Spending review prompts more calls for long-term funding answers

When the chancellor delivered this autumn’s spending review it was not without merit. But despite claims of a three-year settlements, experts worry funding structures remain distinctly short term.

Despite October’s Spending Review making much of being a three-year settlement with some extra funding, it has failed to provoke optimism among many local government experts.
One pessimistic view came at the Room151 FDs’ Summit conference. Christian Wall, director of PFM, concluded the settlement, in practice, fell short of being a three-year plan and even contained enough to conclude that there are “storm clouds” looming over local government.

The third year of funding appears to contain little of promise, Wall said, giving the review a two-year outlook at best. Year three is 2024-25 in the government’s projection, but Wall speculated that events between now and then could easily upset current intentions.

“Is that really going to survive a general election? Would it survive another Covid wave? Would it survive an economic downturn?” asked Wall. “I suspect it’s really a two-year settlement at best, when it comes down to it.”

There are other elements causing gloom. Funding arrangements are not enough, Walls says.
“There’s going to be a big squeeze. I think the economy is not looking good and I don’t think that’s fully on people’s horizon at the moment.”

‘Sticking plaster’

Published at the end of October, the spending review was acknowledged by many observers to be “relatively generous.” Local government was promised a 3% real-terms increase in core spending power, including £3.6bn for funding social care reforms. Grants next year will increase by £1.6bn, but they’re frozen for the following two years.

Council tax has been capped at 3%, much lower than inflation, while wages and other costs are potentially rising. Writing for Room151, Kate Ogden, a research economist with the Institute for Fiscal Studies, said the spending review means “relying increasingly on local taxes to meet spending pressures by 2024-25, …”. Deprived areas may find it hard to keep up because they raise less from council tax.

The spending review also left the sector’s fair funding review in limbo and with no clear idea of when it will emerge with firm conclusions. That may be hard to take for many. Carol Culley, deputy chief executive and city treasurer at Manchester City Council, told Room151 and conference delegates that local authority funding is “creaking at the seams; it’s patched up with sticking plaster.”

She added: “It’s time that more fundamental reforms happened.”

There were many additional issues for Culley. She wondered whether local government funding settlements porperly address the “drivers for spend,” and consider where investment is required.

She flagged adult social care, as an issue given that the government’s current policies seem “very NHS focused.” “There is a hell of a lot more to social care than getting people out of hospital, important as that is,” said Culley.

Net zero

Adele Taylor, director of resources at the Royal Borough of Windsor and Maidenhead, pointed to another problem with the current funding approach: it’s piecemeal nature. Councils can apply for pots of grant funding not knowing whether they will continue into a second and third year. Doubts about funding can also cause knock-on effects. Recruitment to council roles becomes hard as potential employees increasingly view the sector as inherently unstable. “There’s a lot of uncertainty in the future,” said Taylor.

But it was the nature of funding plans that Taylor returned to. She too had concluded that the spending review had not delivered a plan covering three years. “It’s not a multi-year settlement,” she added.

That theme was picked up by another speaker, Conrad Hall, director of resources at London Borough of Newham. But he took concerns about short-termism a step further. Before, and especially after, COP26 in Glasgow, local authorities have focused a good deal of planning on working towards a net zero carbon emissions world. But that requires, “real understanding of your long-term financial position,” said Hall.

“If you want to start making the changes to service provision and investment that will help deliver on that,” said Hall, “it’s going to take time and that’s not the sort of stuff that you can just do overnight.

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“What you really need is much longer-term funding and what we’ve got is very short-term funding…”. He added: “There’s a big mismatch between government’s financial planning system and their policy planning system.”

There was some good news. Despite widespread criticism he argued the new homes nonus policy has met some success because it has not be subject to a “complicated bidding round”.

“In terms of design of local government finance systems, compared to many of the other aspects of the system, I think the new homes bonus, on the whole, was quite a decent one,” said Hall.

Despite a spending review that most agree could have been a lot worse for local government, there remains concern. The Treasury has touted a three-year settlement but there is agreement in many quarters that it is no such thing. And that’s a problem. It will continue to eat away at the reputation of local government making it harder to recruit and stabilise service provision. Meanwhile, funding for social care has provided little reassurance.

And as Conrad Hall highlights, the absence of an unambiguously long-term approach to funding could undermine efforts to tackle the climate crisis. Local government’s funding worries continue unabated even if Whitehall’s recent policy initiatives offers a nod to the sector’s critical role.

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