The next prime minister should make an emergency finance settlement with councils to stave off crisis, a think tank has warned.
Councils urgently need clarity from whoever replaces Theresa May as PM, according to the Local Government Information Unit (LGIU).
The Conservative leadership battle has been dominated by Brexit, leaving few signals for councils about what will happen next at local level.
The LGIU warned in a report this week that councils are facing a cliff edge after years of austerity, rising social care costs, the new homelessness duty and attempts to change the business rates system.
The LGIU said the priorities to help local councils should be:
- An emergency funding settlement;
- A review of business rate retention;
- Setting a clear policy direction for local government.
The report, Local Finance Taskforce: A roadmap to a sustainable future, warned 11 councils are on track to have exhausted their reserves within four years.
Even the councils involved in attempts to reform business rates are facing uncertainty, according to the report.
The LGIU warned some areas within the full 100% business rate retention pilot don’t yet know if they’ll be brought back to 75% in 2020 or be able to continue with 100%.
Another key driver of the financial problems is the revenue support grant which will disappear in April next year.
Councils had been expecting clarity about what will happen next in a Comprehensive Spending Review but both its timing and time length have been put on hold by the Brexit negotiations and resignation of the prime minister.
Jennifer Glover, LGIU policy researcher, told Room151 that time is running out: “If you don’t know where your money is coming from in eight months’ time, you’re unable to do anything including planning for the worst.”
Councils had been able to manage the austerity agenda because they had been given certainty about budgets and direction.
Glover said councils now do not have time to take drastic action: “Councils are now looking at making redundancies that they shouldn’t need to make in order to balance the books. They have to start setting their budgets now and have nothing to work with.”
Concern is mounting among local government leaders that the focus on Brexit and the Conservative leadership battle has diverted attention from critical decisions about funding and priorities.
With the full impact of years of austerity finally hitting hard, local authorities say they are now facing the perfect storm.
Key figures from each of local government’s main lobbying groups confronted MPs last month during an evidence session for the communities committee.
Lord Porter, leader of the Local Government Association, gave this blunt assessment: “The government have taken some of the old burden off of our shoulders, but there is no getting away from the fact that, when you take 60p in the pound away from local authorities, you are getting close to the bone and there is no fat left to cut.”
Cllr John Fuller, chair of the District Councils Network, told MPs: “Last year, we came to an end of a four-year settlement.
“Waiting for the spending review, in the autumn Budget there was probably more money than we might have expected.
“There was additional money for social care, highways and some other important cost pressures. But it is still only one year.
“This stop-start, one year at a time, hand-to-mouth existence does not help us, first, with our planning and, secondly, to get best value from the money we do get.
“I do not know quite whether we are going to end up in a spending review, whether it is going to be for one year or three years, or there is going to be a carryover. One thing we do need is to have a greater degree of certainty.”
The warnings have so far gone unheeded.
Glover said: “Councils need to know how they are going to work in practical terms over the next three years and how much money they can expect.
“There are massive cost drivers like social care and local authorities cannot rely on revenue sources like the success of local high streets.”
She added: “Ultimately, councils just want clarity. There doesn’t have to be national delivery of services.
“An emergency settlement and a sense of direction is a start. Where it comes from can be decided in each Budget.
“But they cannot plan without funding – that’s a very dangerous situation.”
