Four ways Labour could fix the crisis in local council finances – but will it?

Last Updated: February 27, 2024By Tags: , , , , , , ,

Council funding: council tax bills are only a minor element in the funding of local authorities – most of the cash comes from central government’s Aggregate External Finance (AEF) grant. It is the composition of this grant that determines whether councils can cope – or will go bankrupt.

LabourList used to be a handy source of information about the UK’s largest political party – but that was a long time ago, before the infighting over Jeremy Corbyn, and Keir Starmer’s purge of the Left.

Still, it does produce the occasional item of interest, like a recent piece about ways a Labour government might solve the Tory-caused crisis in local council funding.

Six English councils have announced effective bankruptcy since 2020, and there is said to be a £4 billion funding gap across the board.


“£4 billion? That’s nothing,” I hear you say. “Tories give sums like that to their buddies in return for hot air.” True. But LabourList has suggested four possible ways of improving council funding.

The big question is: which will Keir Starmer rubber-stamp? Or will he ignore the problem, like the Tory he is?

Here are the possibilities:

Proposal 1: Rework the local government needs assessment [the Fair Funding Review].

The government launched a ‘fair funding review’ in 2016, but this has not progressed since a consultation in 2018. Not having this in place in England makes it a significant outlier in the international community, gradually untethering the distribution of local government finance from local need and resource.

The Fair Funding Review should be reopened and delivered, paving the way for yearly needs assessments and longer-term funding settlements.

Proposal 2: Establish a systematic form of territorial equalisation between local authorities.

England is an outlier in not having a systematic form of territorial equalisation, that ensures solidarity and parity in needs-based revenue between location.

Germany, Italy, and Japan all utilise forms of vertical (central to local) and horizontal (between location) redistributions of major income streams (including elements of personal, company, consumption, and asset taxes) that ensure that all locations have access to sufficient resources and the ability to deliver minimum service standards.

Importantly, the funding provided through the equalisation systems in Germany, Japan and Italy is not ringfenced. This results in individual local authorities having significant discretion over the income they receive.

Proposal 3: Establish a standing commission, akin to the ‘English Devolution Council’ proposed by the Institute for Government.

Discussions between councils and the government about local financial pressures, distribution of funds, or the impact of national policies are haphazard and often adversarial. To strengthen this relationship, we propose a one-stop, statutory body to provide discussion forum for local authority representatives and the government.

Proposal 4: Develop a long-term programme exploring assigning national tax revenues to local authorities.

A fixed percentage of the revenue from one or more national taxes could be assigned to local government as a whole. Taxes that could be considered in this regard include income tax, VAT, employers’ NI, corporation tax, vehicle excise duty, and stamp duty.

The revenue could then be distributed according to the needs assessment developed in Proposal 1. This would counter the problem faced by many proposals for fiscal devolution: that richer areas raise more money, increasing inequality.

All of these ideas are based on the situation in Germany, Italy and Japan, which suggests that, perhaps, only minimal research has been done.

Still, a little is better than none at all.

But no amount of research can do any good if a government is not interested in implementing it.

And Keir Starmer is haemorrhaging votes because of his blind loyalty to Israel in that country’s brutal slaughter of innocent citizens of Gaza.

Which of the four ideas above will he implement? Well, he may not have the chance to consider any of them.

Source: Four ways Labour could fix the crisis in local council finances – LabourList

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