SURVEY RESULTS: Officers expect no extra cash from Fair Funding Review
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An overwhelming majority of senior council finance officers believe that the Ministry of Housing, Communities and Local Government’s (MHCLG) Fair Funding Review will result in a reshuffle of existing resources rather than an increase in the level of funding available, according to research conducted by Room151.
The Room151 2019 Current Affairs Survey gauged the sentiment of more than 150 chief finance officers, their deputies and other senior officers with non-statutory roles at UK councils.
Ninety percent of respondents said they believed the outcome of the MHCLG’s review of relative needs, resourcing and baseline allocations for local authorities in England would be “mostly a redistribution” ahead of this year’s Spending Review.
Just under 10% anticipated a “modest increase” in the quantum of resources available, and none believed there would be a large increase in the 2020-21 funding period.
Earlier this month, Institute for Government researcher Chris McNulty said prime minister Theresa May’s October 2018 Conservative Party assertion that public-sector “austerity” was coming to an end was a projection that would largely bypass councils.
McNulty said in a Room 151 blog that research indicated that the NHS, defence and international development would be the chief beneficiaries of increased public spending with councils still left having to deliver “more with less”.
Room151’s Current Affairs Survey asked respondents how they felt different types of council would be affected by the Fairer Funding Review.
Lower tier authorities were perceived to be most at risk of losing out as a result of the review, with almost 59% of respondents expecting them to be worse off to some extent. London boroughs were also seen as likely losers by 29% of the survey cohort.
At the other end of the scale, sentiment in relation to county councils was significantly more positive, with two-thirds of respondents expecting them to be better off as a result of the review.
Business Rates reform due to take effect from April 2020 will shake the local authority funding landscape up further. The proportion of National Non-Domestic Rates (NNDR) councils are allowed to retain will increase from 50% to 75% as part of a longstanding carrot-and-stick policy to place increased focus on local authorities as the drivers of jobs and economic growth by making it a more direct form of finance than central government grant.
Two-thirds of respondents to the Current Affairs Survey said they believed their authority could play a significant role in driving business rates growth, although there was a muted expectation that the policy would favour some areas more than others.
Almost 40% of respondents said they believed authorities outside of south east England would be penalised by business rates retention; just under 25% did not. The remaining 35% said they did not know.
Last month the Institute for Fiscal Studies warned that the pending reforms posed significant risks to local authority finances and that MHCLG still had work to if it was going to properly address them.
Valuation changes brought about by appeals was one area of concern. The thinktank said MHCLG’s description of its proposals for how councils could protect themselves was “confusing, imprecise, and appears to be internally inconsistent”.
Elsewhere in the report, senior finance officers predicted that housing would be the asset type attracting most investment over the next few years, replacing commercial property.
Two-thirds of respondents picked new homes as the go-to choice, almost treble the 22.5% who maintained that commercial property would retain its current attraction. Six-and-a-half percent named energy as their prime-focus asset type.
The 2019 Current Affairs Survey found 52% of senior finance officers expressing concerns that councils are overexposed to shopping centres and other retail investments.
Fifteen percent said they believed some authorities had got their commercial investment strategies “spectacularly wrong” and expected to see councils unable to balance their books as a result.
Only 12% said they did not believe failed commercial strategies would force any councils to issue section 114 notices; the remainder maintained that it was too early to say.
In January this year the National Audit Office (NAO) urged local government auditors to be on the lookout for councils attempting to manipulate their balance sheets in order to justify commercial ventures.
The general power of competence introduced in the Localism Act 2011 has made it easier for councils to undertake commercial activity, the NAO said.
But it warned: “This power does not override the need for authorities to comply where there is already an existing legal duty, for example, compliance with the capital financing regulations.”
Last year Northamptonshire County Council issued an unprecedented two section 114 notices.
