1. Surrey County Council (SCC) welcomes the opportunity to submit evidence for this inquiry on the Spending Review and Local Government Finance. We look forward to examining the Government’s proposals in the upcoming Spending Review and what it means for local government. We also welcome the HCLG Committee’s inquiry into the issue and see this as an opportunity to inform debate ahead of the publication of the Spending Review. We would also be willing to provide oral evidence to the Committee.
1. Surrey has a huge amount of potential and can play a leading role in the economic recovery from Covid-19. To do this, English local government needs strengthening with more certainty around funding that can be used to implement the right policies for local circumstances. This would increase the chances of a stronger and sustained economic recovery and successfully levelling up the country.
2. Councils need stability and certainty over funding, but a one-year settlement will not provide this or enable them to develop credible plans for the longer term. That being the case, SCC is calling on government to ‘roll forward funding under broadly the same conditions as 2020/21, and eliminate negative RSG for another year, provide greater flexibilities over the New Homes Bonus, the continuation of social care grants and a collections loss sharing arrangement.
3. Covid-19 has exacerbated the already significant and continued rising demand for SEND support. The system requires fundamental changes and investment, and successive governments have promised a Green Paper on adult social care reform. SCC urges the HCLG Committee to seek clarity on when this will be forthcoming as part of its Spending Review inquiry.
4. Successive single year spending reviews and delays to multi-year settlements and the Fair Funding Review simply do not provide a foundation for efficient planning. SCC is also doubtful that the council tax element can be fairly estimated given the instability caused by Covid-19.
5. SCC is responsible for services for over 1.1 million residents including adult social care, children’s services and highways maintenance. Surrey’s economy contributes over £40 billion Gross Value Added (GVA) each year, of which £7.5 billion goes to the Exchequer, has very high business density of 612 businesses per 10,000 population, over half the working age population is educated to degree level or above and has an economic activity rate of over 83%.
6. Given the county’s proximity to London, it is considered peri-urban and has a complex set of characteristics including road, rail and air congestion, land pressure, large volumes of commuting to the capital and a hugely varied environment. These pressures will be exacerbated as the population grows, and the impact of being so close to London is continually felt. The population is also due to grow by 1.4% by 2030, with the older population expected to see the fastest growth rate with the 85+ population growing by nearly 30% and 65-84 population by nearly 19%.
7. While most people who live in Surrey generally have a high quality of life, the county faces many challenges, some of which have been exacerbated by the Covid-19 pandemic. The list below exemplifies some of the county’s most pressing issues:
8. Surrey is also a county of opportunity with strong assets. The beauty of its countryside and its proximity to London means it is well-placed to support the capital’s revival as a global economic hub. The county can act as a test bed for the green economy, trialling new approaches to sustainable growth that can be rolled out across the country that could also help with the climate emergency.
9. Local authorities provide crucial local leadership to address these challenges and opportunities so they can improve the lives of residents and the places they live in. They have the depth of insight into and experience of their places and communities. This is crucial as we continue to respond to the pandemic with our partners, and residents have depended on our services to support them through the Covid-19 crisis. For instance, in a recent survey we conducted on residents’ experiences of the crisis, nearly two-thirds (65%) of respondents said they had relied on at least one source of information from Surrey County Council to support themselves.
10. To respond to these challenges and opportunities, and maximise the effectiveness of support to residents, English local government needs strengthening with more certainty around funding that can be used to implement the right policies for local circumstances. This would increase the chances of a stronger and sustained economic recovery and successfully levelling up the country.
Q1. 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.
11. The decision by HM Treasury to hold a one-year Spending Review in order to prioritise the response to Covid-19 and focus on supporting jobs is understandable, though disappointing. Local government again faces a funding cliff-edge and a one-year settlement does not provide the certainty needed to develop credible plans for the longer term.
12. What councils up and down the country need most is stability and certainty over funding. If a sustainable multi-year settlement, that includes fair and reasonable annual increases to funding levels, cannot be delivered for the year 2021/22 then we would encourage the Committee to seek a commitment from the Treasury to deliver a multi-year Comprehensive Spending Review before Autumn 2021.
13. For the forthcoming Spending Review, SCC is of the view that the Government should confirm they intend to roll-forward funding under broadly the same conditions as 2020/21. Key features of the settlement should include:
14. Government should also take the opportunity to review its funding formula for highways, which in SCC’s view does not adequately take into account traffic volumes. Surrey’s roads are some of the country’s busiest, with over 4.8 million miles travelled on its 3,000 miles of road each year. As the formula is based on length of roads, however, Surrey’s roads are underfunded and maintenance is more difficult, despite high traffic flows taking a bigger toll than on other networks.
15. Currently, the grant received by Surrey from the Government works out at approximately £4,000 per million vehicle miles travelled. This unfairly penalises Surrey, as a neighbouring county has a figure of £5,500 per million vehicle miles travelled. In addition, the formula only reflects numbers of structures, taking no account of the complexities and cost to maintain. A River Thames crossing bridge and a small culvert beneath a rural road, for instance, have very different requirements.
16. Additionally, measures to reduce the number of vehicle journeys have been placed on hold as a result of the Covid-19 pandemic and the financial impact that has had. This will clearly have an influence on issues such as road maintenance, but also on public health concerns like air quality and efforts to address climate change. We are encouraging the government to take the opportunity to look at whether the current funding approach is still the best option or whether another alternative is more effective.
Q2. The current financial situation of councils, how this has affected their ability to deliver services and the demand for services, including Adult Social Care
17. SCC, like all councils, is reliant on the Government to safeguard social care in the long term by finally implementing the fundamental changes and investment to the social care system in England that have been promised for so long. Successive governments have repeatedly promised a Green Paper on adult social care reform, but it is currently unclear when this will be brought forward. We urge the HCLG Committee to seek clarity on this as part of the inquiry on the Spending Review.
18. There has been significant and continued rising demand for SEND support and this has been exacerbated by Covid-19; in particular the requirement to continue paying suppliers at previous rates through the pandemic. In addition, in the area of children’s services demand has increased enormously, with the councils dealing with over one-third more proceedings at the moment, locking costs in for many years. This requirement has delayed or prevented a number of our cost containment plans from being realised.
19. There continues to be significant pressure on the funding of the High Needs Block. Whilst the General Fund cannot contribute directly to spend in this area, the financial position of the Dedicated Schools Grant (DSG) needs to be considered as part of the Council’s overall financial stability.
20. We welcome that the government has taken the first step to clarify that deficits should be recovered within the DSG budget, although note that this is only for a set time period. This intention, however, lacks effect if it is not backed up with any additional funding. The current position means the change in statutory requirements is resulting in an unrecognised new burden and still leaves funding for schools under threat. Schools, and the High Needs Block, require additional funding. In the meantime, we are awaiting clarification following discussions between MHCLG and the Department for Education on the accounting treatment for DSG deficits, which we understand is due in November.
21. SCC also has ongoing concerns around Public Health funding. In 2013, when Public Health was transferred to local authorities SCC received the lowest funding allocation per head in the country, falling some 40% (£15.5m) short of requirements.
22. In spite of increases, SCC currently has the second lowest funding per head in the country, receiving £31 per head compared to the national average of £58 per head and below the historic target allocation level of £35 per head. It is therefore worrying that the decision was taken to use the Public Health Grant (PHG) formula to distribute the recent Test and Trace funding. SCC remains concerned about the impact of our low levels of funding, increasing demands arising from the pandemic and that PHG will be rolled into future funding when reform is implemented.
23. It is important that funding allocations relating to public health are reviewed and updated before being ‘rolled-in’ to the overall reform. When public health responsibilities were transferred to local authorities, each local authority’s funding allocation was based on how much local Primary Care Trusts at the time had spent historically on public health, rather than the government’s own needs assessment of each local authority’s population. SCC strongly urges Government to avoid repeating this inequitable process when Public Health funding is rolled into general local authority funding. This would likely be out of line with each area’s relative local population needs. Government should seek a more up-to-date, equitable funding formula to determine funding levels.
24. The Advisory Committee on Resource Allocation (ACRA) targets originally published for public health funding would be a useful measure to return to. These provided an evidence base of where funding was below the target level and areas were originally moved towards this level. SCC would welcome such an assessment and review of funding.
25. Based on the known impact of the pandemic to date, SCC expects additional pressures of c£15m in the budget for 2021/22 as a result of Covid-19 legacy pressures. More than half of these are pressures relating to children’s social care. At the same time, council tax income, which this year funds c80% of SCC’s net revenue expenditure, is materially affected by the pandemic. Early estimates indicate there could be a reduction of c£32m or a 4% in council tax receipts alone. This financial situation will inevitably affect many councils’ abilities to deliver services.
Q3. What the financial challenges facing councils are as a result of the COVID-19 pandemic, including lost income and local tax losses.
26. Some of the challenges for longer term planning have been highlighted above. In two-tier council areas, the rules whereby Districts and Boroughs do not have to finalise their tax base assumptions until 31 January, compound this. This means SCC has little time to adjust its budgets accordingly as a result in changes to its main source of funding.
27. Under normal circumstances the stability of council tax means this is manageable, however Covid-19 has placed a significant level of uncertainty over all local income streams. These factors could lead to excessively prudent budget assumptions which impact on our service plans.
28. Over the past decade, austerity measures have created a greater need for councils to become more self-sufficient. Indeed, the Government has actively pushed this agenda with initiatives such as planned business rates reform and more recently encouraging devolution. Latterly, large levels of locally generated income has been considered an indication of reduced financial risk/higher financial resilience, as seen with CIPFA’s resilience. All of this now presents a challenge as we are faced with additional responsibilities, increased demand and associated expenditure, and at the same time SCC’s main income streams have materially reduced as a direct result of the pandemic.
29. The Government has enabled local authorities to respond to the challenges faced this year through the swift provision of timely one-off boost in funding, which SCC has welcomed. Councils nationally have played a pivotal role in responding to the pandemic and much of this work helps keep communities safe and relieves the pressure on other sectors, such as the NHS.
30. To ensure this continues the Government must stand by its commitment of ‘whatever it takes’ and for council to be ‘fully compensated’. These commitments should not be time limited and the forthcoming Spending Review should:
Q4. What the impact is of another one-year spending review and a further delay to a multi-year settlement and the Fair Funding Review.
31. The timing of the reform is crucial to our planning, not least because SCC anticipates the outcome will result in a reduction in its baseline funding level. As it stands, SCC is unaware of the extent of the reductions and when they will take effect.
32. In addition, we have very serious concerns about the future of reform and whether ‘fair’ assumptions are achievable. A fundamental element of ‘fair funding’ is resource equalisation and the notion that the council tax element of this can be estimated fairly given the instability caused by Covid-19 is highly questionable.
33. The Council recognises that constraints over the past two years have hindered progress, however successive single year spending reviews and settlements simply do not provide a foundation for efficient planning.
34. In our view, the Government has missed a significant opportunity to provide funding certainty and stability for local communities by delaying a multi-year Spending Review. We would hope that Ministers will ensure the next Spending Review takes a multi-year view. If they do, we are likely to see a much stronger economic recovery from the effects of the pandemic, as well as better outcomes in health, education and skills, social care, and all the other services councils provide.