Written evidence submitted by the District Councils Network [FSS 013]

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.

Introductory remarks:

Shire district councils represent the best of local government – they are pivotal to the areas they support their local knowledge and community engagement is second to none. They are innovative and collaborative, they are strategic leaders and trusted deliverers, they are rooted in community and connected into every business, they drive growth and support some of the most vulnerable, they are pragmatic focusing on outcomes, and they are deeply embedded in the fabric of the communities, towns and cities serving 20 million people across the country.

Across the country, district councils have stepped up to the challenges posed by the Covid-19 pandemic – providing leadership in the community, keeping all essential services such as refuse collection and planning going throughout, taking on new responsibilities, and supporting the national effort to protect the shielded and vulnerable.  Using their local knowledge and data to respond effectively, districts have tapped into local networks to provide for vulnerable residents and support rough sleepers. They have delivered food parcels for shielded individuals and set up buddy systems where food parcels are delivered to those who fall through the provisions set by the Government. 

Districts have pivoted their whole council effort towards reopening and recovery, while continuing efforts to beat the virus. Engaging with a wide range of partners and businesses locally to understand their needs and opportunities, using their environmental health functions to ensure Covid-19 safe premises and public spaces, and bringing forward adaptations and longer-term investment strategies for regenerating high streets and increasing footfall to their town centres. And as the authorities responsible for families facing particularly difficult times in their income and finances - a critical element of the local safety net and health landscape - districts are working hard to support and spread opportunity to everyone in their villages, towns and cities. As the billing, planning, and licensing authorities, districts know their local economies and communities like no one else. As a result, districts can respond at pace. This has been evidenced through the delivery of the plethora of grant schemes to support businesses, keeping businesses going during this crisis.

As we move into the mass vaccination programme, many of our districts are now providing staff to support our NHS teams in the vaccination centres and, as ever, we stand ready to support the vaccination and testing programmes in a way that continues to demonstrate the flexibility and commitment to the community of our staff.

Our newly published ‘Transformation in Localities Toolkit’ from Grant Thornton further demonstrates the role of District Councils as practical collaborators, delivery agents and system leaders, and illustrates what this has meant in practice as they respond to the most significant challenges facing our country today. The report also shows that where big government and centralised control have struggled under exceptionally challenging circumstances, shire district councils have continued to be the first line of local accountability, support and protection for the communities and businesses they serve. The many examples in this report highlight how shire district councils continue to work across organisational and geographical boundaries making innovative use of their key statutory, regulatory, licensing and benefits levers to protect and support local communities.

In summary

 

The impact of covid-19

 

The Covid-19 pandemic has intensified and accelerated the financial pressures faced by district councils following a decade of austerity. The pandemic has created a perfect storm– with districts facing additional cost pressures, the collapse of income streams, and the impact of the wider economic challenges in their area.

 

The impact of the January 2021 lockdown will put even more pressure on already stretched budgets.

The financial consequences of responding to the COVID-19 crisis have been especially acute for district councils. Between March and October:

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. This figure will inevitably rise when the job retention scheme (furlough) ends at the end of April 2021.

Financial support provided by the Government to date

We recognise that the overall package of financial support provided by the Government for districts so far has been substantial, but there’s a long road ahead, and districts are particularly severely impacted. Confirmation that the government will underwrite 75% of irrecoverable business rate and council tax losses for 2020/21 is good news, but we are concerned the scheme’s definition of ‘irrecoverable losses’ may not cover councils’ losses to the extent needed. For example, on council tax, the irrecoverable losses covered actually only relate to expected council tax liability at budget that did not materialise over the year (e.g. as a result of increased council tax reduction scheme costs  or unachieved council tax base growth).

We are pleased that the income guarantee will be extended into the first quarter of 2021/22, and that the government proposes to calculate support based on 2020/21 budgets, which is the right approach. The lack of certainty and clarity around Covid grant funding has been a key frustration, so the upfront confirmation of additional Covid funding for part of 2021/22 is a positive step that will help districts to plan, although the uncertainties around their funding for 2021/22 remain challenging.

Shire districts are also facing additional cost pressures. These include:

The financial settlement for shire district councils in 2021-22

While the spending review delivered some relief for the year ahead, it failed to address the fundamental longer-term issues of financial sustainability. There remains no plan for a sustainable funding framework for adult social care. Indeed, the review hints at further cuts to spending in the years ahead. The ability to delay the 3% social care precept into 2022-23 further indicates no government intention to deliver a sustainable funding framework for adult social care before then. Short-term financial support is fundamental to survival. But if services are to thrive, investment in the long-term is also essential. It’s vital that government considers local authority funding in the round and holistically, so that changes to business rates, NHB, RSG and social care funding do not diminish, but indeed increase, the overall quantum of funding.

 

Council tax: The Spending Review and Settlement signify ongoing and increasing reliance on council tax for overall core funding – the IFS calculate that council tax will account for 61% of core funding in 2021-22, compared to 40% in 2009-10. We know that ability to generate revenue from council tax favours more affluent areas and means that funding does not follow need. Government plans for 2021-22 to direct grant funding to areas facing higher deprivation is welcome, but real, new investment is needed if the government is to level up across the country – with IFS analysis pointing to a 3% fall in core funding per capita over the past six years. [3]

In addition to our call for new investment, we consider that as locally elected, and locally accountable bodies, government should refrain from setting a limit on council tax increases and leave this to be determined by locally elected and accountable districts.

However, if government continues with its proposed approach, we will want to see greater flexibility than government has proposed. Shire districts may raise their council tax by up to 2%. We recognise that this will add to the burden on taxpayers, during what is a very difficult time for many households. However, our members tell us many will see their council tax base eroded – by increasing numbers of defaulting households and increases in the numbers receiving local council tax support. The commitment to underwrite 75% of council tax losses goes some way to address this, but leaves councils footing the bill for the rest. The position is that a 2% increase would, in fact, generate less revenue than it would have done in the current financial year.

 

While we welcome the government’s proposed additional flexibility of “or £5, whichever is the greater”, the value of this for many districts will be eroded compared to the current financial year where their tax base has fallen, through no fault of their own.

 

Shire districts also face a detrimental position in relation to the 2% cap on council tax compared to unitary authorities and county councils. Both can generate an additional 3% for social care, and yet districts also play a key role in looking after people, through their welfare and benefits, housing, and leisure roles. PCCs can increase their precept by up to £15. Town and parish councils have no limits set. We also know that the cap leaves historically lower-precepting districts facing a gap to their peers they are unable to close, and for this reason, government could consider giving lower precepting authorities the flexibility to increase their council tax to the county or national average over a period of time.

The services underpinning the social fabric in our places should have further flexibilities to raise the funding to support the leisure, cultural and sporting amenities that will deliver a healthy recovery in our towns and cities. This helps to relive pressure on social services and the NHS. The country’s economic recovery also depends on the investment that districts make in economic development and regeneration, planning and housing growth. To support this effort, the Government must spread the opportunity for districts to raise a small additional precept should they wish to, benefiting from flexibilities similar to county and unitary councils. This should include shire district flexibility to raise their precept by up to £10, should they choose to do so. A £10 a year increase is less than 20p a week per household at Band D. This flexibility would allow districts to take the decision that is right for their communities locally, using their local knowledge and discretion to invest in health, wellbeing, and other local services that improve public health and reduce demands on social care and primary care service, helping to rebuild our social fabric, our resilience, and our recovery.

If the Government accepts our advice, the flexibility of £10 would allow the average district to increase its council tax by under 5.3% a year, providing broadly comparable flexibility to what is possible for shire county councils and unitary authorities. However, the amount of extra resource that might be raised, whilst welcome to district councils in supporting the range of important services we have outlined above, would be very modest compared to other types of authorities. It would be only two-thirds of the sum that might be raised by police and crime commissioners, for example, and only just over one-seventh of the sum that might be raised by shire county councils (and an even smaller proportion of the sum that might be raised by unitary authorities). Moreover even if all districts took advantage of the maximum flexibility of a £10 increase, based on the current shire district council tax base, it would generate £75m in total, which would represent an increase of only 0.23% on total English council tax requirement in 2020-21, and 0.63% of the total Council Tax Requirement for shire counties, (including adult social care but excluding local precepts).

New Homes Bonus: This is a significant income stream for districts, worth over £280m to districts in 2020/21 and an important incentive to deliver much needed housing growth.  The impact of reduced construction activity because of Covid means that payments due to shire districts in 2021 will likely be lower than expected.

 

In recognition of the impact on shire districts’ ability to deliver planned levels of housing growth, the DCN has called for Government to temporarily remove the threshold before which payments are made in respect of housing growth in 2019/20. The threshold of 0.4% reflects historic average growth, pre-pandemic, and will not reflect the actual growth in 2019/20. As an alternative, the threshold needs to be reduced from 0.4% to the average housing growth achieved in England for the 12-month period relating to the 2021 award of NHB. We are also calling for there to be a continuation of a housing incentive of some form and ask that there is a timely consultation on future proposals for the scheme.

 

We want councils to be given greater powers to help boost housing delivery such as through an effective and efficient compulsory purchase process to drive forward stalled sites, and the powers to impose financial penalties on developers where development hasn’t progressed. This could include charging developers the equivalent of council tax on dwellings if they have not been completed within certain timescales.

 

Business rates: District councils play the most important role in generating economic growth in local areas, and the growth over recent years in business rates income demonstrates district councils’ ability to do this. With the reduction in Revenue Support Grant, and restrictions on council tax increases, business rates are currently one of the most important sources of revenue for districts. Councils have been insulated from the wider economic crisis to a degree through the furlough and business support arrangements that the government put in place – with these ending, the increase in unemployment and in businesses ceasing to trade will present additional challenges.

 

The current business rate review needs to consider the impact of any changes on their immediate, and longer-term funding needs. Government should consider carefully and properly how to respond to the new ways of working while ensuring that business contributes to the local services that enable it to flourish. If government pursues a reset, transitional measures should be put in place to support councils negatively affected – ensuring that those who have worked tirelessly to grow their local economies are not penalised. There also remains uncertainty over a business rates reset and what this means for renewable energy receipts – districts need confidence and stability to invest for the long-term, and clarity is needed – if the receipts are to continue, districts can take a longer-term view of these receipts and the best way to use them

 

Any changes in legislation or policy, including replacement of business rates with other taxes, should not diminish funding for local government, and this includes continuing to ensure that local government has access to growth in business taxes as it does under the current arrangements for business rates; and that there should be arrangements for sharing the growth in shire county areas (“the tier split”) based on the approach that the DCN proposed to MHCLG in 2019. Indeed, the business taxes that fund local government should be set by councils. This includes any exemptions, discounts, or supplements. Councils set council tax and decide the level of council tax reduction support for working age households. There is no reason why they should not decide such issues for business taxes that fund local government.

 

Government should also close the current business rates tax loophole which allows second homeowners to avoid paying any council tax or business rates on their properties. Currently, owners of second homes can apply to the Valuation Office to register their domestic properties for business rates if their property is available to let for a minimum of 140 days per year. If registered for business rates, a large proportion of these properties qualify for small business rates relief and are eligible for 100% relief and this in turn means they have no business rates to pay.  Whilst we appreciate that the Government consulted on tightening the rules in November 2018, no action has been taken on this. We also feel that the Government consultation could go further: domestic properties should be treated as liable for council tax and pay council tax, irrespective of whether they are let for part of the year or not, unless it can be shown that the property is genuinely operating as a business.

Long-term stability and local flexibility

 

Investment and certainty: Looking forwards, 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 their aspirations for their residents and businesses. Districts are ambitious – they want to invest in their communities, building back resilience, and repairing the social fabric of our health, leisure and cultural lives as the pandemic recedes. And yet, with looming black holes in their budgets, many will be faced with little option but to reduce services, losing those very members of staff who have been so critical to the national response to Covid-19. This has been made clear by the Institute for Fiscal Studies, who point to looming increases in demand, the increasing reliance on council tax for core spending power, increases in labour costs and the absence of a fair and equitable funding framework as significant challenges and uncertainties facing local government. [4]

Freedoms and flexibilities: Looking ahead to the next Spending Review, Government can and should go further to devolve powers and flexibilities locally. Districts should be free to attract and use income in ways that are locally responsive and accountable. The Government should remove council tax referenda and allow districts to set all discounts and increases for council tax and business rates, to raise other levies, and to set local planning and licensing fees. The current centralised system has been shown to be broken - for instance, when councils have not been able to reduce licence fees to reflect that pubs have been shut for a considerable proportion of the year. Positive steps would enable shire districts to:

 

 

Research undertaken for the DCN by Professor Colin Copus confirms that, in 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 both are heavily restricted or controlled by the centre. Greater fiscal autonomy will strengthen local government when faced with crisis, such as the Coronavirus outbreak, as 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. For example, government could give councils discretion to introduce a tourism tax should they choose to do so - to be set and retained locally by districts, in line with most other countries. Many coastal and tourist areas saw an unprecedented influx of holidaymakers in summer 2020, bringing with it additional costs due to increased litter, flytipping and waste collection. With domestic holidays likely to remain highly desirable over the next couple of years at least, this would help to offset these additional costs. Increased autonomy 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.

 

Reduce the plethora of short-term and one-off grant funding: The National Audit Office’s 2018 report into the financial sustainability of local authorities highlighted the plethora of one-off and short-term funding initiatives. To the extent that many of the revenue grants are decided by formula, these could be rolled into the Revenue Support Grant, accompanied by a transparent process about the amounts provided to each council through this route and on the basis that councils would not receive less funding as a result. To aid councils’ financial planning, councils need to be notified of the total amounts well before the start of the financial year.

 

Further, bureaucratic bidding processes reward those authorities with the capabilities for writing bids: they do not follow need. Recent statements to the Public Accounts Committee for an intention to combine funding pots such as the Future High Streets Fund, Towns Fund, Growth Fund for the Levelling Up Fund sound positive, and yet these schemes should not be designed in Whitehall.

On commercial investment: Councils were encouraged to be innovative and self-sufficient, and subsequently developed new income streams to replace lost funding. Revenue generated by commercial investment is used to maintain vital core services and protect jobs, without increasing the burden on the taxpayer.

We appreciate that government has concerns over a small number of authorities it considers to be borrowing at disproportionate levels. But outliers such as these should not dictate policy for the majority. The recent changes to lending terms to the PWLB are disproportionate to the issue they are seeking to address. Indeed, the ‘Post Implementation Review of Changes to the Local Authority Capital Finance Framework published in April 2020 found that ‘based on local authority surveys and discussions, the majority appear to be using the framework sensibly and effectively to support the delivery of policy objectives in their local area[5]’ and recognises that ‘local authorities will often make yield bearing investments with the intention of pursuing one of their strategic objectives as a place-maker, for example contributing to housing supply in their area, town centre regeneration, or to create or safeguard jobs locally’[6]. We would also make the point that borrowing through the PWLB is not free – the interest generates a return to central government.

Having invested in commercial properties, councils are much more likely to support local business tenants to ensure they are successful than an institutional investor looking for a return. They are also more likely to continue to commit to vital discretionary services which are important to the local area.  Councils have a vested interest in the local area leading to enhanced social responsibility when managing, maintaining and developing the property. Many institutional landlords will not adopt that approach.  Councils also act in the best interests of the local area in times of crisis for example many council have provide rent free periods to commercial property tenants during the national lockdowns secure the future of the local High Streets; this course of action would be unlikely with many private landlords. Commercial investment in our towns is not just a financial investment but a wider investment in the economic wellbeing of the area and benefits residents and businesses and can be used to reinvigorate the community particularly important as we recover from Covid 19.

 

January 2021

 

 


[1] Pixel Financial Management, webinar, 22.1.2021

[2] Public Accounts Committee, Financial sustainability of local authorities, HC-970 2017-19, 2018, p7

[3] IFS Briefing Note BN314, Assessing England’s 2021-22 Local Government Finance Settlement p6

[4] IFS Briefing Note BN314, Assessing England’s 2021-22 Local Government Finance Settlement

[5] Paragraph 10. Post Implementation Review of Changes to the Local Authority Capital Finance Framework, April 2020

[6] Paragraph 17. Post Implementation Review of Changes to the Local Authority Capital Finance Framework, April 2020