Spending Review uncertainty leaves fair funding reforms in balance
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The emerging fair funding regime for local government finance could be delayed if the Treasury is unable to produce a multi-year Spending Review this year, according to local government minister Rishi Sunak.
Amid mixed messages emanating from the Treasury, Sunak this week told MPs that his department is still preparing for a multi-year funding settlement to be announced later this year.
The minister added that implementation of the ongoing fair funding review could prove difficult without certainty on funding levels for councils over a number of years.
Appearing before the Housing, Communities and Local Government Select Committee, Sunak said: “The benefit of a multi-year funding review is less to implement the fair funding formula in itself. It is more about the transition.
“Obviously if you are moving to a new system, that requires an element of transition and you would want a multi-year settlement to put in place a transition programme.
“You might have the new formula and formulas ready to go and the new distribution mechanism.
“But if you didn’t have a multi-year sight over how you could transition from one system to another that would make it more challenging.”
Earlier this year, Rob Whiteman, chief executive of the Chartered Institute for Public Finance and Accountancy, told the committee that he thought the fair funding review should be delayed until after the Spending Review.
And Sunak told the committee that his department was open to that argument.
“People in local government have raised that with us proactively,” he said.
“This conversation is around whether it is better to have some more time to prepare for some significant changes versus having to make those changes in a very compressed period of time.
“That is a conversation we are open to having with local government as they want to have that conversation.”
Uncertainty about the timing and length of the Spending Review has been fuelled by Brexit negotiations and the ongoing Conservative leadership contest.
In March, chancellor Philip Hammond dangled the prospect of a three-year Spending Review with an increased funding envelope alongside the autumn budget – but only if a Brexit deal is reached with the European Union.
In May, chief secretary to the Treasury Liz Truss told a gathering of local government figures that the government was still likely to launch the review before the summer recess.
However, earlier this month, she changed her tune, in the light of Theresa May’s decision to step down as prime minister.
She told a House of Lords committee: “The plan had been to launch the spending review and the zero-based capital review just before the summer recess.
“I would suggest that is unlikely to happen given the current timetable for the Conservative leadership election,” she said.
However, Sunak told this week’s committee that the Ministry of Housing, Communities and Local Government is “still working under the assumption that the chancellor’s statement is the right one, which is that pending the outcome of the Brexit situation there are plans for a Spending Review that will happen over the summer and conclude at the budget and will be for a multi-year period.
“The team in my dept are very much working to that goal and deadline and all our preparation work is centred on that deadline.”
Sunak was challenged by committee chairman Clive Betts on whether the department has a fall-back position if that scenario did not materialise.
Responding, the minister said: “We work for all potential scenarios but fundamentally the work is not so dissimilar – the work is figuring out the right resources for local government, not just in the immediate year but for the period going forward.
“In a sense the same underlying work is needed regardless of the period.”
The government has been under fire for a suggestion in a consultation on the fair funding review that the current deprivation measure in the foundation formula could be removed.
Sunak told the committee: “We will come back with a final view on that…but people are very happy to have a system that is simpler and has fewer variables driving it.
“Deprivation was found not to be a particularly significant variable, and it was a way to reduce complexity in the system.”
After the session, a County Councils Network spokesman said: “If there is no full three-year review, the new administration must move quickly to provide immediate clarity for the sector; at a minimum providing substantial emergency funding and council tax freedoms to help close the funding gap facing councils next year, estimated by PwC to be £6.7bn.
“This must come alongside the conclusion of the fair funding review, and a cast iron commitment to implement the proposals as soon as possible after the review’s publication.”
Former Boston Council chief executive Richard Harbord this week writes for Room 151 on how the uncertainty over the Spending Review is hurting local authorities’ ability to plan their finances.
