By Tim Brown, HQN associate 

The stark reality was summed up in a report on ‘Financial Distress in Local Authorities’ by the House of Commons Levelling Up, Housing and Communities Committee in January 2024:[1]

“It is no surprise that the financial crisis that local authorities are encountering comes after significant reductions in local authorities’ spending power which has itself coincided with increasing demand for their services and inflationary pressures driving up costs.”

Until recently the focus of concern had been the costs associated with adult social care and children’s services, including special educational needs and disabilities (SEND). The salient point for housing was a specific chapter on homelessness. It was estimated that there were over 100,000 households in temporary accommodation at the end of March 2023 and the cost for 2022/23 was £1.74 billion Subsequently, several councils have declared a housing emergency, including Crawley and Eastbourne, because of the temporary accommodation crisis.

However, the ramifications for the housing sector are much wider:

  • Costs associated with retaining and recruiting planning staff leading to delays on new housing schemes
  • Viability of housing and care provision
  • Social housing allocations and lettings and the need for an honest debate on providing homes for the most vulnerable households
  • Lack of funding to implement licensing schemes for HMOs.

We also need to be mindful of the bigger picture of impact of the state of council finances:

  • Local Government Chronicle (April 2024) reported that 74 local authorities (over 20% of all councils) were receiving special government support or interventions – with eight subject to three or more measures
  • 19 councils have reached agreement with DLUHC to exceptionally cover revenue spending by borrowing and/or selling assets
  • Six councils have issued section 114 notices since 2020 declaring that they cannot balance their books and leading to the appointment of commissioners to run these local authorities.

What these figures fail to do is to show the impact on local people and communities. With council tax increases (and in some cases the government has allowed rises above the maximum of 4.99% without a referendum)[2], there has been significant local social media coverage of ‘paying more for less’. Examples include job cuts, reduction of and/or charging for waste collection, increased charges or closures of community centres and leisure/sports facilities, and decreases in funding for the arts and culture.

Future prospects are dismal. A Local Government Association survey found that 85% of respondents are ‘scaling back or closing a wide range of services in 2024/25 and estimated that there is at least a £4 billion funding gap.[3] Looking further ahead, several surveys suggest that half of all councils will be issuing section 114 notices within the next five years.

We, of course, are in an election year. We have just seen the outcomes of the local May elections in England and a general election must take place before the middle of January 2025. But political manifestos and commentaries have, at best, been reticent about reforms to local government finances. So, what is the likelihood of change and where do we go with housing?

The situation is usefully summarised by a respondent quoted in the Local Government Information Unit publication on the State of Local Government Finance in England 2024:[4]

“Local government finance has been in limbo for too long. It is generally accepted that there are no easy solutions and difficult decisions will need to be taken about what the role of local government is in future and how it will be funded, but trying to avoid making those decisions is now proving more damaging and risks more local authorities reaching a point of financial failure.”

So, what if any reforms are on the horizon? There are plenty of suggestions from organisations, such as the Local Government Association and the Local Government Information Unit:

  • Multi-year financial settlement for councils rather than single year roll-overs which would provide a basis for better budgeting and policymaking
  • Culling the profusion of competitive bidding initiatives for councils by moving towards single-pot funding based on needs
  • Updating and even reforming council tax
  • 100% business rate retention.

To help prevent more pressure on temporary accommodation and the homelessness service, immediate practical measures on temporary accommodation include unfreezing local housing allowance rates for 2025/26 onwards – ie, maintain LHA rates at least at the 30th percentile of local housing market rents.

More radical, system-wide suggestions include local shares of national taxes, such as VAT, as well as greater use of tourism taxes, and even a local income tax. The best we can hope for in this direction is a fundamental review of local government finance. But we need to be mindful that the current government’s ‘fair funding review’ has been stalled, with a minister confidentially commenting that it has finished up in the “too difficult to tackle” box.

However, the million dollar question is whether national politicians will see local government finance (including the reform of social care funding) as a public spending priority compared to the NHS and taking account of the dreadful state of the economy!

[1] Financial distress in local authorities – Levelling Up, Housing and Communities Committee (parliament.uk)

[2] In the case of Birmingham City Council, there will be a 21 per cent rise over two years – Birmingham budget cuts: How much council tax will I have to pay? – BBC News

[3] Local government finances and the impact on local communities | Local Government Association

[4] State-of-Local-Government-Finance-in-England-2024.pdf (lgiu.org)