2020 Vision Exploring finance and policy futures for English local government as a starting point for discussion October 2014 - Grant Thornton UK LLP
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2020 Vision Exploring finance and policy futures for English local government as a starting point for discussion October 2014
Contents
Foreword 1
Methodology
Our research approach included the following
Executive summary 2
key stages:
Context 6 • A desk-top review of relevant literature
on the future of local government and
development of an initial discussion paper
The challenge of the next ten years 7
• Discussions and semi-structured interviews
Analysis and possible scenarios 25 based on the discussion paper with a broad
range of politicians and chief executives and
Adaptive innovation? 27 senior managers from local government
Running to stand still? 28 • International comparisons drawn from
literature and discussions where possible
A nostril above the waterline? 29 with academics on the ground in those
countries
Wither on the vine? 30
• Development of a further paper to develop
Just local administration? 31 analysis and scenarios
Imposed disruption? 32 • Testing of the analysis and scenarios at a
round-table consisting of a broad range of
Conclusion and recommendations 36 local government chief executives
Where we refer to ‘our research’ in this report,
Further reading 38 this could reflect one or more of these stages.
The project team 40
Contact us 42Foreword
Local authorities are facing unprecedented challenges over the medium term,
including those relating to austerity and central government funding reductions,
demographic pressures and technological change.
The starting point of our work is that local government has continued to deliver
and withstand these challenges, but there are growing concerns that the current
approach may not ensure the long term sustainability of some local authorities.
We believe that the report’s recommendations will help and support the debate
on the future of place and the role of local government in England, and how local
authorities need to respond to these on-going and significant challenges with the
potential for enhanced devolution for both England and Scotland following the
outcome of the referendum.
Paul Dossett Catherine Staite
Partner and Head of Director of INLOGOV
Local Government University of Birmingham
Grant Thornton UK LLP
2020 Vision: Exploring finance and policy futures for English local government as a starting point for discussion 1Executive summary
This is a time of significant The Scottish referendum ‘No’ vote will are resulting in a highly variable
have a significant impact, with much impact, depending on type of council,
political flux for the
debate, involving all the main political location and local politics. The ‘Where
UK. Despite our heavily parties, about extended devolved growth happens’ report identified
centralised system, powers across the UK. Our research the concept of key growth corridors
English local government found that some form of national that demonstrate a local authority’s
has been developing change is now both functionally potential to influence growth in
innovative approaches and necessary and constitutionally different parts of the country.
inevitable. The economic and We believe that it is self-evident
new strategic alliances. financial situation remains extremely that things are not going to get easier in
Local public services and challenging, with an increasing North/ the next ten years. Rather the reverse.
leadership are slowly being South divide arising from the pattern It is vital for the sector to consider
considered in the round, of funding reductions and economic what more it needs to do to manage
through mechanisms such growth. We are only half-way through its destiny.
fiscal consolidation and there are All of this is happening against
as the Better Care Fund and uncertain prospects for the future. The a background of rapid social and
community budgets. It is Local Government Association (LGA) technological change. Demographic
clear that local government anticipates a £14.4bn shortfall in the change is having a very strong impact,
is changing fast and has funding required in 2019/20 and asserts combining an ageing population
a leadership role to play, that 60% of councils are no longer able and rising school rolls. Social capital
to meet the budget challenge through within communities is becoming
both locally and nationally.
efficiency improvements. While the increasingly important and councils
However it cannot do Department of Communities and are often seen as peripheral to the
so alone or in a vacuum Local Government (DCLG) does not community leadership that is exercised
but needs to engage and accept the scale of this shortfall, all by formal and informal voluntary
be supported by key stakeholders recognise the scale of the action (although local politicians
financial challenge. may well be involved as individuals).
stakeholders. Our research
Whole place budgets are regarded Meanwhile it is uncertain whether
has explored what that as best practice, but are not yet proven local government will be able to keep
future might look like. in practice, and economic growth is up with technological developments
just about the only mechanism that because of a lack of investment in new
offers flexibility, but won’t happen systems, sector skills and appreciation
evenly. The greatest benefit of growth of strategic impact. Its institutional
may not be from short-term income shape is looking increasingly out of
from business rates retention, but step and the people-based nature of
from better local skills, housing, jobs many services makes efficiency gains
and infrastructure and their long-term a challenge, particularly where there
impact on the state of the community. are skills-gaps.
Changes in this wide range of factors
2 2020 Vision: Exploring finance and policy futures for English local government as a starting point for discussionExecutive summary
It is clear that the fundamental change
faced by the sector will require its The scenarios in brief
mind-set to flex constantly to keep
up. We can expect the population in Adaptive innovation
Councils creatively redefine their role and are able actively to affect
2020 to be more digitised and more
their operating environment, often working in close partnership with
mobile, and the extent to which place other authorities
and community will figure large in
people’s lives is in question. In some
places councils are keeping up with Running to stand still
this change. But the speed of change Councils are led and managed well and can see a positive future,
will test their ability to adapt their provided that they can keep up the current pace and that there are no
culture and invest in the people skills major shocks
required to use standard technology
and work in different ways with a ‘tech
savvy’ population. It is clear from our Nostril above the waterline
Councils are only able to act with a short-term view, their existence
research that this is not consistent, is hand to mouth and even a small external change might seriously
and a different mind-set from local challenge their viability
government and all public services will
be needed in the future.
It is therefore vital that the local Wither on the vine
government sector thinks hard about Councils have moved from action to reaction. Their finances and
how it will cope in the future. To capacity are not sufficient to the task and they are retreating into
statutory services run at the minimum
help with this, we have developed a
set of six possible scenarios based on
the broad analysis above. These were
Just local administration
tested with senior local government
Councils have lost the capacity to deliver services, either because they
figures and also considered in the light have ‘handed back the keys’ or because responsibility for significant
of international case studies. services has been taken from them
Imposed disruption
Councils are subject to some form of externally imposed change,
such as local government reorganisation
We believe that it is self-evident that things are not going to get easier
in the next ten years. Rather the reverse. It is vital for the sector to
consider what more it needs to do to manage its destiny.
2020 Vision: Exploring finance and policy futures for English local government as a starting point for discussion 3Executive summary
Councils are struggling against a
surging tide, needing to maintain
momentum just to stand still, as
pointed out in ‘Tipping point 2016?
Challenging the current’. However
although the sector faces an enormous
challenge, it is often operating
with one hand tied behind its back.
Consequently, while competent
operation of the traditional model Possible
may work for a while, it is unlikely future
scenarios
to be a good long-term strategy.
Working with their communities and
partners, councils need to become
innovative and adaptive, and work in
very different ways.
During the development of this
report and the scenarios, there has
been an increasing sense that local
government in England is at a decisive
point. There is the will and potential
in some places to develop highly
The governance of England as a a completely new settlement between
effective models for economic growth
whole is in question. National sector local and central government as late as
and infrastructure, but perhaps less
membership bodies, think tanks and 2007. The history and the context are
ability and willingness to arrive
commissions have produced rafts of different, but seven years on the new
at similar models for adults’ and
evidence for a need for change, with arrangements have clearly bedded-in
children’s social care. However, local
most recently a flurry of reports on and are stable. It raises the question of
government’s constitutional position
powers and devolution in England. where might England be seven years
and the diversity within the sector is
The health service is predicted to after grasping the nettle, compared
too broad to enable it to take decisive
continue to overspend and faces yet with leaving things as they are?
action on its own. So, while five of the
another round of changes. Based on our research into the
scenarios have been developed bearing
The case studies (pages 27–33) current position in England, the state
in mind what local government itself
from Finland and Northern Ireland of the sector and particularly these
can do, significant, externally-imposed
show where this is happening right international examples, we believe
change has increasingly been part of
now and what is possible given the that imposed disruption of the current
our conversations, and forms the basis
right environment, but perhaps even system is probably key to the future.
of the sixth.
more significant are the case studies The people we spoke to felt strongly
from Canada and Denmark. Denmark, that now is the time for such a
for instance, went through wholesale discussion and that incremental change
change and the development of is not the answer.
4 2020 Vision: Exploring finance and policy futures for English local government as a starting point for discussionExecutive summary
We have been delighted with the Many local authorities in the UK have
response from local government demonstrated that local government
stakeholders during our research, has the potential to innovate and
pleased that our analysis, the really add value nationally. Such
international comparisons and the innovation depends on there being
scenarios have had resonance, and a good framework in which to do it.
interested that this work seems to have Some places have created that dynamic
provided a language and permission for themselves working closely with
for open discussion. There is a clear other councils and partners across
wish to set out a new settlement for the sectors, others think it is only a
the future based on an extremely open question of time before we need to Based on our research into the
agenda. This has helped us to form face up to a major change because, for current position in England, the
four clear recommendations, to: whatever reasons some places and their state of the sector and particularly
councils are finding it hard to cope these international examples, we
1 Political parties – to consider
and where a sustainable future may believe that imposed disruption of
wholesale change, so that whichever
forms the next government is ready be in doubt. Clearly local government the current system is probably key
for a serious discussion with the needs to keep up the momentum of to the future.
sector directly after the 2015 general improvement, innovation and close
election about what the local/ work with partners, but we have found
national deal should be mounting evidence of a general desire
2 Whitehall and the rest of the for a major change which the sector
public sector – to participate in cannot generate on its own, despite
constructive dialogue about what the best endeavours of the LGA
the future could look like, leading and others.
to real change Those we have spoken to consider
3 Local government and its private that it is not possible for that major
and voluntary sector partners – change to be self-generated across the
to agree that fundamental change sector, because of structure, history
is needed and to begin to plan for and politics. Yet the international
a transition to a more sustainable comparisons show that local
long-term framework government is thriving, or has greater
4 Individual councils – to understand potential where there has been a
which scenario they would fundamental rethink of the whole
currently place themselves in, the system. This validates our view that
context in which they are working dialogue is needed urgently, to address
and what they need to do next the future of the whole system of
English government, and particularly
at the local level, by 2020.
2020 Vision: Exploring finance and policy futures for English local government as a starting point for discussion 5Context
This is a time of unprecedented However, the introduction of Much depends on the approach
change and challenge for the UK. an English Parliament beneath the adopted by individual councils and
Government at the local level in UK Government could risk simply the overall picture that results from
England in particular is at a cross- replicating a centralised and siloed these discrete positions. The general
roads, and developments within the government, probably with an even challenges faced by the sector and
sector are happening extremely rapidly. more byzantine arrangement for the this specific challenge make this a
This paper uses research, discussion civil service. The option of devolution decisive moment for councils, and this
and scenarios to look forward to 2020 to a system based around London paper explores how individual local
and beyond to consider how the local and the core cities would also carry authorities are responding. It analyses
government world might develop. It is considerable risks if it becomes an this in the light of international
clear that local government is changing exercise which bolts-on powers comparisons and presents some
fast and has a leadership role to play, without thinking through the systemic possible scenarios for the future.
both locally and nationally. However change that is needed. No one yet has This is a once in a lifetime
it cannot do so alone or in a vacuum, started to discuss how the government opportunity for it to set out its
but needs to engage and be supported departments would be arranged in such stall in a way which reflects its
by key stakeholders. The position in a settlement. communities’ concerns about real
Scotland, Wales and Northern Ireland
is not in scope for this particular study. It is clear that local government is changing fast and has a leadership
However we touch on the wider UK role to play, both locally and nationally. However it cannot do so
situation along with comparisons alone or in a vacuum, but needs to engage and be supported by
with the approach taken in a range key stakeholders.
of other countries.
The Scottish ‘No’ vote, the new What is needed is therefore a life issues that affect them, including
settlement and further devolution governance structure for England which how they contribute to a new national
which is likely to arise as a result, does not just chunk up centralised settlement. Local government’s future
has resulted in a decisive moment in power and devolve it. We need to is likely to be defined as much by the
English local and regional politics. resolve the question of responsibilities stance that it takes in the next year
Prior to the referendum, statements of citizens, communities, cities and or two as it is by its current formal
by the Mayor of London and others regions, before the reallocation of position. Will it be regarded as a
asserted that there needed to be a powers. For example outside London, credible player in the national picture
significant shift in tax and spend up until the creation of the combined or something to be ‘managed out’ of
powers away from Westminster and local authorities, England has had the mainstream?
towards London and the metropolitan no means to determine strategic
areas. Simultaneously, there were infrastructure at the right level other
discussions on the possibility of an than through DCLG.
English Parliament which would make
such devolution less likely.
6 2020 Vision: Exploring finance and policy futures for English local government as a starting point for discussionThe challenge of the next ten years
Political doldrums? The UK – A centralised state The report is a useful starting point
In March 2014 the Council of Europe because it draws on perspectives from
This is a time of significant political issued a report on the quality of outside the UK system. It was heavily
flux for the UK. Despite our heavily UK local government set against the influenced by input from many UK
centralised system, English local benchmark of the European Charter of local politicians and local government
government has been developing Local Self-Government. With reference member bodies but was largely
innovative developments and new to England it noted the limitations of dismissed by central government. It
strategic alliances. Local public services its “powers without money” position describes the current English position
and leadership are more often being and recommended that the UK of localism being supported in theory
considered in the round, through Government take a number of steps by central and local government.
mechanisms such as the Better Care to improve its position, including: However it observes that the ways in
Fund. The fallout from the Scottish which localism is being implemented
• recognising that local government
referendum ’No’ vote will have a by different players reflects a range of
is about more than councils being
significant impact, and it is very differing definitions.
“merely one among many local
hard to guess what the 2015 national English local government itself
service providers” and that they
government will look like. is clearly developing its localist
have important civic leadership
and regulatory roles policy and practice, and the Local
• taking steps to diversify the Government Association (LGA)
local revenue base away from a has been more vociferous in its
dependence on central government campaigning, based on its 2013
funding and centrally-determined Rewiring Public Services initiative.
tax rates and towards accountability Localist policy is being developed by
to the local tax payer think tanks such as the RSA, New
• recognising the role of politicians, Local Government Network (NLGN),
promoting their work and the the Local Government Information
importance of democratically Unit (LGiU) and Localis. Groupings
elected institutions. such as the ‘core cities’ and ‘key cities’
are organising themselves to develop
a clear voice and to co-ordinate sub-
regional collaboration, often on a
cross-party basis and without the need
of legislative change and outside the
auspices of member organisations.
Greater Manchester is a particularly
sharply defined example.
2020 Vision: Exploring finance and policy futures for English local government as a starting point for discussion 7The challenge of the next ten years
Some policies, such as the introduction The political dimension From a review of web-based activity,
of the Better Care Fund, have required Following the 2014 local elections the the Labour party instituted a ‘Local
local providers to use existing political balance of local government Innovation Task Force’ which is
mechanisms, such as health and has moved to the left with Labour feeding ideas into its manifesto. This
well being boards, to develop local councillors now the majority group contrasts with both the Conservatives
integration of health and social care on the LGA. The sector’s relationship and Liberal Democrats who as yet
services. At inception they appeared to with the coalition government has appear to have worked mainly within
be localist in intent and significantly already been tense at times and this their own circles and think tanks. At
more money has been offered up in could increase as the LGA takes the the time of writing it was not yet clear
local pools, a total of around £5.6bn lead from a Labour Chair. what the plans might be of UKIP or
nationally as against a target of £3.8bn, Nationally, the framework of the Green Party.
arguably demonstrating the strength varying local election patterns and It is therefore unclear what the post
of a devolved approach. However forms of local administration remains 2015 attitude of central government
the initiative has been contentious complex. Council elections are held might be towards local government,
because it is largely based on existing on the basis of ‘all-out’, in halves and at present it is extremely unclear
health budgets, and it appears that and by thirds depending on type of what that government itself might
the Department of Health is going
to increase the level of financial As they start to prepare [for the general election], the political
scrutiny of the fund. Consequently parties differ widely in their consideration of issues relating to
there is nervousness that the local local government.
room for manoeuvre that was
promised at early stages will evaporate council and local preference. Local look like. However, whatever happens,
as a result of central caution over administrations are variously mainly further political change is highly
departmental budgets. leader and cabinet and mayor and likely. The Scottish referendum result
council, with some return to has significant implications for the
committee systems. future of English local politics as the
In 2015 we will see the first recent flurry of reports from Centre
national election following a fixed- for Cities, IPPR and others show.
term parliament. It is already clear Right now, England’s communities
that the five year fixed-term has have the least local autonomy of any
changed the political culture and sense current UK country. Also, UKIP’s
of anticipation. However, as they rise continued in the 2014 election and
start to prepare, the political parties post 2014 UKIP will have to be taken
differ widely in their consideration of seriously as a party, sometimes holding
issues relating to local government. the balance of power.
8 2020 Vision: Exploring finance and policy futures for English local government as a starting point for discussionThe challenge of the next ten years
At both national and local level party Experience elsewhere We know that the funding
politics sees itself being out-run by the Our review of the international reductions faced in the UK have
development of often web-based single context showed that several countries been more significant than in some
issue policy activism on the one hand have recently reallocated tasks other European countries, such as
and non-party and non-governmental and competencies between levels Germany or Denmark. It is clear
organisations working practically on of governments either towards or that financial circumstances have
the ground on civic projects. Meanwhile away from devolution of powers, driven much of this change. It is also
serious discussion of local government and many local authorities have clear that ‘new public management’
structure has largely been absent for experimented with new forms of thinking, which was a 1990s trend in
much of the last five years. However the delivery. For example some have split- the UK but continues internationally
change to fewer councils in Wales and out their operating units, becoming relating to commissioning and
Northern Ireland and the confidence ‘conglomerates’ of sometimes dozens contractual provision of services, has
of the unitary counties makes the of semi-autonomous ‘results centres’, been a dominant force in this change.
two tier network in the remaining utilities or corporations. Others However, some change conforms more
shire counties look increasingly out have collaborated more intensely to what academics call ‘new public
of step. Yet the UK already has the with networks of private companies governance’. This can be summarised
largest local authorities in Europe and and non-profit organisations, as encompassing new forms of
there are questions as to whether this have contracted services out and/ empowerment in addition to voting,
increased scale will actually serve local or introduced more business-like increased collaboration across sectors
communities effectively. concepts and instruments. There has and tiers, and engagement of the
So while there may be winds been technological change too, with private sector in problem solving rather
of change blowing, they are not the development of e-government and than provision of defined services,
combining towards a clear direction information management techniques and is therefore an approach based
but perhaps cancelling each other out. which have helped to streamline service on multiple accountabilities. The new
Is local government becalmed? At the processes and workflows. Much of public governance approach presents a
national level it is struggling to gain this change reflects the ‘adaptive familiar picture because it reflects the
traction, when compared to the innovation’ that is being deployed approach of many councils in England.
NHS or foreign policy, while at the in some UK councils. One of our It is significantly more complex than a
local level some are forging a way correspondents observed that the local devolution of responsibilities, because
regardless. Are others in denial or have government sector has become ‘less it aims to build and exploit strong
they been panicked into paralysis? uniform and remarkably fragmented’ networks across a community.
Is any movement dangerous given the both nationally and internationally.
difficult financial environment?
Our review of the international context showed that several countries
have recently reallocated tasks and competencies between levels of
governments either towards or away from devolution of powers, and
many local authorities have experimented with new forms of delivery.
2020 Vision: Exploring finance and policy futures for English local government as a starting point for discussion 9The challenge of the next ten years
The recent development of local This has not been achieved by The English question
government in Scotland and Wales tinkering with local government Against the international and UK
provides an interesting contrast to structures, although the recent report picture, the ‘English question’
England. Both have purely unitary ‘Effective Democracy: Reconnecting becomes ever more stark. Based on
local government, with community with Communities’ from the our research, stakeholders from local
councils at the more local level. Commission on the Strengthening government considered that there is a
In Scotland, a number of local of Local Democracy in Scotland has major opportunity to re-organise local
government policies have moved called for a wide-ranging review to government structures to achieve real
in very different directions from see how much more devolution to devolution and efficiency, where the
the English experience. Whereas neighbourhood and community benefits clearly outweigh the costs, and
the coalition government removed level will be possible in the future, many of them see an urgent need for
the ‘duty to involve’, the Scottish as well as more devolution of powers debate on this. They also had differing
Government is currently finalising from the Scottish Government to opinions on the possible extent of real
the passage of the Community local authorities. devolution and considered it a distinct
Empowerment (Scotland) Bill, In Wales, the Welsh Government’s possibility that we will see a hollowed-
which will give extra powers to response to a recent report of the out sector with little prospect of real
local government. While Local Commission on Public Service devolution because central government
Strategic Partnerships and Local Governance and Delivery commits it does not really understand the concept
Area Agreements have been made to a programme of mergers of existing (although following the Scottish
discretionary in England, the unitary authorities to: referendum all three main parties have
Community Planning system and • improve transparency and asserted that they take the concept
Neighbourhood Partnerships have developing stronger links between seriously). They thought that it is
been maintained. Issues of multiple local authorities and their extremely important that central
accountabilities have been partly communities government departments are joined
addressed by the Single Outcome • rationalise and develop stronger, up to support partnerships and/or
Agreement, which potentially more focused partnerships with integration at the local level.
encourages much more joining up of other public services They were also fearful that localism
central government departments and • realign existing partnerships and might be abandoned after the 2015
more co-ordination and integration of collaborations with the boundaries general election.
local public services than in England of the new local authorities and
since 2010. other delivery partners.
10 2020 Vision: Exploring finance and policy futures for English local government as a starting point for discussionThe challenge of the next ten years
However, some wondered whether the While structural change was Our research leads us to believe
sector is too worried about the need not at the top of the list, there was that we will see greater use of
for a different settlement with central speculation that the three tier structure combined structures, including
government (and therefore should just in counties is longer sustainable. There combined authorities ... This
get on with its own development). was an expectation that eventually this would not be about redrawing
They also thought that the differences will be simplified to unitary councils the formal boundaries, but
between local authorities may be and parish councils, with the former incentivising co-operation and
more significant than the apparent based on sensible scale units for risk sharing across them.
similarities. Finally, because ‘churn’ planning services such as social care.
in the system could well be highly Whatever the eventual structure, there unexplored potential. For example they
dysfunctional, some thought that was a need to develop a framework thought it more sensible to share front
radical change to a system of local that is conducive to a good balance line services across different parts of
government may be unwise, unless between politicians and officials, and the public sector in one place, while
benefits significantly outweigh costs. which builds local accountability. back office services may be more open
There was strong support for the Our research leads us to believe to sharing within local government.
role of local government in community that we will see greater use of They also thought that there was
empowerment arising from its combined structures, including scope for devolution of some national
mandate. Stakeholders thought that combined authorities. Stakeholders responsibilities to local partnerships,
there was a need to look at the kind of thought this should happen at a bigger linked to structural re-organisation.
community leadership that is needed. scale and with a wider number of There were differences in perspective
For example maintaining a role in partners. This would not be about too, with concern from some that a
community cohesion is key and should redrawing the formal boundaries, but focus on the approach adopted by city
be included, although at the same time incentivising co-operation and risk regions will not work for all.
this was an area most under threat sharing across them. They saw limits to
because it is not statutory, and building joint working given local particularities
politicians’ confidence in their political and place-sensitive identities but
mandate is very important. thought that there remains some
2020 Vision: Exploring finance and policy futures for English local government as a starting point for discussion 11The challenge of the next ten years
The financial and It is self-evident that things are not The model showed that the
going to get easier in the next ten years. variation between councils is wide.
economic challenge – Rather the reverse. It is vital for the The council in the worst position,
icebergs ahead? sector to consider what more it needs a metropolitan district council in
The economic and financial situation to do to manage its destiny. Yorkshire and Humberside, is 55%
remains extremely challenging, with funded (as a matter of policy the LGA
an increasing North/South divide Local government finance does not identify individual councils in
arising from a pattern of funding is skewed comparative reports). The best funded
reductions and economic growth. The UK is around half-way through are all district councils, largely in the
We are only half-way through fiscal an extremely testing nine year fiscal East Midlands, East of England, South
consolidation and there are uncertain consolidation. It is hoped that the East and South West, where there are
prospects for the future. The LGA national deficit will be permanently not anticipated to be any pressures at
anticipates a £14.4bn shortfall in the offset by 2017/18, or at least by 2020. all. Looking at the averages for each
funding required in 2019/20, and 60% However, the Institute for Fiscal category, deprived areas appear to face
of councils are no longer able to meet Studies (IFS) has raised continued the highest level of funding pressure
the budget challenge through efficiency concern about uncertain prospects for and less deprived councils have funding
improvements. While DCLG does the future, particularly arising from more closely matched to its anticipated
not accept the scale of this shortfall, housing pressures (echoed by the IMF) spending pressures.
all stakeholders recognise the scale of and the ageing population profile.
the financial challenge. Whole place The public expenditure It is self-evident that things are
budgets are regarded as best practice environment adds to this uncertainty, not going to get easier in the next
but are not yet proven in practice and with a distinction being made between ten years. Rather the reverse.
economic growth is just about the ‘protected’ Departmental Expenditure It is vital for the sector to consider
only mechanism that offers flexibility, Limits (health, education) and what more it needs to do to
but won’t happen evenly. The greatest ‘unprotected’ (everything else). The manage its destiny.
benefit may not be from short-term IFS foresees continued tightening of
income from business rates retention unprotected DEL expenditure with
but will arise from better local skills, budget reductions for departments
housing, jobs and infrastructure, and beyond 2015/16 not yet allocated and
their long-term impact on the state considerable uncertainty over delivery.
of the community. All of these are The LGA’s 2014 Funding Outlook
resulting in a highly variable impact, analysis reviewed the pressures local
depending on type of council, location government faces, such as the needs of
and local politics. the ageing population.
12 2020 Vision: Exploring finance and policy futures for English local government as a starting point for discussionThe challenge of the next ten years
Percentage anticipated funding against pressures for individual councils in 2019/20
Council with lowest level Mean Council with highest level
of anticipated funding of anticipated funding
Type of council
London borough 57% 74% 89%
Metropolitan district 55% 71% 81%
English unitary 66% 79% 90%
Shire county 73% 82% 99%
Shire district 65% 94% 100%
Region
East Midlands 66% 79% 100%
East of England 65% 83% 100%
London 57% 74% 89%
North East 65% 74% 80%
North West 62% 75% 100%
South East 71% 84% 100%
South West 65% 83% 100%
West Midlands 68% 76% 100%
Yorkshire & Humberside 55% 73% 100%
Deprivation
Most deprived (Ranks 1–50) 55% 70% 99%
Ranks 51–100 64% 75% 100%
Ranks 101–150 65% 78% 100%
Ranks 151–200 76% 81% 100%
Ranks 201–250 77% 85% 100%
Ranks 251–300 80% 84% 100%
Least deprived (Ranks 301–353) 65% 91% 100%
Source: Local Government Association, ‘Future funding outlook for councils 2014’, p19–20
2020 Vision: Exploring finance and policy futures for English local government as a starting point for discussion 13The challenge of the next ten years
However there is no inevitability that Other than identifying budget Possible tools for survival
a poorly-resourced council will always reductions and service efficiencies, More recently demand management
be more at risk than a comparatively there are a number of mechanisms has become a critical tool. It helps to
wealthy one. Some of the worst off that councils are using to meet their reduce costs by addressing two types
are highly focused on their financial communities’ needs. Over the last 20 of demand: failure demand, caused
position, while others that are better years there has been an increasing focus by poor quality or inappropriate
off may yet find their own projections on effective commissioning of services services, and demand for services
have not been robust enough. from the private and voluntary sector, which are intended to fulfil outcomes
The LGA found that councils were specifying required outcomes for that might be realised in other ways.
looking to ‘balance the books’ through communities rather than detailed input Both approaches are rooted in the idea
a range of methods, which in order of and process requirements describing of early preventative intervention.
popularity are: existing services. A number of forms Demand management theory often
• maximising income through of guidance exist and in 2013 the relies on behaviour change of service
investment, fees and charges: 40% Government set up the Commissioning users and service providers. Yet it could
• using reserves to support revenue Academy to help develop good practice. do more to consider the change needed
budget: 38% Commissioning may well be a way to in attitudes in society around them
• increasing the local tax base and take a long-term view about community and the development of a rights and
New Homes Bonus receipt: 12% outcomes and service provision, and/ responsibilities approach. This would
• reviewing how assets can be used or saving money from the public purse. see a deal between citizens and the local
more effectively: 12% However it does not guarantee either state which takes some pressure off
• changes to council tax support: 6%. long- or short-term savings against a demand through a combination of self-
specific budget heading, nor does it help and exploitation of community
We explored this issue in our research necessarily provide local flexibility or capacity and organisation. Also, there
because it is difficult to see from encourage innovative fleetness of foot is a risk that demand management
this list whether councils are being when situations change. could become demand shunting, unless
bold and radical in their thinking. all the players in a locality work closely
For example where reserves are together, including those under direct
Over the last 20 years there central government control, such as
plentiful, or there is a business case for
has been an increasing focus education, probation and the DWP.
borrowing, are councils investing in
on effective commissioning of Total place/community budgets
revenue-generating assets, or setting
services from the private and for particular service lines that cross
up companies to maximise income
from other public sector bodies or
voluntary sector, specifying sector boundaries have been the subject
elsewhere? required outcomes for for much discussion and a number
communities rather than detailed of successful pilots and case studies.
input and process requirements However this has not yet translated
describing existing services. into being a default approach and
14 2020 Vision: Exploring finance and policy futures for English local government as a starting point for discussionThe challenge of the next ten years
is currently best regarded as ‘best Total place/community budgets for particular service lines that cross
practice’ rather than the norm. Some sector boundaries have been the subject for much discussion and a
areas, particularly based around the number of successful pilots and case studies. However this has not yet
core cities, have developed combined translated into being a default approach and is currently best regarded
authorities for specific functions as ‘best practice’ rather than the norm.
(Greater Manchester) or are working
on whole place accounts across the ‘Pulling together the Better Care Fund’ which causes high growth but no
public sector (Cambridgeshire). Also, provides further analysis. long-term dynamism. The economic
the Chartered Institute of Public The Government has reduced linkages between places, particularly in
Finance and Accounting (CIPFA) grants overall, effectively capped growth corridors, are key to securing
has started work on a whole place council tax, and has set its face against combined strength and dynamism. The
public accounting methodology, and income streams that return a surplus. report concluded that there was scope
some thinking has already started Accordingly councils’ only flexibility, for more local authority intervention
into the potential of some form of where possible, is to seek economic to help marshall local strengths and
local treasury and/or Public Accounts growth because of the financial returns dynamism in order to bolster the
Committee to provide scrutiny linked that they can accrue from business growth that had already occurred
to the national mandate of parliament. rates retention and new homes bonus. without its help.
There is of course a question of scale Many of the areas that are seeing the DCLG considers some of
because significant effort may be needed largest cuts have the smallest potential the sector’s analysis to be overly
to effect such change. For example at present for economic growth. pessimistic. However, DCLG’s
impact should be able to be achieved by However there may yet be room for spending power calculations are on
the changes relating to the Better Care manoeuvre. Grant Thornton’s 2014 a per-dwelling rather than per-capita
Fund (BCF), and yet there is significant report, ‘Where growth happens’, basis, making it hard to reconcile
risk and conjecture as to what exactly explored the relationship between the differences between various types of
will result given the wide dispersal of track record of growth and growth local population.
the money. The funds remain in NHS dynamism, and identified a number of
budgets although the strategies are the key ‘growth corridors’. It found that
responsibility of Health and Wellbeing there were three factors that combined
Boards, and £3.8bn over two years is a to secure growth of different types,
tiny amount against the annual £150bn based on economic, demographic and
budget of local authorities. Arguably environmental factors. The ideal would
more needs to be done to ensure that be to secure dynamic growth for a
the health and social care environment community. The difference perhaps
better reflects need nationally by between being at the forefront of a
engaging communities locally in range of waves of economic growth or
meaningful change of the whole system. tied to just one industry or resource
2020 Vision: Exploring finance and policy futures for English local government as a starting point for discussion 15The challenge of the next ten years
Economic issues to consider technology and data analysis to radically new solutions. Accordingly,
Local government does not habitually develop services in new ways. without some form of local or national
use economic thinking to inform its Information intensive techniques will to action, the opportunity of
planning for the future. However there that had previously been ruled out Moore’s Law and other technological
are a number of key concepts which we on grounds of cost are becoming ever development will be lost except for
believe are useful and have informed more affordable. Tailoring services to isolated or incremental take-up.
our analysis and scenario development. a resident’s particular requirements The growth of social media
In particular we have focused on and engaging them in managing needs plays into this. For example local
technology, chargeability, productivity through some form of device, formerly authorities have been given a statutory
growth, types of elasticity of demand ruled out on grounds of cost, will responsibility to regulate taxis and
and price discrimination. become less expensive to achieve. licensed premises to provide the public
Technology and Moore’s Law IT will be substituted for labour inputs. We therefore might expect
New technology has had an increasing local government to make constantly increasing use of information
impact in almost every area of technology and data analysis to develop services in new ways.
economic activity as its speed, capacity
and ubiquity grows. Moore’s Law This will make services more attractive assurance and ensure safety, because
attempted to provide an explanation to users which is an important benefit users would not have the information
of this phenomenon and stays relevant of such technological development. to make such judgements themselves.
despite its origin in the 1960s. In its The falling cost of information will People suffer from not knowing
generally recognised form, it states make one-size-fits-all a less important whether or not a taxi or restaurant is
that the number of transistors on a approach to service provision. Such a safe and of good quality. So licensing
given chip can be doubled every two solution will be optimal, provided such by local government is used to
years – reducing cost dramatically use of information technology enables solve this market failure. However,
and improving the effectiveness of the development of tailored services technology has now developed to
computing, and allowing ever more at less cost. More cynically, one way the stage where customers can book
sophisticated uses of ‘big data’ and of rationing limited resources is taxis through phone apps such as
improved human interfaces. Moore’s precisely through the unattractiveness Uber, or check out restaurants using
Law has been seen to operate for the of one-size-fits-all services, so TripAdvisor – even Twitter can provide
last 50 years, so it seems likely that resource constraints may work to useful information on an issue.
it will continue to be important and limit this development. Powerful information from
have strong implications for local It is also possible to see that very customer feedback through such apps
government. If the cost of an input is clever algorithms could be used in place could provide a superior and a more
falling, economics indicates that it will of human judgement, say in planning or timely solution to information failure
be used more relative to other inputs. licensing services, or an Amazon-like than licensing affords. It could also
So, the effect will be to make solution to deliver entire library loan be the foundation of a far superior,
achieving a given outcome cheaper, services using e-readers. The greatest risk-based system. Triggers from the
and IT will be substituted for labour limitation here might well be the public’s information could prompt in-
inputs. We therefore might expect imagination of public sector strategists, depth investigations, but the standard
local government to make constantly the skills of the workforce and the form of regular inspection could be
increasing use of information freedom to experiment and invest in rendered redundant. Accordingly there
16 2020 Vision: Exploring finance and policy futures for English local government as a starting point for discussionThe challenge of the next ten years
would be nothing other than legislation goods in ways that solve the charging or systems change. Local government
lag to prevent local government’s problem. Local streets are generally services which are labour intensive
full or partial withdrawal from the seen as local public goods – charging could fail to deliver even average levels
licensing regime. The politics of this is a toll for using local streets would of productivity growth.
currently playing out in cities around until recently have been too costly Social care workers, for example,
the world such as Paris, Berlin and to operate. But GPS technology and to the extent that their service is
Los Angeles. number plate recognition means that labour intensive, relying on face-to-
charging the users of local streets face interaction or personal care of
‘Public goods’ and market failures pro rata for their use is (or will soon clients may be unable to deliver the
In everyday language, a ‘public good’ be) no longer barred by cost. Local level of productivity gains available in
is generally thought of as being examples already exist, including more technical areas. To an extent this
something from which everyone the London Congestion Zone. problem may be mitigated by some
benefits and derived from what is Technological developments mean that move towards the greater use of IT
culturally accepted as such, for example finance of roads and streets through in social care, but to some extent the
free education to age 18. However in user charges is technically possible. relative cost of such services may be
economics, ‘public goods’ are goods It is still politically difficult, but with expected to rise over time, intensifying
or services for which it is difficult to the removal of technical barriers to the problems that increased demand
exclude non-payers, or which cost no implementation, it may be important through demographic change is likely
more to provide for many than for few. in future years and indeed desirable if a to impose. The only option in such
National defence is the classic example: switch to public transport is prioritised services of reducing cost is to find
there is no possibility for charging for environmental reasons; why exactly some way of securing the outcome
the citizen for the advantage that they should cyclists and train passengers without local government itself being
receive from it other than through finance motorways and city centre responsible for carrying out the
some form of national taxation. traffic systems? activity, for example through some
So market forces cannot operate form of voluntary provision.
to generate finance for such goods Uneven productivity growth depending
because non-payers still get the service. on the type of human input Income elasticity of demand
Returning to the example of education, In 1967, the economist Baumol Over time average incomes are slowly
it would be possible to charge for it, pointed out that productivity growth rising as a result of economic growth.
and therefore it is not a ‘public good’ would be likely to be slower in Though there can be interruptions,
in the pure economic sense. labour-intensive industries as gains this long-term trend can be expected
Many public goods are local public in productivity tend to come from to continue. Income elasticity of
goods which provide benefits over a technological developments. Thus demand can be used to make future
limited geographical area. Thus local there are limitations to improvements projections of demand based on this
parks, street lighting and the city street in productivity in local government, trend. Economists distinguish between
scene are all examples of desirable local particularly where human input ‘income elastic goods and services’,
services which it would be difficult is required in many services from where demand grows more than
to charge for, and which are usually personal adult social care to bin proportionately to income, for example
financed by local government funding. collection. Accordingly there will housing in the South East, and ‘income
However, changing technology and not be an even pattern of change in inelastic goods and services’ where
costs may change some local public productivity, whether from IT, cultural demand rises less than proportionately
2020 Vision: Exploring finance and policy futures for English local government as a starting point for discussion 17The challenge of the next ten years
to income, for example food. This is So, if an authority tries to bolster its needy people. On the basis that the
not new; Engels pointed out in the finance by raising charges and demand service may well be commissioned
1850s that as household income rose, is highly elastic, it could actually reduce from the private sector, including
a lower proportion of it would be its income. This could be relevant this opportunity in procurement
spent on food. In the 1890s Adolph to highly subsidised services where specifications could fundamentally
Wagner argued that the public sector demand management may be needed. change the costs that local authorities
would become increasingly important If price has major impact on take-up have to pay.
as income rose. then increased charges could reduce the Using this example, price
Luxuries are income elastic and so net subsidised expenditure considerably. discrimination may be a somewhat
with growing average incomes these counter-intuitive way for public
relatively high-end goods and services Price discrimination managers to increase finances as they
will become relatively more important. Price discrimination is the practice may see giving discounts as a way to
One reason for the growing demand commonly used in the private sector worsen the financial position rather
for personalised services is the long- of charging different prices to different than improve it. But this is not always
term rise in income. Unfortunately, customers, for example in some the case.
estimates of income elasticity for systems early bookers for plane seats
various goods are scarce, but going pay less but cover the cost of the flight, Summary: relevance of economic forces
forward it may be useful to consider late bookers pay more and more the to local government
which local government services are later they book, thus hiking the profit, Councils ignore the pressures and
truly demand-led, and of those which but the last seat is sold on the day at opportunities outlined above at
will have demand increasing more than cost because it’s better than nothing. their peril. They are operating in an
proportionately with national income Price discrimination is used to increase economic environment and the issues
and which services will have demand revenue in comparison to just having set out above add to the complexity of
increasing less than proportionately. one single price. the challenges being faced. However,
Local government already uses careful consideration of these factors
Price elasticity of demand price discrimination techniques could pay dividends when setting out
Price elasticity of demand determines including concessions to types of long-term plans or shorter-term tactical
whether more or less revenue is raised user, for example differential charges measures, and prevent unforeseen
by putting up prices. What is the price for pensioners and young people, consequences. We consider that the
people are willing to pay? This can be or residents’ parking concessions. level of consciousness that councils
variable even within one service. If a However there is probably scope have of these factors will play directly
leisure centre’s charges are half those for local government to explore this into their long-term viability. Or if
of a local gym, then (provided quality further. For example, in personal social there is some greater change on the
is equal) demand and income could be services, people currently excluded horizon, into the legacy that they leave
expected to rise in line with charges up from free provision by need criteria their community and successors.
to the gym price. So a price hike of up might well be willing to pay the market
to 100% might result in considerably rate for a safe, easily accessible service.
more income, but a price hike of 150% This would help improve the cost base
might see all the income evaporate. of the service offered to poorer more
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