Written evidence submitted by Core Cities UK [FSS 004]

 

Core Cities UK is an alliance of 11 large UK cities: Belfast, Birmingham, Bristol, Cardiff, Glasgow, Leeds, Liverpool, Manchester, Newcastle, Nottingham and Sheffield.

Core Cities UK is pleased to have the opportunity to respond to MHCLG inquiry into the financial sustainability of local authorities. Core Cities group includes the cities of Cardiff, Belfast and Glasgow which operate within their own national administrations and where the central issues we raise are devolved matters. However, these cities are also facing many similar issues to those of their English counterparts as a direct result of the pandemic. 

Our Budget submission[1] and a further paper on innovative fiscal instruments (Annex 1) together represent a significant set of achievable policies to resolve the local government finance crisis, and deliver economic recovery and renewal.

As set out below, the current circumstances create a perfect storm for local government finances.  Although immediate support is needed to cover gaps, without a long-term solution, the system cannot sustain itself and more authorities will be pushed toward S114 notices.  Where this has happened, temporary solutions have been forthcoming, but often at the point of extreme crisis, and only for those authorities involved.  A more proactive position could avoid this situation, and in this response we set out ways to achieve this.

 

1           Introduction: supporting cities to deliver recovery, growth and Levelling Up

 

1.1         COVID-19 (C19) has created a public health crisis but also a growing economic, and related local government finance crisis which we must deal with now. Structural changes in city centre economies, accelerated by C19 and further restrictions has hit sectors like retail, hospitality, culture and tourism very hard. 

1.2         These sectoral impacts have also had a drastic effect on local government income, including from Business rates.  It is important to recognise that Local Government is facing a severe funding crisis, due to increased expenditure and reduced income as a result of the pandemic and years of reductions under austerity.  For the eight English Core Cities alone the funding gap currently stands at £1.2 billion, with a shortfall of almost £362million after all government support received up to this point (Round 8 return[2]).

1.3         Although Core Cities economic importance to the UK economy is unaffected by the pandemic, their centres are particularly vulnerable to the impacts of COVID, and will need support to adapt in order to benefit UK recovery.  This in turn relies on strong place leadership with the resources at its disposal to make a difference.  Unless addressed, the funding crisis facing Core City authorities will undermine any attempts to deliver a successful future economic recovery.

1.4         At a moment of great economic instability, a sustainable local government finance system which delivers certainty for cities, other urban and non-urban authorities and their investors is fundamental to success. This is not a single, ‘in year’ funding issue, but will continue to affect cities and other local authorities into and beyond next financial year, pushing more places toward issuing Section 114 notices unless addressed.

1.5         C19 has had asymmetric impacts on places and people and has hit the economies of big cities and city centres particularly hard.  Yet many policy responses have been, and still are, place blind.  The worse health impacts in urban areas are not due to density, but rather to structural inequalities, particularly on large and persistently deprived communities, Black, Asian and Minority Ethnic groups, women, migrants, people in poverty and elderly[3].

1.6         Likewise, the disproportionately negative economic effects on Core Cities are due to the concentrations of business in big cities, yet it is exactly these economic assets that make cities so critical to future recovery and growth of the national economy.  The shockwaves from economic stalling in our urban centres have affected every other place across the UK, including surrounding towns with which we are closely linked. It is therefore critical that the economic infrastructure of big cities is protected as far as possible in order to ensure that the UK has the means at its disposal to return quickly to growth.

1.7         Given the depth of the economic challenges ahead this must now be a priority and we must build on the proven track records of all our cities for localised interventions to support cities as a whole, but also city centres and high streets to adapt and recover.

1.8         The challenges of C19 make the economic role our cities play even more important to the national future.  The 11 Core Cities city regions deliver 26% of UK output, are home to a set of assets, infrastructure, skilled labour and business density built up over centuries that cannot simply be replicated elsewhere. Our cities have weathered pandemics before and will do so again.

1.9         C19 has impacted profoundly on urban life, changing how we live, work and socialise, leaving major health, educational and economic challenges. The UK is a highly urbanised society and economy, built on the benefits of physical, business and population density that boosts productivity. There will be changes in urban areas, but they are here to stay and critical to our economic future.

1.10     The big opportunity for the UK is to address not just the direct challenges of the pandemic, but to build on the Government’s Levelling Up agenda and the changes accelerated by C19, using this moment to chart an ambitious new course for our shared urban future. To succeed, strategies must deal with the underlying issues that were holding back urban economies before C19 hit: low productivity; deprivation; low skills-levels; carbon emissions; poor infrastructure; and climate adaptation.

1.11     Bold plans are needed to revolutionise the UK’s urban connectivity and infrastructure including: digital; mobility; energy; strengthened global links and increased innovation. The result will be a fully modernised, competitive UK economy better able to trade on the global stage; with growing business, quality jobs, improved social mobility, health and educational attainment back at home.

1.12     It is vital therefore that any future Local Government Finance framework including business rates retention recognises and supports this role of cities if the UK is to recover from the economic shock of C19, help other places to Level Up and return quickly to future growth. There are no other places in the UK outside London that can deliver this role.

1.13     In addition, innovative financing mechanisms must now be deployed to support cities in delivering investment to drive recovery and future growth.    Longer term, it seems likely that the way in which local government is funded, and that business is taxed e.g. from increased online retail sales, will need to adapt.  That is a conversation that should be started now, with those places with the largest economic bases who understand current needs, the shifts that are taking place, and can think creatively about a future system.

2           Summary of Core Cities position

2.1         Properly resourced local government is a basic building block of success.  Cities have been hit hardest by C19 not because of population density, but deprivation and inequality in terms of health impacts, and business density, particularly in city centres, in terms of economic impacts.  For example, obesity increases C19 mortality risk by 50%, and people in deprived communities are far more likely to suffer from it.  40% of low productivity in Core Cities can also be attributed to deprivation. Local authorities have a key role to play yet in cities face an unparalleled financial crisis, which unless addressed will undermine population health, recovery and future resilience.

2.2         Core Cities have worked tirelessly as authorities and closely with national governments to address the health, economic and other challenges presented by the C19 crisis that has emphasised the need for well-functioning local government. Our staff are on the front line of direct delivery, and we are using our place leadership and convening powers to support communities and businesses to get through.  The funding issues we raise are not unique to cities, but if Core Cities start to fail, other places will too.

2.3         The absolute priority is for this gap to be closed through additional national resources, but there are other measures which we would welcome alongside this:

2.4         Sustainable local government finance remains a key part of a bigger puzzle of how we build a local recovery from C19.  It is time for government to rethink policy and budgeting along the lines of ‘place’, harnessing local innovation by giving places the freedom to adapt and grow to new challenges. This should include aligning services to get better results and save money in the long-term.

            Increase capacity in local government to deliver and direct public services in a co-ordinated and efficient way

            Pool economic and infrastructure funds and resources locally

            Deliver national funds to support city and city region recovery

            Increase focus on prevention, cutting waste and duplication

2.5         We welcome the Government’s commitment to work with local government on the lasting impact of the C19 pandemic. It is vital that the Government guarantees the financial challenge facing councils as a result of C19 be met in full, including funding for cost pressures and full compensation for lost income and local tax losses.

3           The current financial situation of the Core Cities

3.1         C19 has significantly worsened cities’ already challenging financial position. It is, first and foremost, a terrible human tragedy, but it has also produced a double whammy of rising costs - for example on PPE for social care staff - and plummeting incomes from Business Rates and non-payment of Council tax.

3.2         During the pandemic local government has stepped up and delivered. It has housed homeless people, delivered free school meals to vulnerable children at home, distributed millions of pounds in funding to small businesses and conducted successful local Track and Trace. This has not been without a cost.

3.3         C19 activities and impacts have been cross-cutting across service areas, and it may not be possible to apportion additional spend to service areas. The combination of increased Covid costs and reduced income so far in just the eight English Core Cities is around £1.2bn (Round 8 return). Government is aware of the emergency our sector faces, and cities have welcomed the substantial amounts of money they have committed to help, they need to invest even more and re-think their approach.

3.4         Cities would not have dealt with the impacts of C19 as well as they did without the local integration that has happened. There is a clear need to retain a local, place-based focus on the whole population, and gaining collective clarity on a position may help the group (recognising these are devolved matters in some Core Cities).

3.5         The ability city authorities to respond to the pandemic was already over-stretched, and without resolving their financial crisis, they will not be able to play a full role in future recovery. A sustainable settlement is needed, alongside other freedoms that will help short term. Longer term, Government needs to ‘think different’ and when it comes to finance – look at the model in other countries where cities keep more of their local tax base which spreads risk.

3.6         Since 2010 there has been a fundamental shift in the way councils are funded which have made essential public services particularly vulnerable to the financial effects of C19. Cities therefore had to concentrate funding on our statutory services, for example adult social care, and were forced to take difficult decisions to reduce funding in other areas like youth services, culture and economic development, which although not a legal requirement, are essential to the success of cities and city centres.

3.7         Other key points include:

4           Core Spending Power

4.1         The impact of the pandemic has highlighted that government grants distributed to councils remains complex, obscure and out of date. The Core Cities are calling on the Government to resume the Fair Funding Review, but with a guarantee that the transitional mechanisms will not only ensure that no councils experience a loss of income but also protect councils from reductions so that they can plan with confidence with a future three-year settlement. This also apply to any business rates reset in resetting the council’s baseline.

4.2         Councils have been flexible and have had to adapt many of their services to respond to the impact of the pandemic and it is yet to be seen how permanent some of those shifts are. When the Fair Funding Review is relaunched, the Government needs to review progress made to date to ensure that the local government funding system is fit for purpose, and flexible enough to deal with any such shifts in council service delivery.

4.3         In the recent provisional local government settlement 2021/22, the Government figures indicate that Core Spending Power will rise by an average 4.5 per cent in 2021/22 in cash terms. These Government forecasts are on the assumption that every local authority will raise their council tax by the maximum permitted without a referendum.

4.4         However, this assumes that council tax bills will rise by maximum allowable levels, including 5 per cent precept for social care authorities, next year, and this will place a significant financial burden on households at a time of economic uncertainty. Due to C19, there has been a 9.4% increase in the Local Council Tax Support caseload for the core cities, compared to assumptions at budget setting. Core Cities have agreed alternative or deferral payment plans to support those in hardship as well as funding several areas including topping up the local welfare provision, support new Council Tax Support claimants, making discretionary housing payments and provision of food and fuel vouchers and school uniforms.

4.5         In addition, increasing council tax and social care precepts raise different amounts of money in different parts of the country, unrelated to need and disproportionally hitting those least able to pay, and raises less in more deprived areas.

4.6         It is welcome that the government acknowledged the differential amounts that a social care precept raises across England and has included additional grant funding for adult and children’s social care which will not be ringfenced, providing councils with flexibility on how their allocations are best used locally. However, the £300 million additional grant is not significant in comparison to the cost pressures that these vital services face. It is disappointing that the improved Better Care Fund has been frozen.

4.7         Councils play a key role in ensuring children receive the best possible support while schools are closed as disrupted education can contribute to larger inequalities later in life. Councils also need additional support from the Government to meet the ever-increasing demand for support for children and young people with SEND. However, as the medium- and long-term impacts of the coronavirus pandemic become apparent, more children and their families are likely to need support.

4.8         Councils have increased children’s social care budgets year on year at the expense of other services, but have been unable to keep up with increasing demand. Additional funding is urgently needed to ensure children are safe and well, and to reinvest in the important preventative services not only to prevent children and families reaching crisis point but to ensure that in supporting cities to level up, children and young people can realise their potential and contribute to their communities.

4.9         The adult social care precept provides limited means to raise additional funding, but it is not sustainable. It raises different amounts of money in different parts of the country, is unrelated to need and adds an extra financial burden on households. Nearly 10 per cent of the average council tax bill is now made up of the precept. The ability to raise extra council tax remains a short-term measure and not a long-term sustainable solution.

4.10     The provisional amount of £622 million for the New Homes Bonus (NHB) has been included in Core Spending Power in 2021/22. The Government needs to work closely with councils as part of its review of the NHB in order to ensure it helps us deliver more homes and works for local government. It is important that sufficient clarity about the outcome of the review is provided to councils as soon as possible to allow them to plan their 2022/23 budgets and beyond.  Core Cities have however made an evidence based case that NHB in effect removes funding from them and allocates it to already high-growth housing areas, and instead of actually incentivising housebuilding rewards what would have happened anyway. 

4.11     There continues to be no support for HRA income losses except cashflow support through slippage of returned Right to Buy receipts. The benefit of this is extremely limited. In addition, there has been no response from Government on the consultation regarding extending the period for use of Right to Buy receipts from 3 to 5 years and the percentage retained, which could contribute to addressing these pressures.

4.12     Core Cities look forward to working with the Government to ensure that the 2021/22 and future settlements provide a sustainable long-term funding for local services.

5           COVID-19 impacts

5.1         We have worked as local authorities, and closely with national government, to address the health, economic and other challenges presented by this pandemic, which has emphasised the need for well-functioning local government. Our staff are on the front line of direct delivery, and we are using our place leadership and convening powers to support communities and businesses to get through.

5.2         Funding for the next financial year is a major concern with some cities not setting budgets until after the Spending Round and the Local Government Settlement were announced. Some savings cannot be delivered in year, so will impact on next years budget, and ‘fallow years’ where savings might otherwise be made, cannot now happen.

5.3         Whilst we welcome the additional financial support that has been provided to local government to address significant funding gaps resulting directly from C19, we urge government to go further, and deliver its commitment, working with us to do ‘whatever it takes’.

5.4         The Chancellor’s pledge to compensate for 75 per cent of irrecoverable council tax and business rates income, and to extend the scheme to fund a portion of councils lost income from fees and charges during the early part of the next year provide some much-needed stability but will need to be reviewed and probably extended. Full compensation for C19 related costs, including lost income, is required.

5.5         The announcement that local government will be fully compensated for the freezing of the business rates multiplier in 2021/22 is welcome. However, this decision to not reset the business rates baseline reduces flexibility in the business rates system, and without alternative means of funding to levelling up and relative to needs, council income would reduce in the medium term.

5.6         Local government needs a funding system that raises sufficient resources for vital public services that is fair for residents and gives local leaders the tools to support their communities. It is important that the local tax system, including business rates, provides as much certainty as possible and the Core Cities are considering potential local taxation alternatives with a view to achieving further fiscal devolution.  This is a debate that Government should commit to participating in, securing buy-in across parties to ensure a sustainable future system.

5.7         Councils need clarity on public health grant funding available in 2021/22 as a matter of urgency. The current delay is making it extremely difficult for councils to plan effectively when public health services are vital to the fight against C19.

5.8         Sufficient ongoing funding is needed to ensure all local authorities can continue to meet their public health responsibilities beyond C19 as well. The Government should match the growth in public health grant to growth in overall NHS funding under the Long Term Plan.

5.9         The net effect of C19-related additional spend and income reduction for 2020/21 remains uncertain, particularly in light of continued restrictions. Although the position has improved during recent months due to the allocation of additional emergency funding, estimated pressures still exceeds the emergency funding allocated thus far.

 

January 2021


[1] https://www.corecities.com/cities/agenda/economy/looking-ahead-budget-2021-our-submission

[2] 8th return to MHCLG for the DELTA return titled ‘COVID-19 local authority financial management information’ 11 December 2020 and therefore predates the Government’s announcement of the last national lockdown

[3] OECD Policy Responses to Coronavirus (COVID-19); Cities policy responses; July 2020