LAs in England receive funding from various sources, including central government grants, council tax, business rates, and fees and charges for services. The distribution of funding among LAs is determined through a complex formula known as the Local Government Finance Settlement.
Unlike central government, LAs are not able to borrow to finance day-to-day spending, which means that they either have to a) run balanced budgets, or b) draw down on their reserves (money built up from underspending in previous years), so as not to exceed their annual revenue. [There is an excellent overview of local government funding on the Institute for Government website if you wish to find out more].
The Chancellor, Jeremy Hunt, presented the Autumn Statement to the Commons on 22 November 2023. There is a comprehensive overview of it in this House of Commons Library Research Briefing. Because a series of tax measures were announced in the Autumn Statement, a Finance Bill was also introduced to the House of Commons in November. You can follow the progress of the Bill, which is currently at the Report Stage in the Commons, here.
Reactions from the adult social care sector to the Autumn Statement, in which social care was conspicuous by its absence, were not positive, and reactions from local government to the fact that little was done to ameliorate the parlous state of council finances more broadly, were similarly lukewarm, as we mentioned in our 7 December Round Up. The Local Government Association (LGA), in their response to the Autumn Statement, put the funding gap for 2024/5 at £1.6bn.
Following on from the Autumn Statement, the provisional Local Government Finance Settlement was published on 18 December 2023, which provided around £1bn in additional grant funding for social care, further details of which you can find here. Responding to the provisional Settlement, the Institute for Fiscal Studies commented that the ‘the real pain is still to come’ (i.e. from 2025 onwards).
The consultation on the provisional settlement reportedly received 267 responses, including from the Special Interest Group of Municipal Authorities (Sigoma), whose chair, Sir Stephen Houghton (Lab) said that “a decade of cuts” had “pushed many councils to the brink” and “the settlement also failed to distribute funding fairly”, adding that “Over the last 14 years, the method of allocating funding has been moving further and further from a needs basis, resulting in an ever-growing gap between councils in the richest and poorest areas.”
Alongside this, there was a flurry of lobbying from local government for central government to make more funding available, with ministers holding more than 90 meetings with MPs and council leaders, which reached a crescendo with ‘Unprecedented’ calls from Tory MPs for the PM to find more council funding. In that move, co-ordinated by the County Councils Network (CCN) and the County All-Party Parliamentary Group, 46 MPs wrote to Rishi Sunak warning that the provisional settlement had left councils planning service cuts and council tax rises. According to the CCN, upper tier authorities (i.e. those whose responsibilities include adult social care) were facing a £650m projected overspend, with a quarter of that linked to adult social care.
On 24 January, about 50 council leaders gathered at a summit in Westminster, chaired by Eastbourne Borough Council (a second-tier authority, chief among whose responsibilities include housing), whose leader warned that “the next step for many councils of all stripes is emergency budgets and section 114 notices,” meaning effective bankruptcy.
That same day, Michael Gove, Secretary of State for Levelling Up, Housing and Communities, announced in a written statement to the Commons, £500m of additional ring-fenced funding for adult and children’s social care, allocated through the Social Care Grant. As part of the announcement, Gove asked councils “to produce productivity plans setting out how they will improve service performance and reduce wasteful expenditure”. Council must produce the plans by Parliament’s summer recess on 23 July 2024.
On the day the announcement was expected, Shaun Davies (Lab), chair of the LGA, told the BBC’s World at One programme that he had been lobbying the Government for the entire £1.6bn estimated funding gap for 2024-5. Some critics suggested that the extra £500m would not meet needs, with Vic Rayner, the CEO of the National Care Forum, commenting, “It is positive that the government seems to have listened to the united voices of local government and the social care sector about the drastic consequences of the underfunding facing councils for social care. It is important to note though that the Local Government Association has been clear that there is a £4bn funding gap in local budgets across this year and next – this additional funding, while welcome, doesn’t touch the sides. But there is a more fundamental issue here. The announcement of this emergency funding clearly highlights, yet again, that the partnership between central and local government in relation to social care is broken. We need a significant overhaul of how local government and adult social care are funded to deliver long-term sustainable care and support services to millions of people.”
Adam Lent, Chief Executive of New Local, writing a scathing piece in the Local Government Chronicle (LGC), suggested that the demand for productivity plans which accompanied the announcement should be withdrawn. However, the Local Government Association debated ‘reframing’ future calls for extra local government funding, with the LGC reporting that “senior council leaders said the sector must be “realistic” and avoid being seen as “moany” in future lobbying around extra funding from central government”.
In summary, a cacophony of voices from across local government and indeed Parliament, has called on the Government to do more to prop up council finances. The Government has responded to this intense lobbying with £500m of extra funding, which some critics still say is not enough. Only today (1 February 2024), the Guardian has reported that the Levelling Up, Housing and Communities Committee said the Government must act now to help councils stricken by shrinking resources and the costs of rising demand for adult social care, child protection, homelessness and special educational needs provision. Among the three main areas of pressure on councils identified by the Committee’s report entitled ‘Financial distress in local authorities’ are adult and children’s social care, which is consuming 70p of every £1 of top-tier council spending, forcing them to close or shrink nonstatutory services such as leisure, parks, recycling and economic development. The Government’s response to the report is expected by 1 April 2024, an ominous date perhaps!The next landmarks will be the publication of the final Local Government Funding Settlement, expected in February, and the Spring budget, expected in March, in advance of which the LGA has drawn the Government’s attention, in its Spring budget submission, to the myriad cost and demand pressures facing local government, which are rising faster than funding.