Sue Gray, Sir Keir Starmer’s chief of staff, has apparently constructed a “sh*t list” of half a dozen potential crises that could hit a new Labour government early on.
One of the items is the bankruptcy of more local authorities in England.
Seven councils have already issued Section 114 notices (effectively a declaration they are bankrupt) in the last three years, affecting over 2.6 million people – Nottingham, Birmingham, Woking, Thurrock, Croydon, Northumberland and Slough. Many more are teetering on the brink.
One in five council leaders are reportedly concerned about their position and a report from the Levelling Up, Housing and Communities select committee in April suggested there was a £4bn funding gap for local government.
But this is much more than a short-term funding crisis for English local government – its roots lie in the entire legal and constitutional basis of local government.
Local government?
It is important to note at the outset that we are only talking here about local government in England – arrangements in the devolved administrations are different.
English local government has a long history and has gone through many changes over the centuries. But one thing has remained essentially true: local government in England exists only with the permission of central government. It can be abolished, rearranged, merged, expanded or contracted at the will of Parliament (or really the government) at any time, and this without any say so at the local level.
This is unusual in most large democracies. Local governments usually have much more secure and difficult to change legal and constitutional foundations.
One result of this power imbalance is that it has been easy for successive central governments of all parties to strip functions, finance and authority away from local government. Over past decades local government has lost:
- control of further and higher education completely and much of primary and secondary education
- most social care provision
- supervision of police
- many local economic development functions
- some public and environmental health functions
- meat hygiene inspection
- much public transport (especially buses)
- and of course social housing on a massive scale
These losses have gone to a wide variety of local and national quangos, central government agencies and departments and private and third sector organisations.
So local government has been much diminished. If we just take the example of financing, by the end of the last Labour government (2010) it was estimated that of public money flowing into any local authority area, only around 15-20% was controlled by local governments, depending on the type of authority.
Local money?
Local government has not just lost many powers and functions, it has also lost a huge amount of funding from central government. Between 2009/10 and 2019/20, funding from central to local government fell by a staggering 40%. By far the biggest hit from ‘austerity’ for any major public service. In exchange, local government was allowed, slowly, to raise more local taxes – caps on Council Tax were relaxed and a portion (around 50%) of locally collected business rates was allowed to be retained by councils. (Business rates had been ‘nationalised’ as part of the Poll Tax changes).
More recently some extra funding has come from central government for both Covid and Levelling-up. But these extra funds have largely been channelled through various schemes such as the Levelling Up Fund; the UK Shared Prosperity Fund; the Towns Deal; and the Future High Street Fund. What characterises all these funds is that they are centrally controlled and allocated by a bidding system that has been extremely expensive and highly criticised. It’s been badly implemented, too, with much of the money allocated not being spent on time, according to reporting by the FT. See also a report from the National Audit Office that substantiates these problems.
What is striking about all this is how the balance of funding for local government has changed over time. Back in 1975 two-thirds of local government funding came from central government and national taxation. By 2019 that had reduced to only about one fifth. It should also be noted that funds coming to local government from the centre are now of two main types. Formula funding (in which obscure funding formulae are used to determine how the pie is distributed) and the already mentioned competitive bidding streams. Neither of which are very transparent or accountable.
Post code lottery?
So local government has been much reduced in scope and funding, but it has also already had effective ‘fiscal devolution’ – at least in the sense that most of its revenue now comes from local sources collected and retained locally.
One of the standard objections to greater devolution of power to localities – especially ‘getting and spending’ public money – is that it would lead to so-called “post-code lotteries”. But in reality, public spending per head has always been something of a ‘post code’ lottery as the graph below shows. Although the variations between regions narrowed somewhat in over the two decades between 1997 and 2017, they were still quite substantial.
A final point about funding should also be made. Local government has not just been under-funded and subjected to major changes in how it is funded. It has also, as the Institute of Government has pointed out, suffered recently from extreme instability and uncertainty in future funding, which makes sensible forward-planning almost impossible.
Incoming?
So, the incoming government on July 5th faces a number of pressing short-term and long-term issues relating to English local government. The first and most urgent is undoubtedly the short-term funding crisis. But perhaps of even greater importance is how local government might be given a clearer role in the government eco-system. How can its foundations be made more solid and it be given a proper place in our governance arrangements?
One thing the Covid pandemic highlighted was just how important local organisation and governance can be in a crisis. Initially, central government ignored the obvious potential of local government to be the local hub for organising the Covid response. Especially in local public health resources as some of us pointed out at the time. The chaotic relations between central, devolved and local government highlighted just how weak the UK’s arrangements for “multi-level government” are.
It has become increasingly recognised in recent years that governments face numerous big ‘wicked issues’ that require not just joined-up governmental responses but joined-up societal responses. Covid may have demonstrated this is a short and intensive way but there are many other issues like climate change, migration, technological change, social transformations, geographical inequalities and ‘left behind’ areas and so on.
Local government – real local government of localities – integrating a range of local services and actions is a crucial component for any successful government system of the future.
Colin Talbot.
Colin is Emeritus Professor of Government, University of Manchester. He also has relationships with the Cambridge Judge Business School and the Federal Trust. Colin has worked extensively with all levels of British government and public services, including being an advisor to two House of Commons Select Committees and appearing as an expert witness over two dozen times in both Houses of Parliament, the Scottish Parliament, and the Welsh Assembly. He has also advised more than a dozen other governments, from the USA to Japan.
The Constitution Society is committed to the promotion of informed debate and is politically impartial. Any views expressed in this article are the personal views of the author and not those of The Constitution Society.