Starmer's inbox: local government in urgent need of repair

25 Jun 2024

Local authorities provide the bedrock of public services; but their financial stability has been fatally undermined, say Jon McLeod and Nathan Ashley.

The country’s local authorities are in serious financial trouble. Since 2018, nine councils, including Birmingham, Nottingham, and Croydon, have effectively announced their bankruptcy through so-called section 114 notices (S114). Meanwhile, a cross-party inquiry has concluded that the Government must plug a £4 billion revenue funding gap in England alone to stabilise the affairs of local government. The current crisis stems from the decision in 2010 by the then Communities Secretary, Eric Pickles (now safely ensconced in the Lords and chair of ACOBA) to abolish the Audit Commission and the District Audit Service, who, taken together, oversaw the quality of financial governance in local authorities.

At the same time, council finances – both revenue and capital – have been squeezed of breath as a result of stentorian control exerted from the centre of power in Whitehall. Councils’ revenue-raising powers are limited to the council tax and a range of minor charges. The bulk of finance comes from the business rates – which are collected locally but redistributed nationally –  along with a grant designed to take account of the differing needs and taxable bases of individual authorities.

It is a fiendishly complex system, brought in with the ill-fated poll tax. It has ‘reform at your peril’ stamped all over it. But exhausted local authorities need a financial new deal that liberates them from the suffocation of central government controls, and one which provides a more balanced spread of resources to support local services, which range from education, social care and highways, through to waste, housing, culture and leisure.

It might be tempting for a new, reforming government to regard local authority financial failures as a minor inconvenience that can be tolerated.

Labour-run councils had been considered a mainstay of mostly urban areas across the UK. That changed last year, with Labour overtaking the Conservatives as the largest party of local government, extending its reach into new parts of the country. On the face of it, the May 2023 local elections spelt victory for Labour, but perhaps it was one to be viewed with gritted teeth given the situation the Party has inherited.

One of the most glaring issues inherited by Labour-led councils is the state of local infrastructure. From potholes to RAAC-ridden public buildings, the visible signs of neglect are everywhere. This is aggravated by the fact that, despite their palpable commitment to social equality, many Labour councils will be left to struggle to address major social challenges, including public health, an ageing population and anti-social behaviour.

Greater financial freedom could be one solution to the problems facing local government. By granting more autonomy and resources to local authorities, the argument goes, they can tailor solutions to their unique challenges. However, the experience of Labour councils and metropolitan mayors suggests that devolution alone will not be a panacea. For devolution to be effective, it must be accompanied by significant structural reforms. England, unlike Scotland and Wales, has a complex patchwork of local authority tiers, with some areas have up to five different layers of elected administration.

Without substantial reforms and a commitment to efficient, responsive governance, the challenges facing these councils are unlikely to be resolved. The Labour leadership will need to recognise these issues and work towards a comprehensive strategy that empowers local authorities and ensures they are equipped to deliver the high-quality services that their communities deserve.

Keir Starmer could lead a raft of ex-councillors on the Commons benches if Labour wins a majority. Around 80 sitting London councillors are standing for as parliamentary candidates. Of these, 43 are Labour councillors and three are council leaders. Given the current polling, there will likely be much London Labour local government expertise represented on the green benches next month – and this is also likely to lead to considerable churn in local government in the weeks after 4 July. The question is how a Labour front bench would utilise this expertise, but also how to replace this lost institutional knowledge in some of our largest councils.

The Labour Party last month launched its campaign plan, pledging to increase mayoral powers, reform planning policy, and “unlock” new “fairer” funding for local authorities. In its 28-page policy paper, Power and Partnership: Labour’s Plan to Power Up Britain, Labour outlines a vision for a renewed partnership between Westminster, local government, and the private sector. Key elements include:

  1. “Turbocharging” metro mayors: Labour plans to devolve more powers to metro mayors, allowing local leaders to tailor policies to their specific needs and drive economic growth.
  2. Sub-regional housing strategy: Integrating housing with jobs and infrastructure to create cohesive development plans.
  3. Local growth plans: All combined authorities and counties with devolution deals will develop plans to build on local economic advantages.
  4. Long-term financial settlements: Labour promises to reintroduce longer-term financial settlements to provide stability.
  5. Reform of local audit: Labour aims to restore financial oversight by reviewing or ending the “begging bowl culture” of central government funding and bringing back rigorous audits.

However, with councils crying out for funding and financial freedoms, Starmer (who did not cut his political teeth in local government) and his team will need to get this right, and quickly. Failure to address these issues could see Labour’s local government majority come under threat in the next round of local elections, a typical scenario in a mid-term protest vote against the Westminster incumbents.

The state of local councils offers a cautionary tale. Without substantial reforms and a commitment to efficient, responsive governance, the challenges facing these councils are unlikely to be resolved merely through tinkering at the edges. The Labour leadership will need to recognise these issues and work towards a comprehensive strategy that not only empowers local authorities but also ensures they are equipped to deliver the high-quality services and support their communities deserve.

As well as structural reforms, council funding itself cannot be ignored. Former Labour Home Secretary David Blunkett has highlighted the need for a radical overhaul of the council tax system. But the problems in the funding system run deeper than council tax alone. If a Starmer-led Number 10 can successfully implement a reform programme, it will succeed where many others – Margaret Thatcher included – have spectacularly failed.