Localis responds to the Autumn budget
The first budget of a new governing party, particularly one which last saw power in a very different UK, ought to tell us something about the type of country they are looking to create. This vision is of course connected to the answer to a broader question: why did people vote Labour in July?
There are a few competing, credible answers to this question. For the time being, let’s put aside ones like “because they were fed up with the Tories” and “because their mortgage payments tripled in 2022 and everything is at least ten percent more expensive than it was in 2019”. Let’s focus instead on two answers that have more to do with Labour strengths than Conservative weaknesses. The first is that people are deeply dissatisfied with their public services and believed that a Labour government would improve them, the second is that people believed Labour could be trusted with public money.
A defining issue for this government is whether or not the Treasury mantra of ‘sound public money’ can be reconciled with ‘improved public services’ in a single Parliamentary term. Today’s Budget gave us our clearest indication yet of the current government’s vision for doing so: achieve stability in public spending and ratchet up public investment. The window for analysis can really only be the next year, as we await the spending review and a raft of legislation to underpin the policy agenda. This Budget does not therefore provide a sustainable local state or a long-term vision for funding public services. It does, however, respond in the short-term to some intense pressures on the local state, as well as laying out the groundwork for reforms which have been sorely needed for too long.
Overall, the terms have been set for building a Britain where public finances and the system of government are better connected with the well-established desired outcomes of policy: things like achievable home-ownership, functioning high streets and dynamic local economies. Should these measures achieve the goal of stabilising the ship, which is itself not a given thing, then the hard work will start in earnest.
Revenue funding
For local government, the problem at the root of much public service underperformance is revenue financing. Throughout the election, commentators of the learned sort protested that both major parties were joined together in a conspiracy of silence over the need to increase taxation to meet public service improvements. Both Labour and the Conservatives pushed the narrative that things like economic growth or efficiency drives would be anywhere near sufficient to plug the growing gap in finances and to provide the level of service quality that the British public are known to expect.
The winning idea ended up being that economic growth, built on fixed foundations of public finance, can in short order lead to an uplift in the quality of public services. This is at best optimistic, and at worst contradictory – underfunded public services are as likely to strangle growth as a sound balance sheet is to promote it. For local government, though, the implications of the logic are clear: no major uplift in funding will be provided until the black hole is plugged and the rewards of increased investment (more on this later) are felt in the economy.
With this understood, and a new spending review period on the horizon, the best that local government could reasonably have hoped for in this budget was a set of measures to help prevent the key pressure points for most councils – SEND, temporary accommodation (TA) and social care – pushing them into the red. In this respect, the budget broadly delivered, with extra cash for social care and a £1bn uplift for SEND (ahead of more fundamental reforms to come), alongside capital and revenue measures to help ease the TA burden. These measures do not, however, come close to filling the deficit and moving us away from the rolling crises that characterise local government today.
The business of moving to a more sustainable, less crisis-ridden system of local government finance remains further down the agenda, however, and will have to wait for the coming months and years of wrangling. There are positive signs, particularly the talk of consolidating grants into multi-year funding settlements. In many respects, however, the road to reform is lined with turn-offs into political cul-de-sacs, and how the government handles the reforming of funding allocations “for an up-to-date assessment of need” will be a real test of both acumen and conviction. Yet the issue goes beyond the structure of funding, and what must be addressed eventually is the overall level of funding.
Capital investment
The chancellor was unequivocal in her address that this government will, at least in the short-term, be focusing on capital investment over revenue funding as the means to deliver an improved public realm. The shift towards an investment mindset and away from the false economy of balance sheet watching signalled by this Budget, and heavily trailed in its run-up, can only be a good thing. Historic underinvestment has become well recognised as a cause of Britain’s woes, and although government investment can only ever be a part of the solution to that problem, it’s a good place to start.
From the local services perspective, the question is what kind of problems can increased capital investment solve? Issues of SEND and social care are inherently demographic, and are not problems which can be invested away, but the multifaceted implications of the housing crisis are symptoms far more suited to this cure. Temporary accommodation has a debilitating impact on council finances across the country, and the need to invest in genuinely affordable and social housing is pressing.
The announcement of an extra £500m into social housing is a welcome start in this direction, and the move to 100% retention of Right to Buy receipts is a significant reform to drive council investment in social housing. The capital investment announced into roads will also be welcomed by many local politicians, who are well aware that – whilst nowhere near as socially significant – the state of roads has long been atop the list of local concerns that a relatively small amount of government cash could go a long way to ameliorating. Likewise, the extension of the UK Shared Prosperity Fund in lieu of more fundamental reforms will be welcome to those authorities looking to use such monies to deliver quickly on local priorities.
Strategic management of local investment and the stewardship of local economies, to the end of delivering on the government’s promise of national renewal, is not guaranteed by money alone, however. Much of this depends on capacity and the ability to get on quickly. The decision to axe local business boards, the last vestige of the LEP Network of yore, is not entirely surprising but will have real implications for the institutional knowledge of the councils who will lose former-LEP officials. Some of them have been working on their economic geographies since the Local Industrial Strategies, the content of which should in places be instructive to the new Local Growth Plans. The other big question mark on capacity and pace of delivery deserves its own subsection:
Reorganisation
Much furore in our sector this week as The Municipal Journal published an exclusive which announced that local government reorganisation is forthcoming. The MJ article revealed that allusions to this brave new world would be made in the budget, and so it is, with a promise to “[work] with councils to move to simpler structures that make sense for their local areas, with efficiency savings from council reorganisation helping to meet the needs of local people”. If fair funding is a potential political cul-de-sac, the likely row over reorganisation can be characterised as a sinkhole.
Rather than wholesale unitarisation then, we can expect some more general cajoling of those areas stubbornly resisting the implementation of a combined authority tier, in the name of efficiency. Whether or not unitarisation actually leads to greater service provision or financial efficiencies is unclear, with evidence suggesting not too much of a difference. The UK has some of the largest units of local government in Europe, and their growing ever-larger and fewer does not seem to have led to much of an increase in local autonomy – something which is ultimately provided not by the form of councils but by their constitutional function and subsequent ability to tax, spend and make policy.
The Localis view, in a nutshell, is that reorganisation is no more a single solution to local public finances than economic growth is to national public finances. Likewise, the primacy afforded to the governance efficiency and democratic legitimacy of combined authorities over all other forms can, and will, be debated. The most pressing question is whether or not reorganisation is genuinely the most effective way for Labour to deliver on its promises to an English public who are deeply ambivalent as to the form of local government and far more concerned with the failure of its function.
Other local concerns
- Business rates reform has proven a slippery pole indeed to climb for successive governments, and we have called for at the very least an end to the constant cycle of short-term and time-limited support measures. On this last point, at least, the budget has delivered. A permanently lower rate for high-street businesses coming in 2026, bridged by 40% relief, will allow businesses to make decisions without the threat of a cliff-edge. It should be stated, however, that the minimum wage increase is likely to hit these sorts of businesses in a way which could be less manageable than for larger employers.
- The delivery of housing and infrastructure in the UK is far from optimal, as anyone who has read anything about our politics in the last decade will be aware. The £46m announced for boosting planning capacity, to sit alongside the reforms which we will surely be covering in some detail over the next few months, is a welcome piece of the puzzle for councils in meeting government targets. Yet real questions remain over the type of homes that will be provided in a market-led system, whatever the intentions of planning authorities are, and the definition of ‘affordable housing’ will need to be revised and made more locally nuanced if the billions poured into provision are to have a meaningful impact on the prospects of those living in overheated housing markets without the benefit of generational wealth or high salaries.
- Climate resilience will be a key issue if the government’s housing targets are going to be even nearly met, and the £2.4bn for flood resilience in Defra’s settlement is welcome. A more pressing question, however, which is unanswered by the budget is the future of the Environment Agency, which is majorly underfunded and retains an important but underpowered role in the monitoring of flood risk in new developments.
- A final consideration on local growth plans: one serious question left unanswered until the white paper is who will be charged with writing them? Beyond that, who will finance them, is this the future of the single pot combined authority settlement? All eyes on MHCLG for the forthcoming white paper…
Before the year is out, we at Localis will be exploring this issue and more in our work on the South East region, the governance of which does not sit easily with the vision for local growth hinted at in the budget. As well as this, we continue to prepare our final report on the future of local financial governance, a matter of no small relevance to the continued can-kicking of council revenue pressures.