• Home
  • About
  • Subscribe
  • Conference
  • Events Calendar
  • Webcast151
  • MOTB
  • Log In
  • Register

Room 151

  • Treasury
  • Technical
  • Funding
  • Resources
  • LGPS
  • Development
  • 151 News
  • Blogs
    • David Green
    • Agent 151
    • Dan Bates
    • Richard Harbord
    • Stephen Sheen
    • James Bevan
    • Steve Bishop
    • Cllr John Clancy
    • David Crum
    • Graham Liddell
    • Ian O’Donnell
    • Jackie Shute
  • Interviews

Local authority funding: more ‘graphs of doom’ ahead?

0
  • by Guest
  • in Funding
  • — 26 Jun, 2017

Local government funding has been under severe pressure since the 2008 crisis. This has stress-tested the local authority finances and capacities to identify efficiency savings leading to severe warnings such as Barnet Council’s graph of doom. In this blog we bring together official figures of the drop in local authority funding in order to show the size of the problem and the challenge for local government with a focus on the West Midlands Combined Authority mayor.

The National Audit Office (2014) estimates a 37% decrease in funding from 2010-11 to 2015-16. The decrease is smaller once the council tax income is considered but is still 25%. It is worth mentioning that this decrease does not include the loss from year to year increases in local authority financing in the years before 2010. These drops translate in £10bn savings in the three years from 2011/12 and another £10bn for the two years after (Local Government Association, 2014).

The councils expected to suffer most from these cuts are the ones who are heavily dependent on central government funding. The National Audit Office (2014) calculates that the share of central funding to the local authorities revenues ranges from approximately 30% to 82%. Our calculations show that for the West Midlands Combined Authority this figure is just over 73%, which means that the local authorities in the area have to face significant funding constraints.

Council tax increases have been unable to cover this gap in funding, partly due to its size and partly due to the constraints in raising council tax. The tax freeze grant offered by central government has been taken up by all local authorities in 2011-12, but this rate has fallen to 66% by 2014-15. In addition, the requirement for a local referendum if an increase of more than 2% in the council tax is proposed has significantly constrained the capacity of local authorities to raise tax through council taxes. Liverpool city council for example estimated the cost of a local referendum at £400,000 (National Audit Office, 2014).

As a result, local authorities have turned to alternative solutions in order to fulfil their statutory obligation of balanced budgets. These include reductions in staff (with the Birmingham City Council reducing its full-time equivalent jobs from 21,000 in 2010 to 7,000 by 2018, and 16.6% reduction among all local authorities) and/or reduction of services provided to the statutory minimums (started with planning and development but continued to adult and social care services) and the commercialisation of activities since efficiency gains appear to be drying up.

Even after these cuts, numerous authorities appear to struggle to maintain the minimum level of statutory services whilst at the same time, a large proportion of them attempts to increase their reserves due to uncertainty and in order to smoothen out future cuts to funding (Local Government Association, 2014; National Audit Office, 2014).

The situation is not very bright when we consider the Local Government Association’s (2015) projections for the future. These projections show that with the funding gap at 0 in 2014-15, there is an expected £9.5bn shortfall between income and expenditure for local authorities by 2019-20.

(Local Government Association, 2015) – Model projections

Considering that waste collection and social care statutory services will continue to require an ever increasing share of the councils’ revenues, money for other services is expected to be reduced by 35% in nominal terms from £26.6bn in 2010-11 to £17.2bn in 2019-20. A drop that is more than the £7.7bn expenditure on central services, ‘other’ services and capital financing combined for 2014-15.

According to our own calculations the decrease for WMCA in nominal terms only from 2012-13 to 2015-16 is approximately 9%. This does not take into account inflation of prices as well as increasing funding needs for services.

All in all and in short, funding is reduced and does not seem to be coming back. My expectation is that if local authorities want to continue to provide statutory services and up to a standard they will need a combination of efficiency savings and devolution of powers to be able to apply new local taxes. Elected mayors will need to champion these efforts and identify new sources of income for their authorities.

Tasos Kitsos is a data analyst with City REDI (City Region Economic and Development Institute) at the University of Birmingham.

To read the original article click here.

Get the Room151 Newsletter

Share

You may also like...

  • Mixed reception for £556m Northern Powerhouse deals Mixed reception for £556m Northern Powerhouse deals 26 Jan, 2017
  • Provisional local government settlement statement promises action on commercial property investment Provisional local government settlement statement promises action on commercial property investment 13 Dec, 2018
  • Settlement must address ‘precarious’ local government finances 15 Dec, 2020
  • Research hints at scale of change posed by Fair Funding Review Research hints at scale of change posed by Fair Funding Review 30 Jan, 2020

Leave a Reply Cancel reply

You must be logged in to post a comment.

  • Register to become a Room151 user

  • Latest tweets

    Room151 18 hours ago

    How can local government ‘build back better’?: Beverley Gower-Jones looks at the options for driving small business entrepreneurship in clean technologies. Innovation is essential for local authorities to save money and reduce emissions, it is the… dlvr.it/RtT3nS pic.twitter.com/bSMB6OG70t

    Room151 21 hours ago

    Helen Randall: Spelthorne report places spotlight on ‘controls’: Fresh criticism of Spelthorne Council raises the question of what “good” controls look like when negotiating a property deal. Spelthorne Council’s continuing debacle over property… dlvr.it/RtSPhy pic.twitter.com/9uCOJgBcH6

    Room151 21 hours ago

    Step-out strategies: Hitting the sweet spot between liquidity and ultra-short duration: Sponsored article: Jemma Clee describes how an ultra-short duration strategy can help local authorities enhance returns. Despite the expectation of a low, and… dlvr.it/RtSPZb pic.twitter.com/pdXPpv5lcN

    Room151 2 days ago

    What role will climate change have on the pricing of government bonds?: Sponsored article: Kerry Duffain finds that “vulnerability and resilience to climate change” have a significant impact on the cost of government borrowing. Ardea Investment… dlvr.it/RtNKv7 pic.twitter.com/wDjT31x4Yt

    Room151 3 days ago

    ESGenius: Slashing emissions will fuel green growth for decades: Sponsored article: Velislava Dimitrova argues that a big enough investment could mean transition to a low, or no, carbon economy can become a reality. The world needs to slash carbon[...] dlvr.it/RtKZJp pic.twitter.com/cd8S3ijERl

    Room151 3 days ago

    Prudential code: “Not perfect, but its heart is in the right place”: The new Prudential Code offers revised rules for borrowing. Nikki Bishop is sceptical it will work while Gary Fielding offers his support. Nikki Bishop I have been asked to give[...] dlvr.it/RtKZFh pic.twitter.com/OriN28lXcb

    Room151 4 days ago

    Tremendous report from @MarkSandford3 citing @room_151 no fewer than six times (despite what the @lgcplus fact checking/counting dept might tell you) #localgov commonslibrary.parliament.uk/research-brief… 1/5

    Room151 1 week ago

    Dan Bates: Capitalisation directions are not the only tool for rebuilding finances: Dan Bates argues deep seated problems are contributing to a rush for capitalisation directions. For some time now we have been reading that a number of councils are in… dlvr.it/RspKff pic.twitter.com/xRRsgVim9u

    Room151 2 weeks ago

    Is local government funding “broken”?: Andrew Hardingham looks at the underlying issues that caused more than a third of respondents in the Room151/CCLA treasury survey to say that the funding system for local govenrment is[...] dlvr.it/RsYhsg pic.twitter.com/plNp7Ayys6

  • Categories

    • 151 News
    • Agent 151
    • Blogs
    • Chris Buss
    • Cllr John Clancy
    • Dan Bates
    • David Crum
    • David Green
    • Development
    • Forum
    • Funding
    • Graham Liddell
    • Ian O'Donnell
    • Interviews
    • Jackie Shute
    • James Bevan
    • Jobs
    • LGPSi
    • Mark Finnegan
    • Recent Posts
    • Resources
    • Richard Harbord
    • Stephen Fitzgerald
    • Stephen Sheen
    • Steve Bishop
    • Technical
    • Treasury
    • Uncategorized
  • Archives

    • 2021
    • 2020
    • 2019
    • 2018
    • 2017
    • 2016
    • 2015
    • 2014
    • 2013
    • 2012
    • 2011
  • Previous story Local government doubles spending on property and land
  • Next story ‘Seamless transition’ for clients says new owner of Capita Asset Services

© Copyright 2021 Room 151. Typegrid Theme by WPBandit.