What services should local authorities provide and at what cost? Jessica Sellick investigates.

With local authorities gaining more ‘control’ over spending at a time of ‘cuts’ and ever increasing spending ‘pressures’; what services should they be providing and at what cost? Jessica Sellick investigates.

Back in March 2011, the government set up a review of local government resources to consider how to give local authorities more control over their money. The Local Government Finance Act - which gained Royal Assent on 31 October 2012 – now provides the legal basis for the provision of government grants to local authorities as well as business rates retention and localising Council Tax support. At the same time, a document released by communities secretary Eric Pickles outlined ’50 practical ways to make sensible savings’.

Mr Pickles suggestions included: sharing back office services (number 1), clawing back money from benefit cheats (number 8), hot desking/estate rationalisation (number 17); closing subsidised council canteens (number 19); opening coffee shops in libraries (number 21); scrapping the chief executive post (number 24), and no longer providing free food and drink at council meetings (number 39).

More than two years on, the Institute for Fiscal Studies (IFS) has warned that tax rises of £9 billion (equivalent to 2p on basic rate income tax) may need to be imposed after the 2015 election to fund the gap in public services. This funding gap, estimated at £2.1 billion per year (equating to £12.4 billion by the end of the decade), comes at a time when local authority spending is expected to fall by 50% between 2011-2012 and 2017-2018.

The local government finance system is frequently described as complex, centralised and confusing. In essence, local authorities have three main sources of funding: grants from central government, council Ttx and other locally generated fees and charges for services.

Local authorities then prioritise spending in three main areas: capital projects such as roads or school buildings, council housing and running services. Figures showing the amount of funding local authorities receive and how they spend can vary.

On the one hand, ‘Net Current Expenditure’ - used by the Department for Communities and Local Government (CLG) – covers all local government services including police. Here the DCLG Guide to the ‘local government finance settlement in England’ sets out the rationale for central government providing funding to local authorities with a series of live tables providing the latest or most popular data.

On the other hand, ‘Controllable Expenditure’ used by the Local Government Association (LGA) in their funding outlook work excludes service specific grants for schools, police and housing benefits as these come from ring-fenced grants.

This sets Net Controllable Expenditure for 2013/2014 at £51 billion. These definitions and calculations raise four questions: What are the distinct roles of central government and local authorities? How does the funding received by local authorities compare to their expenditure? What are the emerging issues? And where next?

Firstly, what are the roles of central government and local authorities amid shrinking funding and increasing demand for services? central government is concerned with ensuring public spending and taxation is appropriate to meeting the nation’s economic goals, affordable and sustainable. There is an understanding that the allocation of resources to national priorities and between parts of the country will be led by central government.

Local authority expenditure is therefore specified, regulated or influenced by ministerial departments and government agencies: some of this expenditure has to be provided to a specified level (e.g. with minimum levels of social care achieved) whereas in other instances a local authority can make arrangements for a service to be provided to an unspecified level (e.g. providing “a comprehensive library service”).

Local authorities also provide services at their local discretion and/or can compete and become ‘agents’ in implementing national schemes and funding streams (e.g. Rural Growth Network Pilot programme). Amid these roles sits the European Charter of Local Self Government. This states: local authorities shall be entitled, within national economic policy, to adequate financial resources of their own, of which they may dispose freely within the framework of their powers.

At least part of the financial resources of local authorities shall derive from local taxes and charges of which, within the limits of statute, they have the power to determine the rate. The financial systems on which resources available to local authorities are based shall be of a sufficiently diversified and buoyant nature to enable them to keep pace as far as practically possible with the real evolution of the cost of carrying out their tasks.

In practice this means leads local authorities have to traverse the formula grant they receive from central government, other grants provided from central government to support local services (e.g. money from Defra or the Department for Education); with Business Rates (NB: since April 2013 local authorities have been able to keep 50% of locally collected rates with the other half transferred to central government); council tax; New Homes Bonus; and invest-to-save or invest-to-earn projects.

Local authorities are able to charge for some statutory services such as social care for those who do not fully meet criteria for free care; land searches; and planning applications. Local authorities can also charge fees and charges for services that are not statutory and discretionary (e.g. leisure centres).

Further, legislation allows local authorities to run an incidental (unplanned) surplus parking account, provided that the extra funds are ring-fenced for improvement of parking services or transport infrastructure – notwithstanding how parking charges, enforcement and surplus parking accounts are a constant source of controversy and attract media attention.

Finally, local authorities have ‘reserves’. Sometimes these are earmarked for future spending (e.g. capital project) and/or to cover unpredicted events to mitigate any underlying risks associated with the operation of the council. Judgements about how to juggle this maze of income streams are made at national and local levels.

Secondly, how does income compare to expenditure (especially in rural places)? According to the Local Government Association (LGA), councils in England face a funding gap of £5.8 billion between March 2014 and the end of 2015/16. Their analysis indicates how local authorities need to make huge savings before April 2015, equivalent to 12.5% of their total budgets.

Figures compiled by the LGA highlight reductions in expenditure: highways maintenance expenditure of £279 million in 2010-2011 was reduced to £239 million in 2012-2013; planning and economic development reduced from £904 million to £377 million; and sheltered housing declined from £1,281 million to £875 million over the same period. Similarly, the LGA has since April 2013 provided ‘AnyCouncil’ analysis – which details how a typical council has coped with funding cuts and funding reforms since 2010.

The analysis takes into account the services that are most used and valued by three typical households a broad spectrum of people and family groups (i.e., family with 2 children, elderly person living in sheltered accommodation and a single parent household). The report makes a series of recommendations including: cooperation between central and local government to deliver savings to help AnyCouncil deliver critical services to AnyHouseholds; giving local authorities full control over local tax and council tax discounts and the role of new bodies such as Health and Wellbeing Boards in allowing everyone access to care which meets their needs.

The pressure underpinning these figures and scenarios is expected to become even greater with Local Authorities taking on more responsibilities such as public health and council tax support.

Across rural England, RSN analysis shows that that the way in which the Local Government Finance Settlement has been calculated has often resulted in the countryside being significantly underfunded when compared to their urban counterparts: with council tax £79 higher per head in rural areas than in urban areas and central government’s Formula Grant to Local Authorities £178 lower per head in rural areas than urban areas.

This means rural communities are paying more but actually receiving less service provision for their return their local areas. And this doesn’t take account of the ‘premium’ in delivering services in rural areas or the distance rural residents are already travelling to access some services.

RSN research and campaigning has had some success in setting out how rural areas have different needs; with the Local Government Finance Settlement 2014-2015 providing £9.5 million to the most rural councils to help them transform services and promote efficiencies; and a further £2 million being provided to the most rural councils through another grant. This is allocated according to a ‘sparsity indicator’, which gives funding to the top quartile of authorities on the basis of the sparsity using Census data.

Thirdly, this all raises a series of questions and issues emerge from these roles and funding streams:

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  Should the allocation of central government funding be needs best (cost, demand led) and/or should Local Authorities be incentivised to grow their own budgets?

  
  


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  Should ring-fencing be reduced or abolished so local authorities can flexibly spend in the interests of local people?

  
  


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  Should we give local authorities more tax raising powers?

  
  

The RSN LGA Rural Conference in September 2014 provided an opportunity to hear first-hand how a rural local authority (East Lindsey District Council) and an urban local authority (Worcester City Council) have been tackling some of the funding issues outlined above. Interestingly, both authorities have savings/income programmes aimed at doing the same or more with less and have undertaken similar approaches (e.g. setting up shared services, asset management, transformation).

This has led the authorities to make savings (£7.3 million in the case of Worcester expected by 2015) and reduce staffing levels (from 800+ in 2008-2009 to just over 400 in 2012-2014 in the case of East Lindsey). The conference discussion that followed led delegates to consider if/could local authorities opt out of the formula grant they receive from central government?

At a time of increased flexibility for local authorities, what monitoring is in place to scrutinise council decision making and those taken by cross-border and multi-agency bodies (e.g. Local Enterprise Partnerships, Health and Wellbeing Boards)?

In the House of Commons Public Accounts Select Committee report on local government funding published in September 2014, commitee chair Margaret Hodge MP said: "The Government believes that the best way to ensure that councils spend our money wisely is to rely on local residents and councillors to provide scrutiny. However, there is no convincing evidence that ‘armchair auditor’ members of the public are being empowered to hold local authorities to account for how they spend the £36.1 billion in funding they receive every year.

"Councillors do not always have the skills or time to fulfil this role…local authorities are required to publish data such as expenditure over £500, senior salaries and land holdings and building assets, this data is presented in a way which does not make for easy and effective scrutiny by the public. We are also concerned that the public might be less engaged with decisions on services that cost a lot, but do not affect them personally, such as vitally important adult care and children’s services.

"There is a particular gap in assurance for £2.8 billion of ‘targeted’ grants, where departments expect local authorities to spend funding on a specific activity, but do not then monitor whether they do."

The report calls for clearer rules around transparency and accountability of money.

Finally, where next? All of the above opens up a dialogue around what we mean by ‘services’ and what should or shouldn’t be ‘funded’ at a local level: what services do local authorities and rural residents deem ‘critical’, ‘targeted’, ‘regulatory’ or ‘frontline’ and how should they be funded?

For services like policing, schools and health, should these all be free at the point of use? Should we also be concerned with ‘access to services’ such as shops, pubs, bus services, post offices and village halls and/or what level of service should rural dwellers expect and in comparison to their urban counterparts?

With the Chancellor due to make his Autumn Statement on 3 December 2014; a DCLG and Defra research project on additional and unavoidable costs in delivering rural services due to conclude; and the Independent Commission on Local Government Finance due to publish its report in early 2015; reforms to support local services are expected in the months ahead. Watch this space.

Jessica is a researcher/project manager at Rose Regeneration; an economic development business working with communities, Government and business to help them achieve their full potential. She is currently undertaking a European project on ‘social value’ as well as carrying out research for the Lottery on community businesses. Jessica’s public services work includes research for Defra on alternative service delivery and local level rural proofing. She can be contacted by email jessica.sellick@roseregeneration.co.uk or telephone 01522 521211. Website: http://www.roseregeneration.co.uk/ Twitter: @RoseRegen More information about the RSN’s work on local finance is available here.

Following the success of the 2014 Finance Seminars, Jessica is working with the RSN to organise an event in early 2015 to explore the implications of central government’s economic update on rural services. Jessica would like to acknowledge and extend her thanks to Duncan Sharkey (managing director, Worcester City Council) and Stuart Davy (chief executive, East Lindsey District Council) for sharing a copy of the material they presented at the RSN/LGA Rural Conference 2014.