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Higher taxes for reduced services: why local government finance is broken

There is something fundamentally broken with local government finance.

Council tax is rising to its highest amount in history, yet Councils are struggling to provide basic services. Across the country streetlights are being switched off, waste collections are being reduced, and potholes are being left unfilled. With residents struggling with the cost of living, the big question is why are taxpayers no longer receiving value for money?

Councils can raise Council Tax by 3% this year, or 5% if they are a social care authority, and almost three quarters of authorities are taking advantage of the maximum amount. Three authorities who are in particular financial difficulties have been given permission by the government to raise Council tax by even more without the need for a local referendum. It means that in Thurrock and Slough despite woeful mismanagement and incompetence they are raising taxes by 10% each whilst in Croydon their mismanagement is leading to an increase by a staggering 15%. To put it in perspective it means Croydon Council is increasing an average Band D tax rate by £295 for 2023/24 and forcing residents to pick up the bill for the Council’s financial failings.

So why are local authorities in the UK in so much financial trouble? Short term factors like COVID, the cost-of-living crisis and high energy prices have all been pointed to, but in reality these are just the final tipping point in a decades-long decline in local government finance.

Councils have seen 37% real terms cut in central government grants since 2010, with austerity playing a key role in the decline of local authority funding. At the same time, at the big everyone continently forgets, demand on Council services has increased.

As austerity hit, people found their leisure centres and community facilities close meaning a decline in mental health and an increase in social isolation. A reduction in maintenance budgets for council homes led to damp and more expensive repairs with estates falling into disarray and becoming havens for fly tipping and anti-social behaviour. An aging population has put pressure on social care and break ups in families due to financial hardships has seen more children in care with fostering becoming harder.

Additionally, local government has seen a ‘brain drain’ with the pre-2010 workforce taking their golden handshakes and running for the hills after 2010, leaving inexperienced officers to be over-promoted to senior decision-makers well before they were ready. Added together, there has been a perfect melting pot of chaos and financial turbulence.

This has forced local authorities to branch out and find new ways of making money, acting more like private businesses than public services.

There has been a shift in recent decades for Councils to outsource key services such as housing repairs, community maintenance and estate security to cut costs and reduce internal responsibility. This has contributed to a reduced connection between a Council and its residents as private companies working for profit and with little connection to the local area become increasingly crucial for day-to-day services.

To fund these services, Councils have been forced to branch out into various risky money-making ventures, from property development to investing in energy generation and buying local businesses such as hotels in order to turn a profit. These ventures can have short-term payoffs, but as we’ve seen in authorities such as Thurrock in recent months, when an investment fails to return a quick profit it is basic Council services that suffers and taxpayers who are forced to pick up the bill.

There is also an overreliance on foreign money, with local authorities turning to investment from countries such as China, Qatar and UAE to deliver regeneration projects because they cannot source the money locally. The competition-focused approach of the UK government’s Levelling Up strategy, which forces local authorities to outbid each other for funding has driven many unsuccessful bidders to look abroad to fund their regeneration projects, further eroding the connection between a Council and their communities and putting relatively small authorities in debt to major foreign entities.

On the one hand, can you blame the Councils? They’re asked to prepare multi-million regeneration bids, send them to government and march their communities up the hill. If the government says no, then what are they to do with their drafted schemes? It’s only natural to look to alternative funding providers but this carries risk.

Next year we will go into a General Election year. The Conservatives will have been in power for 14 years. The key question that doesn’t seem to have ever been answered is what do they see the role of local government as being? When they needed councils in the pandemic, councils stepped up and delivered. The difference? They were funded to do so. Then the taps were turned back off and the onus on tax rises returned.

It can be said that the Tories have devolved more power than at any time since the end of the nineties through the creation of combined authorities. But adding layers of bureaucracy that few people understand or believe affects their daily lives, isn’t really the localism Eric Pickles (remember him?) promised.

It is hard to imagine any other industry where prices can rise but services can decline to their lowest levels on record, and anyone honestly believe it is a success.

Of course, Councillors will be trotted out in the next few weeks to defend all this. They’ll claim they are delivering more with less. That they’re there for the most vulnerable. I feel for them. Councillors of all political persuasions didn’t go to the effort of being elected locally just to preside over decades of managed decline of their communities.

The truth is that risky finance deals, replacing core grant funding, allowed councils to stand still. But only for so long. A decade and half later, risky finance deals that may or may not have survived a global pandemic and an energy crisis, replacing core grant funding, whilst demand is soaring, is forcing councils backwards.

It’s simple. Councils are no longer adequately funded to provide the volume of services that are needed. Either statue must change to reduce the obligations on councils, or core grant funding needs to be returned.

One school of thought is that the Conservative Party have long wished to implement the Heseltine recommendations which called for the abolition of districts and county councils and replaced with much larger unitary councils. Smaller numbers of councils, larger footprints, economies of scale. Sounds great but forgets that it abandons meaningful geographies, sees people less represented and politicians move further and further away from the people their decisions are affecting.

Running councils into financial ruin in the hope they surrender, and merge is to stifle opportunity and abandon any and all principle of devolution and localism.

Surely that wasn’t the plan all along?

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