SIGOMA chair contributes to New Stateman article on how to fix local government finances

Posted on February 26, 2024

Cllr Sir Stephen Houghton, chair of the Special Interest Group of Municipal Authorities (Sigoma)

Spending power for local authorities in the next financial year will be £14bn lower in real terms compared to 2010-11. This is a huge difference, and the current economic climate will likely preclude any future governments from restoring this level of funding to councils. This means we have to think hard about how that existing funding is distributed, and how we can improve the situation without new money.

When there is insufficient funding, as there is now, how that funding is allocated becomes even more important. The overall trend of how funding is allocated has changed quite considerably in recent years – from predominantly a grant system based on need, to one driven by council tax and business rates growth. This has meant that poorer areas have lost out, as they raise far less from their local tax bases.

We need to get back to a fairer way of doing things. The government should “reset” the business rates system to return accumulated growth back to the needs pot, update the funding methodology and set out allocations over a multi-year period and set up an independent body, as there is in Australia, to determine fair evidence-based allocations. The model for local government funding is broken – unless we make major reforms, the number of councils pushed to the brink will continue to rise.

Read the full piece with contributions from the IFS, CLES and others, here.