The system of funding local government in England is no longer
fit for purpose, with the amount of money available to different
councils increasingly out-of-date and arbitrary. This makes it
harder to tackle major inequalities in health, wellbeing and life
chances between different parts of England.
The new government needs to fix this before, or at the same time
as, implementing welcome proposals to devolve additional powers
to local government. Failure to do so could risk
undermining the potential benefits of devolution and may
further entrench the unfairness and inefficiencies inherent in
the way funding is currently allocated across councils.
Reforming the funding system and redistributing funding between
councils is difficult, especially when there is little money
around. The last government did a lot of the analytical work
needed to prepare for change, but ultimately kicked the can down
the road, leaving it for the new government to finalise and begin
implementing any changes. This it needs to do as a matter of
urgency, using the Spending Review process as an anchor for
reform. In doing so, the government needs to be clear what its
objectives are and what principles it is following. At the least
any new system needs to be based on up-to-date data, transparent
about any trade-offs made between objectives, flexible enough to
accommodate changes in those trade-offs, and predicable on a
year-to-year basis. The current system is none of those things.
David Phillips, an Associate Director at the Institute
for Fiscal Studies and author of the comment said:
“Devolution may be sexier and an easier sell – if indeed anything
in the realm of public finance can be deemed ‘sexy' – but the
Deputy Prime Minister should not duck a trickier
issue: the outdated funding allocations for councils in different
parts of England. Current allocations are largely based on data
from the 2000s and early 2010s, since when the populations and
other characteristics of different areas have changed in very
different ways. Failing to tackle this issue might prevent those
councils that are currently under-funded from making the most of
any new powers they acquire. Waiting to tackle it until after
powers are devolved is likely to be much harder.
Updating funding allocations won't be easy – either practically
or politically. It will create losers as well as winners. But
grasping this nettle and putting in place a mechanism for
regularly updating assessments of local areas' spending needs and
revenue-raising capacity going forward would put council funding
on a stronger footing, help tackle geographical inequalities, and
be an important legacy for any Minister. And a new government
with a large majority and a clearly articulated commitment to
take ‘tough decisions' is perhaps best placed to deliver this
much-needed change.”
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