Council funding system reform urged


Published: Wednesday 18th February 2015 by The News Editor

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The existing local government funding system in England is “no longer sustainable” while the finance system “lacks accountability” to communities, a new report has warned.

The Independent Commission on Local Government Finance said there was demand for councils to be given “greater freedom from central government in raising and spending money, with the ability to set taxes to meet local needs”.

In its final report, entitled Financing English Devolution, the commission sets out a decade-long plan to devolve powers, funding and taxes, which it said could lead to more than £200 billion in annual public expenditure being controlled by groupings of local authorities.

The report stated: “Two developments have given reform a new urgency. Faced with the long term reductions in local government funding, councils and their partners could be far more efficient, effective and creative in their use of the totality of public money if they had the freedom.

“Meanwhile the debate over more powers for Scotland and the near universal acceptance that decisions are best taken as close to the citizen as possible have created a rare opportunity to secure devolution within England.”

The commission warned that without reform adult social care would take a “sharply increasing proportion” of local government funding, with councils having to find an additional £4.3 billion by 2020 to manage care services at the current levels.

The commission’s chairman Darra Singh stated in the report: “The era of austerity cannot simply mean continual depletion of vital services as demand grows. It has to be a time when public services find different ways of working which build the resilience of our communities.”

The commission recommended a “variable speed approach” to reforming the local government finance system, promoting self-reliance and self-sufficiency, with some proposals applying to all local authorities, plus additional reforms applicable to “pioneer” authorities able to reform at a quicker rate.

For those “pioneer” areas the commission urged greater freedom over jobs, care and housing; a single budget settlement for each area; council tax reform; devolution of national taxes such as stamp duty, tourism and airport taxes; plus the establishment of Local Public Accounts Committees to oversee value for money for all public services.

For all areas, the commission recommended the creation of a new independent funding body, plus business rate reform, multi-year settlements and the ability to raise additional revenue.

Mr Singh said local government and the services provided were “on a cliff edge”.

He said: “The urgent need for reform is going to be one of the biggest and most important challenges facing the next government. Without it, many of the key services which have been part of everyday life for generations may not be there much longer.

“Nowhere is this more evident than with adult social care, which is facing financial crisis with minimal scope for further efficiencies. Money available for care is going down at the same time as demand is going up.

“The need for English devolution has been acknowledged by all of our major political parties. We have concluded that devolution and reform of the local government finance system must go hand in hand.

“This commission has set out a path to English devolution which we believe is the only way to save public services in an era of reduced public spending and rising demand.

“It is clear that if we want local services to survive and support a thriving national economy, a radical devolution of powers, funding and taxes to local areas is urgently needed.”

Commenting on the report, cross-bench peer and Local Government Association (LGA) president Lord Best said devolution was “not only desirable, it is essential”, adding the report set out a “sensible and workable approach to devolution”.

He added: “To build the housing the country needs, provide the quality of care that our elderly deserve and support businesses it is clear that local authorities need much greater freedom from central government. Reform of the way that local government services are funded is a vitally important part of that.”

Graeme McDonald, director of Solace (Society of Local Authority Chief Executives and Senior Managers), described the report as a “clear and unambiguous statement of the unsustainability of the current local government financial settlement”.

He added: “It persuasively sets out the need for a comprehensive and urgent review of the functions and financial sustainability of local government and makes a strong case for fiscal devolution and greater autonomy for local places. We are clear that fiscal sustainability must be right at the top of any incoming minister’s in-tray.”

Jonathan Isaby, chief executive of the TaxPayers’ Alliance, said: “The report is right to acknowledge the need to give local authorities more autonomy, but devolving spending responsibility has to come with fiscal decentralisation too.

“Local government needs to do more than just dish out centrally decided grants. Allowing a higher percentage of revenue to be raised locally and giving councils a real stake in the success of their local area will lead to greater accountability, an increased focus on giving taxpayers value for money, and more efficient public services.”

Local government minister Kris Hopkins said: “There is certainly scope for decentralising more funding to councils, by extending the successful introduction of incentives like local business rates retention and the New Homes Bonus.

“Such measures allow councils to increase their revenues not by higher taxes, but by growing the pot through supporting job creation, construction and enterprise.

“But this Government has no plans to introduce higher council tax bands or new taxes on family homes, because such moves would invariably just increase the burden of taxation. We believe the council tax referendum provisions have strong public support, as they give local taxpayers the final say on the council tax bills they pay. Instead of finding new ways to tax people, councils should be taking up the offer this year of extra government funding to freeze council tax.”

Richard Hawkes, chair of the Care and Support Alliance which represents 75 care charities, said: “We welcome the commission’s acknowledgement of the financial crisis in social care at a time when demand is rising.

“This is further confirmation that the chronic underfunding of social care is pushing councils to breaking point with a dramatic rationing of support for older and disabled people.

“As more and more of us need care, and fewer and fewer of us get it, the Government needs to fund care properly, as well the health system.

“Every day, our organisations hear horror stories of people who struggle to get the support they need to simply get up, get dressed and get out of the house. This has a huge impact on carers, who we know are struggling right now.

“It also has a knock-on effect on the health service, which picks up the pieces when people become isolated, can’t live on their own and slip into crisis.”

Published: Wednesday 18th February 2015 by The News Editor

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