MPs say that council money is unsustainable without reform
The Housing, Communities and Local Government Committee has stressed that reforms are needed to ensure the sustainability of municipality finances, including an urgent solution to the funding of social care in England.
The new report recognises that councils have faced a variety of budget pressures recently, including increased demand for services, especially social care, and that these financial challenges happen to be exacerbated by the pandemic.
It makes a number of recommendations, including the government should: urgently reform the funding of social care in England; implement the Fair Funding Review and business rates reset as soon as possible; implement changes to council tax and consider wider choices for reform; and widen the funding base of local government to make it less vulnerable to shocks like the pandemic, including by providing councils more flexibility over local taxes and other revenue-raising powers.
The report also makes recommendations on local government financial audit and also the section 114 regime. Northamptonshire in 2021, Croydon in late 2021, and Slough earlier this month issued Section 114 notices – essentially declaring they had exhaust money – and approached the Ministry of Housing, Communities and Local Government for financial help.
The report expresses concern the Section 114 regime may be hindering good financial management and recommends the Government introduce a middleman “yellow card” measure that the Chief Financial Officer could apply to force a council to confront much sooner the degree of its financial position.
Clive Betts, chair of the committee, said: “Council budgets have been stretched for quite some time and also the social care funding crisis is at the heart of monetary pressures for a lot of councils. A solution to social care funding would significantly help to restoring local government finances. Covid-19 has additionally hit councils hard and, while the government responded to the pandemic with substantial financial support, they now need to come forward having a long-term sustainable method of funding councils and also the services they offer.
The system of local government finance should enable councils to improve revenue by growing their tax base while protecting those councils who are less able to perform this, through no fault that belongs to them. As a result, the government should implement the Fair Funding Review and business rates reset as soon as possible, and permit councils to retain 75 percent of economic rates from 2022. So that this represents an internet rise in funding, we urge the federal government to not impose commensurate cuts to allow funding, and the additional funding should then be put towards equalisation between councils. Within the longer-term, the Government should think about options for wider reform of council tax and business rates, including possibly replacing all of them with a proportional property tax.”
