Council budgets: power to the people?

This article was written by Joseph O’Leary of fullfact.org and was published on 2nd May, 2013. 

As the local elections take place across parts of the country, it’s claimed that our tendency not to vote might be a rational one. So how much say does your council have over money spent locally?

“Since [1834] local government in Britain has become increasingly beholden to the centre for its money, to the extent that 60 per cent of it is now a direct grant. Faced with the creeping centralisation of power, voters have proved to be rational. The fall in turnout in local elections almost exactly tracks the fall in the proportion of money raised locally.”

The Times, 2 May 2013

It’s election day… for some. If you live in one of England’s 27 county councils or one of 8 unitary authorities you’ve probably already experienced the usual influx of leaflets through the door as parties national and local bid to make an impact.

But does anybody really care, and do we have good reason to? The Times led today with a column lamenting the decline in turnout seen in recent local government elections, and comparing it to the supposed fall in the proportion of money raised locally, as opposed to through central government.

Do they have a point?

As Full Fact has shown previously, local government finance can be a horribly complex topic. The Department for Communities and Local Government (DCLG) spent 160 pages of their 2012 annual releaseexplaining how local councils are funded and laying out the figures for each council across the country.

The lion’s share

Nevertheless, it’s not difficult to find out where the Times get their numbers from. In the 2010-11 financial year, 64% of local government income came from a central government grant. The rest came from council tax, charges and fees, council rents, and receipts from capital projects.

Until now, government grants have included taxes from local services or ‘business rates‘. These are levied locally but collected by central government in one pot to redistribute to councils according to a formula (which factors in a number of variables, including the size of the local population and levels of deprivation).

However, the Coalition are reforming how local government receives its money, which means business rates will be collected differently. The new‘Business rates retention scheme’, which is being phased in during this current financial year, means councils will retain a portion of the rates gathered in their own area, and any shortfall in their funding will be made up by a ‘revenue support grant’.

What this will mean, essentially, is that local authorities will have a stake in their own business rates (such as charges for use of factories, offices and shops). This is part of the Government’s plan to encourage the growth of local business and give authorities more flexibility over their funding.

The extent of the reforms means that we might expect a shift in the portion of local government funding that comes from central government; the Coalition’s stated intention is that 70% of local authority income will be raised locally.

The creeping centralisation of power?

The Times suggests that recent history has seen a decline in the portion of money local authorities actually raise for themselves. Is this true?

The Department for Communities and Local Government (DCLG) uses a narrower definition of local authorities’ funding to show what’s happened over time, looking only at the sources of revenue funding rather than total income (so it doesn’t include money that is put aside into reserves). Their figures show that since 1993 (when council tax was introduced), Government grants have indeed been ‘creeping’ upwards as a proportion of all funds:

Hovever, merely having a large portion of their funding from central government doesn’t necessarily mean that the centre holds a great deal of power. While the Government can set the grants for local councils, most of this money isn’t ringfenced for specific purposes. Local authorities enjoy some flexibility in making decisions about how to spend their block grants.

Furthermore, in 2007 the Institute for Fiscal Studies showed that since Labour arrived in office in 1997, the use of ringfenced grants grew as a proportion of all grants (and in cash terms), so much so that in 2005/06 almost half of all government grants were ring-fenced.

Ring-fenced grants don’t necessarily restrict local councils in practice. A council might have intended to spend its funds at the same or greater level than specified by central government, in which case an imposed minimum would have no real effect.

Further figures relating to this are difficult to come by, but we’ll update this piece when we’re able to find out more.

Conclusion

The Times are correct in highlighting a long-term increase in the proportion of local government money that comes from central government, although the point might have been made even better by referencing the early rise in ringfenced grants which potentially restrict a local authority’s financing flexibility.

Linking this to the declining turnout (which Full Fact has already highlighted) is a claim that we can’t verify without thorough research into voters’ habits, so we can only speculate that one is linked to the other.