No one, ever, wants to talk about remote, unglamorous, local government funding. As long as the bins are emptied, most fit adults put up with the closure of the local library or reduced hours at the leisure centre as a sad but minor inconvenience. It is time to take a refresher course.
What and how councils were funded was settled with a sigh of relief audible around the country after Margaret Thatcher was destroyed by the poll tax in 1990. Now the results of these decades of political neglect are in the headlines – but only because the cash crisis in locally funded social care is a major contributor to the crisis in the NHS. Local government finance is a long way from the point where it is threatening a prime minister. But that doesn’t mean it can’t happen again.
Councils’ income comes mainly in Whitehall grant. Much of it is tied to particular budgets like schools, or pothole repair. In various permutations, it also comes from the regressive council and business taxes that are based on property values not disposable income. Since 2010, increases in council tax have been capped at 2%, unless a local referendum authorises a rise. At the same time, central government has cut its grant to councils by more than 25%. Last month, the communities secretary, Sajid Javid, confirmed the budget for the coming year; now the local government association has crunched the numbers. It warns that by 2020 there will be a shortfall in cash of nearly £6bn. On the ground, that represents further and deeper cuts in every department. In particular it means further pressure on adult social care. There’s too little money for services that help people stay at home; care homes are shutting or going bust, and vulnerable elderly people are forced to move. And it means more hospital beds occupied by people who’d like to get out, but have nowhere to go. Last week Surrey, a Tory heartland, announced one radical answer: a referendum on raising council tax by 15%. In leafy Surrey, that will generate an extra £90m a year. But in Liverpool, where a 10% increase has been considered, it would bring in barely a third of that.
Things have to change. In health and social care, no policy maker can make rational decisions when social care is paid for by the client or the council while the NHS is free at the point of use. Every sensible reform starts with pooled local health and care budgets. The NHS’s programme of individual sustainable transformation plans being prepared district by district may be one way of working out how to do this, but they are likely to come with an unpopular bill in terms of reforms of wider NHS provision.
Health spending, however, is only one part of what is needed. The northern powerhouse, which in effect devolves industrial strategy, may evolve into a model for other local government organisation. Its advantage is not only that it can tailor policies in education and skills training, infrastructure development and housing to meet its particular needs but, by growing the local economy, it can also increase the region’s tax take. For the question at the heart of the dilemma is how to fund local government in a way that is both sustainable and locally accountable. As LSE’s local finance wizard Tony Travers put it, we cannot go on running Swedish-style services on a US-style tax system. We have to choose.