Westminster fiddles while local government burns

As the Government prepares for its last Spring Budget before the upcoming general election, it’s easy to assume that all eyes are fixed on Westminster. The reality, however, is that the soldiers in the trenches of our local economies – politicians, officers and activists – are more concerned about their existential future, and are expecting little, if anything, from this Budget – writes CLES researcher, Tallulah Eyres.

Released last week, the LGiU’s annual state of local government finance report argues that the dire state of local government finances now goes well beyond business as usual. The balance has tipped, they say, and the report paints a desperate picture of councils grappling with insufficient funding to maintain essential services, with more than half of local government leaders warning that they now face bankruptcy in the next five years. Despite urgent warnings from the IMF to prioritise public spending, there is scant indication of any fundamental change forthcoming from Westminster.

“crumbs from the masters table”

Instead, the anticipated crumbs to fall from the masters table, including extensions of tax advantages for new Investment Zones and Freeports, are primarily focussed on using various fiscal incentives to attract investment. Admittedly, these place-based approaches are targeted towards disadvantaged communities but, as my colleague Sean Benstead uncovered in his research last year into Freeports, previous experiments with low tax and tariff zones have fallen short in addressing regional economic inequality or stimulating job creation. Instead, they risk extracting wealth and opportunity from hard-pressed communities by diluting workers’ rights, displacing businesses and facilitating tax evasion.

If the Government is genuinely committed to levelling up (a once flagship project of this government that seems to have gone entirely missing in action in recent months), they must move away from this reliance on desperate tactics to attract investment at any (social) cost.  Instead, it is time for an acknowledgment of the repercussions of eroding local government capacity to fortify social and economic resilience.

“gambling away our country’s future”

But we know this won’t happen. Rather than addressing the reality of what is happening across our country and responding to calls from local government and communities for sustained investment in critical public services, Westminster is once again staking all its bets on the horse of growth. In the Grand National arena of economic policy, its vision is obscured by blinkers, oblivious to the reality being felt by communities up and down the country and – despite presenting themselves as a reputable and trustworthy bookkeeper – the truth is that Westminster is gambling away our country’s future.  We risk not only losing our stake but also accumulating more debt in the process. How many more fences and hurdles must we overcome before realising that we are not on the right economic track?

Frontline budgetary conservatism has steadily eroded the foundation of local economies, democratic principles and essential services over the past decade. Since 2010, central government grants to local authorities have plummeted by 40% in real terms, leaving a staggering 80% of local government finance reliant on council tax and retained business rates. What is worse, local governments face pressure to raise council taxes, with central government anticipating 95% maximum-level increases.

“people are starting to notice the wheels coming off”

Despite cross-party support for greater devolution and local empowerment, the reality is one of disempowerment. While the government is chasing headlines with tax cuts they’re missing the fact that people are starting to notice the wheels coming off in their councils – streetlights are being dimmed, libraries closed and rubbish may yet pile up in the streets. But this, too, masks a darker reality, that cutting local government funding to the bone undermines our democracy itself: with local governments unable to support their communities in the quest for good lives they are become increasingly mistaken for simple service delivery mechanisms rather than a constitutional reflection of the needs of citizens.

The expected absence of substantial funding allocation in the upcoming Budget threatens to exacerbate this crisis gripping. Despite a temporary relief support package of £600m announced in January by DLUHC, a recent survey by the LGA found that two thirds of councils are left with little recourse but to scale back or eliminate vital neighbourhood services. Urgent measures advocated by the LGA, including multi-year settlements and a prevention-focused funding approach, are needed to avert further deterioration.

“this is an issue that transcends party politics”

Manchester City Council’s recent disclosure of a £5m increase in their budget gap for 2024/25 reinforces the severity of the situation and, despite attempts to attribute financial challenges to mismanagement and reckless investments, it is worth recalling that plenty of Conservative-led councils are struggling too: this is an issue that transcends party politics and reflects systematic flaws.

For too long, local government has been hindered by a flawed funding system, a dysfunctional relationship with central government, and a disjointed framework of authority. Without a well-functioning funding system – one that considers both local need and revenue-raising capacity – local authorities not only can’t run essential services, they can’t engage in long-term planning, limiting their ability to dig their own way out of the hole.

“real change”

The Government urgently needs to commit to a long-term funding settlement for local government, incorporating a local needs assessment. Furthermore, there should be a renewed commitment to devolution, with powers and resources distributed at combined and local authority levels. Instead of fostering competition among local and combined authorities for multiple funding pots, funding should be allocated and devolved based on need, so that real change can be delivered at greater scale and pace.

With the Spring Budget on the horizon, urgent action is imperative to address the stark realities facing local government finance. Bold and decisive measures are needed to bridge the widening funding gap, invest in the foundational economy, and empower local authorities to serve as drivers of democratic governance and social progress. Only through sustained and concerted efforts can we aspire to a future where no community is left behind, and where the promise of prosperity is attainable for all.