A Devolution Revolution?
Last Wednesday’s Autumn Statement from the Chancellor of the Exchequer saw some significant decisions on tax and welfare that have been widely reported on but changes to Local Government taxation have had very little coverage. However, changes to the way local government if funded will create a fundamental shift in the behaviour of local councils and have the potential to reshape the role of local government quite radically.
In the short-term the issue most councils will have to address will be in how they adapt to cuts in spending at a time when demand for social care is increasing. Large cuts have been made to the DCLG and these cuts will be passed across to local councils. It is estimated that spending by DCLG on councils through core grants will be reduced by 56% by 19/20.
These cuts will not be evenly spread however. The formula used to allocate grant to councils over the last five years has seen northern, urban councils hit particularly hard as many of these councils are particularly grant dependent with low local tax bases. In some recognition of this DCLG has committed to the use of a new funding formula for this term of parliament. This hasn’t yet been published and the likelihood is that we’ll only know funding allocations for local councils once the DCLG makes an announcement in late-December/early-January.
In addition councils have been given the facility to raise council tax by an additional 2% if the additional amount is used to fund social care. Again though, councils in poorer urban areas will have higher need (hence a larger previous allocation of grant) but will have a much smaller tax base to increase. For example Manchester Council raises approximately 24% of its income through council tax but the national average is closer to 40%.
Clearly the impact of local tax increases and changes to redistribution formula may knock some corners off cuts but will still see a significant challenge presented to councils.
This is not the end to austerity.
However the biggest change is in the nature of council income. By 19/20 councils will raise almost all their income from council tax and business rates.
This will be phased in at first. Business rates will be redistributed as before but future growth in business rates will be retained by councils. This is to ensure that there will be no overnight winners and losers but this could have a significant impact in the future. Currently, business rates collected are of larger value than core grant distributed – as a result this will mean an increase of funding to local government but clearly this will not be equally distributed. As with increases in council tax, business rate levels will depend on the local tax base. Many areas with struggling local economies and significant need may struggle to raise enough tax in order to maintain spending commitments whereas other areas could see significant opportunities arise.
The major shift here is that how much councils have to spend in future will depend on the performance of their tax base. Issues of productivity and workforce inclusion will now dominate many local strategies as how income is generated becomes as much a priority as the value gained from spend. In Greater Manchester we are already used to seeing the two issues linked, as schemes such as “Working Well” have sought to find ways to increase participation in the labour market and with increased productivity seen as a key outcome of health and social care integration. This is likely to be just the start as councils start to look at all areas of delivery and seek opportunities to use these to generate growth.
There will be local organisations that feel this agenda is a natural fit for them but many may see links with their work and the development of productivity and inclusion. For better or worse though these changes have been set in motion now and even if there were a radical change of government in 2020 it would take as long to reverse them.
Over the next few months, as the Greater Manchester strategy is published and generates a local debate on how we address these new challenges, I’ll be using this blog to unpick some of the issues raised when we look at productivity. How local organisations engage with the productivity agenda isn’t necessarily obvious at this point is clear is that this change is intertwined with the move to devolution in Greater Manchester. Whether one wishes to engage with, adapt to or campaign against this approach we’ll all still need to work hard to understand these changes, the consequences of which may not be obvious or predictable.