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Give local authorities autonomy to repair 'broken' model of local government funding...

...say senior finance officers

At a recent roundtable discussion hosted by Grant Thornton UK LLP, senior finance officers from 36 English local authorities agreed that the current funding system is inconsistent, unstable and uncertain.  The consensus was that a new funding model is required that provides local government with more autonomy, places its financial stability in its own hands and addresses the dual needs of resource equalisation and incentivising growth.

The senior finance officers at the 'Creating a sustainable financial future' roundtable voiced their concerns about increasing funding gaps in local government and how they could bridge them.  Delegates were clear that even 'successful' authorities who had council tax, business rates and New Homes Bonus growth were struggling to meet the financial challenges.

Health and social care were felt to be the most significant funding challenges for the English public sector, but delegates considered that local government was best equipped to meet this challenges if funded effectively.  Wider, combined authorities incorporating local government and health responsibilities were seen as an effective long term solution to meeting these service and financial challenges.

Mark Stocks, Director at Grant Thornton UK LLP, said: 

"The outcomes of this debate make it is clear that rapid change is necessary.  Though delegates recognised that economic growth is an effective mechanism for driving financial sustainability, they believe that it cannot be relied upon in isolation to create financial sustainability for individual councils."

In the long term, it was agreed that more devolution of finance was needed to make this happen.  Devolution of tax raising powers for local government, control of council tax rates and banding, and retention of all business rates by combined authorities were considered as the most effective mechanism for creating a sustainable financial future for local government. 

Delegates believe that growth deals and grants should be allocated on a 'place' (functional economic areas) rather than on local authorities geographical boundaries. This would help authorities  to work together with developers to develop projects that generate growth across sub-regional areas.

Mark Stocks added:

"There is a growing call for devolution of finance in English local government. Pilot schemes have been agreed in Manchester and Cambridge. Other incentive mechanisms such as business rate pooling and Enterprise Zones are also available. Beyond this the pace of devolution and of delivery model developments such as combined authorities and shared services has varied. In reality, some areas have not changed while others have evolved significantly."

A more balanced relationship is needed between central and local government in England. To achieve this, the government needs to make a number of changes in both the devolution of power and finance to local government."

Taking on board these helpful insights and our wider research, Grant Thornton recommends that within:

  • one year the Government should assess the impact of Revenue Support Grant reductions on councils ability to deliver safe services (and put in the necessary safeguards to protect the vulnerable) and should provide clarity on the long term retention of business rates growth by local government;
  • three years pilots of different models of local government autonomy should be tested;
  • five years local government should be autonomous with business and council tax raising powers.