 11.3%, the largest fall in more than 300 years. Figures such as these will lead to increased levels of Local Council Tax Support, which results in direct losses to Council funding.
This view has been backed up by work undertaken by the Institute of Fiscal Studies (IFS), who have warned of a £2 billion funding deficit due to COVID-19 pressures in 2020/21 and concerns that the financial effects could continue into 2021/22 with Council Tax and Business Rates down significantly. The report that the IFS has produced goes on to estimate the funding gap as reaching between £2 billion and just over £3 billion over the next four years.
The report goes onto to quantify the expected loss in tax revenues, in their “middle scenario” from Council Tax and Business Rates for 2020/21 to be £1,410 million and £602 million respectively.
Notwithstanding the impact of COVID-19 upon Council Tax and Business Rates revenues, Councils face ongoing pressures on both expenditure and income due to the lasting impact of the pandemic. Current forecasts suggest that these will have a significant impact upon the financial sustainability of local authorities based upon current returns to Government; the latest announcements suggest that the impact of COVID-19 could be for much longer than are currently estimated in those returns, with the Prime Minister stating that ongoing restrictions are likely to last for six months. This extension of restrictions and the impact moving forward this will have on communities will undoubtedly worsen the financial position of local authorities further still.
The IFS report estimates that the total from additional spending and non-tax losses in 2020/21 for local authorities will be £7.9 billion. The report then looks at the outlook for local authorities for the period 2021/22 to 2021/25; based upon assumptions used, the report forecasts increased spending needs of almost 11% in real terms between 2019/20 and 2024/25, with an increase in revenue over the same period of just 4%. In monetary terms, this equates to projected real terms funding gaps as follows:
When factoring in pre-existing funding gaps that local authorities are forecast to face, the pressures Councils face increase significantly; to give just one example, the gap for 2024/25 rises from £3.4 billion to between £4.6 billion and £4.9 billion.
As with funding reductions, the impact of COVID-19 on local authorities will not be equitable. Data from the Department of Health shows that residents in the most deprived quintile of areas are 60% more likely to suffer from a long-term condition and suffer, on average, 30% more severe long-term needs. The impact of coronavirus will only exacerbate these health inequalities in areas of higher deprivations. A Health Foundation Report pointed out that evidence clearly shows that people facing the greatest deprivation are experiencing a higher risk of exposure to COVID-19 and existing poor health puts them at risk of more severe outcomes if they contract the virus.
A more recent study by the Northern Health Science Alliance reported that areas in the north of the country had been hit harder than the rest of England during the coronavirus pandemic, exacerbating regional inequalities. The study found that 12.4 more people per 100,000 population died with COVID-19 in the area of the Northern Powerhouse from march to July, than elsewhere in the country, with 57.7 more people per 100,000 dying of all causes. The study estimated the economic cost of the increased mortality in northern England at £6.86bn and estimated the cost in the region’s mental health would cost about £5bn a year.
The Settlement provides an opportunity for MHCLG to support local authorities by ensuring a higher quantum settlement is provided, to the areas most in need, to ensure issues can be addressed properly.
Question 4) What the impact is of another one year spending review and a further delay to a multi-year settlement and the Fair Funding Review.
As part of the 2016/17 Funding Settlement, the Government announced an offer of a four-year settlement, through to 2019/20. These figures included Revenue Support Grant, Retained Business Rates and Top-Up Grant but excluded other grants, such as Public Health Grant. By making this offer, the Government sought to encourage local authorities to take a longer-term view of budget setting.
The principle of a four-year settlement was welcomed by St. Helens Borough Council, as it provided greater certainty and the ability to budget plan in a more structured, longer term, fashion. The Government also stated that the “new burdens doctrine” would continue to operate outside of the settlement, so the offer did not prevent the Council receiving any new burden payments which were agreed over the course of the four years. The policy of multi-year settlements, which provide a minimum level of funding for authorities but with flexibility to allocate additional funding when needed (for example, the current pandemic) needs to be reintroduced as standard for future years.
The Government must understand that it is impossible for authorities to operate effectively without knowing what their longer term financial position is. In light of the fundamental reviews that are being conducted into funding for local government, authorities will face the position where they must set budgets for 2021/22 by March 2021 but will have no certainty regarding their resource position. It is unacceptable that key decisions on the cessation of services and / or closure of facilities can only be made a matter of months before the start of the forthcoming financial year, rather than planned and introduced over a suitable period to ensure the impact on residents is properly managed and communicated. This cannot become the norm for future years.
Uncertainty of future funding
Beyond the matter of demand and quantum, the biggest issue that local government faces from the current funding system is the fundamental uncertainty that comes from so many reviews of, and potential changes to, funding, all happening at the same time, with implementation deadlines that will leave very little time to plan to address any significant variations in funding. On top of the Spending Review, the Fair Funding Review and needs assessment, the Business Rates Reset, the review of Business Rates Retention and the review of Social Care Funding will all significantly impact upon local government funding for 2021/22 and beyond.
Added to these, the impact of issues that may arise from the UK’s departure from the European Union only serve to exacerbate the uncertainty within which local authorities are being asked to produce medium term financial plans. One certainty that will be a by-product of Brexit is the withdrawal of European Funding for Local Authorities; the Government have made statements regarding replacement funding, in the form of the UK Shared Prosperity Fund and a full consultation on the detail of the fund was due to be published before the end of 2018 but, to date, no consultation has taken place. As an area and an authority that has benefitted from European structural funding, detail and clarity about the form and quantum of a replacement fund is vital to St. Helens.
The issue of Social Care funding is particularly pertinent as the funding of such a significant area is currently reliant upon reactive funding that has been provided by Government in response to growing demand; this funding is short-term in nature with no clarification about its continuance after March 2022 which leave authorities facing a potential financial cliff-edge. The lack of progress of the social care green paper is particularly disconcerting for future funding certainty.
Reliance on Council Tax revenues
The funding system currently fails to recognise the varying requirements on councils in different areas to provide statutory services, or the very different abilities to raise money locally from Council Tax. These were the core principles which underpinned the local government finance system when Council Tax was first introduced in 1993/94. Those principles were aimed at ensuring that any resident anywhere in England would receive a standard level of service to meet their needs with a similar Council Tax charge for a similar property. This is clearly not the case.
With the reductions in grant support that local government has faced over the past ten-year period, an ever increasing reliance has been placed upon Council Tax revenue to support essential council services. This was compounded the introduction of the Adult Social Care Precept in 2016/17; whilst the additional funds available through the precept are welcomed, the method of raising additional funds via a precept on Council Tax further passes the burden of funding essential services onto local residents and continues the Government’s policy of breaking the relationship between funding and need.
The use of Council Tax to fill the gap created by significant reductions in grant funding and increasing demand levels is also inherently unfair; local authorities with small Council tax bases only benefit financially from increases in Council Tax in a limited way. Such use of Council Tax rewards councils based upon their local level of economic growth and prosperity, rather than their levels of need.
The referendum principles that the Government has imposed upon local authorities also place a significant barrier in the way of authorities looking to address the issues that are most important locally. The Council believes that all categories of authority should have the flexibility to set Council Tax without the need for referendum – Council Tax is a local tax which can be used to address local issues and priorities and should not be restricted by Government policy.
Business Rates Retention
St. Helens Borough Council calls upon the Government to ensure that the Business Rates Retention system is adequate to enable all, and individual councils, to meet the needs of their service users, having regard to all statutory responsibilities. Furthermore, and critically, it must ensure that the design of the ongoing system does not operate in a manner that leaves authorities with high levels of need locked into periods of budget crises and service cuts, whilst others thrive.