In the world of local government, it’s easy for reforms to make matters worse – Institute for Fiscal Studies


England may be one of the most fiscally centralized countries in the developed world, but local government still matters. The British councils have budgets of over £ 50 billion. Not that you know it. Our political leaders seem to forget it too easily.

I reread the Prime Minister’s statement on social service funding reforms. He didn’t even mention the local councils. Yet it is they, and not the central government, who are responsible for providing, funding and administering most social care.

Local authorities have also been on the front line both in responding to the Covid and in the face of its sometimes extreme financial consequences. Both Croydon and Slough have issued so-called Section 114 notices, indicating an inability to balance their budgets and the need to suspend all non-essential services. A number of other councils with specific exhibitions – Luton because it owns the airport, Eastbourne because of its reliance on tourism and conferences, for example – have gained extraordinary additional support and borrowing powers. Across the industry, the central government provided an additional £ 10bn last year, and more this year.

The future challenges may be less adapting to Covid than coming to terms with the past decade, a decade in which per capita counseling spending on services has been cut by a quarter. It bears repeating. Local authority expenditure per capita has fallen by 25% since 2010. Drastic cuts have been made in planning, economic development and leisure services. Contrary to the prime minister’s ambitions to “level” the councils in the poorest areas, the metropolitan boroughs and the north have suffered much larger funding cuts than the leafy parts of the original counties.

The medium-term challenges do indeed seem difficult. First and foremost, the demand for social services for adults and children is increasing by 2 percent per year or more. Rising labor costs, due in part to increases in the minimum wage, and population growth and aging will put additional pressure on services. The housing tax will have to increase, and increase substantially, just to prevent services from deteriorating.

It is not just a question of the quantum of money however. There are deeper structural issues. The housing tax itself is outdated, regressive and in need of urgent reform. The use of the housing tax also benefits municipalities with more expensive properties. More than half of all properties in the Northeast are in Band A, the lowest band for council tax. This is only 10 percent true in London and the South East. Each 1 percent increase in the housing tax generates 30 percent more revenue for the wealthiest municipalities than for the poorest. More central government cash will be needed if services are to be sustained in the poorest areas.

Government funding decisions over the past decade and the structure of the housing tax have worked against the “race to the top”.

Then there is the detail of how the money is allocated to particular advice. Despite the recent moves in the other direction, there is still a lot of redistribution going on to ensure that the areas with the greatest need get a bigger share of the pot. There are formulas to determine who gets how much. Unfortunately, these formulas have not been revised for over a decade. More shockingly, the allowances are still based on data from 2013. The amount of money a board receives doesn’t depend on how many people live there now, but how many people lived there eight years ago. There have been a lot of changes since then. At the extremes, the population of Tower Hamlets in London has grown by more than 20% since then, while the population of Blackpool has fallen by 2%. They are both treated as if nothing has changed. The population aged 80 and over, which really matters in determining social protection needs, fell 13% in Barking and Dagenham and rose 35% in Hart, Hampshire. The funding does not take these changes into account.

The “fair funding” review, aimed at unraveling this mess, was launched six years ago. We were supposed to have a new system in place by April 2019. We are still waiting for decisions. In the meantime, the council’s fund allocations are becoming more and more arbitrary. And as the allowances deviate more and more from everything that is rational at a distance, the transition to a more rational system becomes more and more painful. This will create big winners and losers.

Finally, there is the reform of social protection. The new system will have a much more generous means test and will ensure that no one who passes the separate care needs assessment will pay more than £ 86,000 in total for their care. It will cost money. The government has pledged £ 1.8bn per year for the next three years not only to fund these changes but also to support workforce development and end the practice of boards effectively being subsidized by those who pay privately. The latter often pay much more.

There is, however, a more than equal chance that the funding that has been allocated will not be sufficient to achieve all of this. It will probably take three times as much in the long run. If the money isn’t enough, the councils will likely do the only thing available to them: make the assessment of care needs even more stringent. In other words, do more to get care from those who need it most. This is already the main effect of the funding constraint: the number of older people receiving free social services over the past decade has fallen. If this is what they end up having to do, this long-awaited and sensible change in the financing of social care will have the unintended consequence of reducing the support available to the poorest retirees in need of care.

Funding isn’t everything, but if you don’t provide enough, you can cause serious damage.

This article first appeared in The Times and is reproduced here with kind permission.

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