My response to the Government’s consultation A review of local authorities’ relative needs and resources, as submitted today.
Some minor amendments were made since a draft was uploaded here yesterday, in relation to the measure of council tax collection rate.
The consultation marks a key stage in the first full review of the local government needs formulae for around seven years. This review stands out from previous ones for its impressive level of collaboration between central and local government. This consultation appears to have resulted from a genuine partnership between the two sectors on the Fair Funding Review (‘the Review’) and the wider review of business rates retention. It is to be hoped that in future reviews of needs formulae, local government will again be engaged as an equal in policy development, or ideally take the leading role in it.
Key points raised in the response include:
Transitional arrangements and use of tax base projections have a huge impact on incentives (financial rewards) for building homes and business premises. The nature of this impact depends on a) where in the calculation the transitional mechanisms are applied, b) what mechanisms are used and c) how the projections are calculated.
Use of ‘lagged’ values for council tax deduction could provide an ‘incentive’ very similar to New Homes Bonus and allow NHB funding to be better focused.
The MHCLG focus on simplification could be at the expense of accuracy and fairness. In particular, the proposed Foundation Formula covers very diverse services with very different drivers. There is a risk that this could leave some services in some areas significantly under-funded. The response proposes an approach to ensure this is avoided.
It would be helpful for the Government to provide further detail in several areas, including the analysis it has done to date on highway maintenance expenditure. Reliance on two variables has risks for accuracy and robustness.
The formula for concessionary transport for the elderly and disabled is already very simple, as it is based only on modelled boardings data. Actual boardings data is now available for almost all relevant authorities.
It is worth considering whether regressions against service spend as proportion of total council spend could avoid perpetuating systematic biases. The response proposes looking into whether this is a statistically robust technique.
In next week’s Budget, the Chancellor is expected to set out the details of the removal of the HRA borrowing cap. He will be looking ahead to next year’s Spending Review, in which he will want to pull out all the stops to boost growth across the whole country, in case of short-term (or even long-term) economic shocks caused by Brexit. He will also want to demonstrate that the UK is emerging from a decade of austerity. He will want to show that the Government is serious about tackling the housing crisis by making the lifting of the HRA cap permanent. And he will want to achieve all this without letting the deficit grow again.
The Spending Review should allow investment which will bring benefits in the long term. It should put citizens and communities at the centre and build a country that works for everyone, ready for life after Brexit. The proposals in this report will help the Chancellor to achieve just that.
This report looks in depth at the way the Government treats local authority financing as its own in Budgets and Spending Reviews. It shows the problems this has caused for councils across the country wishing to invest in housing and infrastructure and grow local economies. It looks at other countries’ measures of deficit and debt, such as Denmark, Sweden and Canada, but also the wider context for these, such as the presentation of fiscal documents and the country’s local government finance system.
It recommends that:
Spending Review and Budget documents should be reformed to reflect the financial autonomy of local government:
These documents should focus primarily on the finances of central government and bodies which are answerable to it (such as the NHS and Non-Departmental Public Bodies);
Corresponding statistics should be presented for expenditure, income, in-year balance and debt – excluding local government;
Financial and fiscal data estimates or projections relating to local government should only be included in these documents in a separate section providing a reconciliation for the whole public sector. These should be agreed through consultation with representatives of local government;
The Government should immediately set up a panel of experts, as described in this report, to consult on the details of these changes. As part of their deliberations, they should consider the presentation of public finances in other countries. The details should be agreed in time to implement these changes in Spending Review 2019;
In future, the Government should not impose any constraints on borrowing or investment on local government other than those contained within the prudential system. Neither should the Government reduce revenue funding for local government as a “cost” of greater borrowing or investment by local authorities.
Revised on 28/10/2018 to include text on Housing Infrastructure Fund, further detail and clarification on TIF, and reformatted references
Fair funding review modelling tools
This year, TRL Insight was commissioned by the Local Government Association to deliver two spreadsheet tools. These will help member authorities to evaluate the impact of future proposals arising from the fair funding review, or to enable them to consider proposals of their own. The LGA will also use these tools to help inform policy discussions.
The relative needs assessment model allows the user to build their own bespoke relative needs assessment, with a custom choice of formulae, indicators and their weightings. The model contains over 100 built-in cost drivers that the user can choose from. Users can also input up to 14 custom cost drivers, provided they have the data for each individual local authority to which they would apply.
The relative council tax deduction model calculates the council tax deduction which is part of the relative resource assessment. The deduction is subtracted from the assessed relative needs to calculate funding baselines for individual local authorities. The tool allows the user to build their own bespoke relative resources assessment, by specifying the total amount of the deduction at a national level, choosing any adjustments to the council tax base, and choosing to use either actual Band D rates or one of three sets of notional Band D rates (or a mix of these).
The outputs from the two tools are presented in a common format. They show what levels of funding would result from the users’ choices, for individual local authorities, regions, classes of local authorities and combined authority areas.
If you have any thoughts on these tools, please get in touch – feedback is always welcome.
The post immediately following this one is the first for a long time, so this one explains what I’ve been up to over recent months.
With the publication of the Essential Guide to Business Rates (see below), my four years as LGiU’s Briefings Associate for Local Government Finance came to an end. I also stopped running bi-annual training sessions for LGiU and APSE.
This freed up time for a new part-time post I started at the end of 2017, as a Senior Researcher for the Education Policy Institute. (This was as an employee, rather than an associate.) I held this post for six months, during which time I co-authored a report on school funding which was widely reported across both mainstream and specialist media.
I recently left this post and am now concentrating on work undertaken under the TRL Insight banner. (I’m pleased to have left the school funding work at EPI in the capable hands of my co-author, the Director for School System and Performance and Deputy Head of Research.)
I’m now intending to focus more on direct contracts and larger projects.
Digest of LGiU briefings and guide, May 2017 – January 2018
In May and June 2017, LGiU published two of my briefings, as follows. They are free to LGiU members. (Check here to see if your authority/organisation is a member.)
This guide looks at business rates both as a tax and as a source of funding for local authorities. It is divided into two parts: Part I describes the system as it is currently constituted across England as a whole; Part II looks at the programme of reviews, policies and pilots that the government has been undertaking since December 2013.
This detailed and authoritative guide will be an essential reference for anyone trying to get to grips or deepen their understanding of this complex area.
Digest of LGiU briefings from January 2017
These are the briefings I’ve written for LGiU that have been published since 1 January 2017. They are free to LGiU members. (Check here to see if your authority/organisation is a member.)