Known unknowns: questions the Fair Funding Review still needs to answer

The government’s consultation document on reforms to local government funding left more questions than answers, says Chris Buss.

Back in December the Government issued its consultation document on local government funding post 2020 – we are therefore getting to the end of the “Fair Funding Review”. 

Long term readers of my musings may recall my thoughts on the subject published by Room 151 in February 2018.

So how has the government performed in achieving a task that I described a year ago as “mission impossible”?  Let’s see.

In the past year the government has published its response to the original consultation.

That, to be honest, was like most things – a mixed blessing.  

In future the major determinate of government financial support will be population with some adjustments for area cost and deprivation.

There will be a limited number of service specific calculations for social care (adults and children), highways, public health, fire and rescue, flooding and coastal protection and historic debt.

But arguments to include as service specific areas such as waste and homelessness have been rejected.

The latter is in my view unfortunate as homelessness has a significant financial impact on many local authorities.

Of course, the detail of how these will work and the weightings to be applied are still awaited and until these are known, there’s no certainty.

The government has also published for consultation what it’s thinking about including when considering a council’s resources.

Much of this is familiar territory, but there are a couple of suggestions that are worthy of comment.  

The first is to include the income raising ability that a local authority has from fees and charges.

The consultation recognises that many of these sources of income are linked to cost and that the decision as to whether to charge at or below cost – or indeed at all – is a local matter.

Inconsistency and opportunism

It then goes on to almost say that working out how much a council can raise from fees and charges falls into the “too difficult” box.

However, there’s one exception, as the consultation then says that surpluses on parking operations should be treated as a resource.

The consultation recognises as a footnote that the use of any parking surplus is restricted by law to a few highway and transport related functions, but still suggests that this is in effect an income source that should be treated as a resource.

This is inconsistency and opportunism at its best (or worst).

It ignores the fact that parking income fluctuates with the economy and that moves by other parts of government at either a local or national level such as emission zone charges and congestion charges impact on this area.

The inconsistency is two-fold: firstly if one area of charges is to be considered then really all areas of charges should be looked at and, secondly, the logic behind why areas such as homelessness are not included as a separate service in the needs calculations is the same logic as to why parking income should not be included as a separate resource.

Consistency, of course, was not one of the guiding principles of the review.

The second area is on council tax.

Here the government, in my view, has missed a trick.

They’ve taken as a fixed point that a number of the nationally set discounts such as for single parents and students should remain national.

Council tax discounts ought to be a local decision, and greater freedom on some of these areas would be welcomed.

And, as expected, the consultation has missed out on the opportunity to look at council tax bands and values, and rebalancing them to reflect current prices – this has definitely been buried in the “too difficult” box.

Silence of the plans

The consultation is however silent on a number of items that will impact on how the new arrangements will work.

The most obvious area of silence is on the overall quantum of the cake to be distributed.

There may be some insight into this when the chancellor’s spring statement is published in March but even in that document the figure will be very high level.

The consultation is also silent on the future of what for many authorities are now significant income streams in the form of New Homes Bonus and the Improved Better Care Fund.

The latter is of course linked to the future funding of social care which is the biggest elephant in the room.

Trying to fix a new local government funding settlement whilst awaiting a consultation on the largest single service is really bordering on the edge of acceptability even for the current government.

The other area of uncertainty is the damping arrangements which will need to apply post-2020 to reflect the change in resource allocations in the new system.

Councils who are adversely impacted by this will need time, and not just a few months, to adjust expenditure or raise other income to reflect the redistribution of business rates around the system.

The damping arrangements need to reflect this and to give adequate time for change or flexibility to increase council tax above any referendum norm.

Without this there will be adverse consequences.

The areas of silence – or known unknowns – dwarf the areas being consulted upon.

The impact of these changes could well be dramatic and even an early announcement in say September or October could leave some councils with some very difficult decisions.

One possible solution might be to give councils notification before the summer recess that their overall level of government support for 2020/21 will be no less than say the cash total received in 2019/20.

It’s not a perfect solution but it gives councils the one thing they need which is a bottom line of certainty.

So, overall, how’s the government done, after all I did describe it a year ago as mission impossible? Well to be honest there are still too many known unknowns, let alone the unknown ones, to give an honest view.

So unusually for me, I feel I can’t give a view.

In the words of the song: There are more questions than answers, and the more I find out, the less I know”.

However, I do know that this review is a missed opportunity to take a long hard look at a system which is creaking at the seams and needs a fundamental review.

In terms of tax base and sustainability, current arrangements – which now only rely on income from business rates to circulate resources around the system – are becoming increasingly fragile, as the nature of business use of property in the United Kingdom rapidly changes, impacting the long term resource available to local government.

Chris Buss is a former executive director (resources and assets) at the Royal Borough of Kensington and Chelsea and a former director of finance & deputy chief executive at the London Borough of Wandsworth.