Councils warn of service concerns

New research shows that councils are expressing concern over not being able to maintain high service quality amid increasing budget cuts.

Research conducted by the Institute of Fiscal Studies (IFS), Local Government Information Unit (LGiU) and PWC shows that serioud concerns over councils’ abilities to maintain service quality in the longer term because of the impact of cuts.

89 per cent of respondents to the LGiU’s survey reported that service quality was maintained in their area last year, but only one-in-three are confident that they can avoid significant reductions in quality over the next three years, falling to one-in-six over the next five years.

The analysis also finds uncertainty about the revenue impact of the business rates retention scheme. The scheme currently lets councils keep up to 50 per cent of the growth in local business rates revenues.

Two-thirds of respondents to a PwC survey feel unsure whether their council has gained or lost financially from the scheme, because of confusion over what the funding system would otherwise have looked like, or by the complexities of the scheme.

40 per cent of respondents to the LGiU survey expect that 100 per cent retention, announced in Autumn 2015 for 2020, would incentivise local economic growth, but only 23 per cent expect that their council would gain financially from such a policy.

David Phillips, associate director at the IFS, said: "Officials and politicians from councils that we estimate have done well out of the business rates retention system so far, and where recent economic growth has been faster, are significantly more confident that the proposed 100 per cent rates retention scheme would benefit their council.

"This is perhaps unsurprising. But such confidence may be misplaced. Other research shows that over the period 2008 to 2015, at least, there was remarkably little link between local economic growth and increases in the business rates tax base. In other words, rapid economic growth does not guarantee good business rates performance, and vice versa.”

Jonathan Carr-West, chief executive of the LGiU, added: “Councils currently have little certainty as to how they will be funded beyond 2020. The impact of 100 per cent Business Rate Retention looks increasingly uncertain. For councils, who have been told in recent years that they should be investing in their local economy so that they will be able to fund themselves through business rates post-2020, the current lack of policy direction adds yet another layer of uncertainty and complexity to their financial planning.

"There is now an opportunity to have a rethink about how we broaden the local tax base to create a sustainable way of funding services in the long-term. More creative approaches to fiscal devolution were ruled out of the initial round of devolution talks: it’s time to revisit them.”

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