Analysis shows absence of levelling up in council funding

Data shared exclusively with the PA news agency shows that a reliance on council tax to fund frontline services continues to provide financial protection for local authorities in prosperous areas, raising questions over the Government’s levelling up agenda.

The money available to English councils in the poorest areas, which receive less revenue from the local levy due to lower property prices and housing growth, is still significantly lagging behind after long-running reductions in direct government grants.

The research by LG Improve, using official figures, examined annual changes in spending power – the Government’s preferred measure of council funding as it includes council tax, business rates and core grants – for all top-tier councils since the dawn of austerity in 2011-12.

Together, the current five poorest upper-tier council areas, which are all in the North of England (Blackpool, Knowsley, Liverpool, Kingston upon Hull, and Middlesbrough), will have experienced an average 7% increase in spending power by 2023-24.

In the same timeframe, the five least deprived areas based on indices of multiple deprivation (West Berkshire, Richmond upon Thames, Rutland, Windsor & Maidenhead, and Wokingham) have seen a 24% increase.

The spending power of Knowsley Council, identified as having the highest needs of all local authorities in 2011-12, will have increased by 6% by 2023-24.

But Wokingham Borough Council, the wealthiest local authority area, will have seen a 43% rise.

Highlighting the uneven impact of council tax on spending power levels, Knowsley has seen a 30% increase in the revenue it can collect through the levy over the period, compared with a 72% rise in Wokingham.

This pattern of spending power growth since the beginning of austerity can also be observed at a broader regional level.

Collectively, upper-tier councils in the South East of England have experienced an average rise in spending power of 21%, while the increase in the North West will be 15%.

The 2023-24 local government finance settlement represented a 9.4% annual increase in spending power for councils in England overall, assuming they all raise council tax to the maximum permitted without a referendum.

Announcing the settlement, Levelling Up Secretary Michael Gove said it shows the Government “continues to stand behind councils”.

“Local government plays a vital role in helping us to level up, support the most vulnerable, and deliver key services that people rely on every single day,” he added.

But LG Improve financial resilience director Dan Bates said his analysis shows the “frailty of a system more reliant on local taxpayers to fund services”.

“In reality, additional funding and a much fairer approach to resource distribution is needed if the Government is to deliver any meaningful levelling-up agenda,” he said.

The Special Interest Group of Municipal Authorities (Sigoma), which represents metropolitan and unitary authorities outside London, said the ongoing disparities in spending power go “to the very heart of the levelling-up agenda”.

Sigoma chairman and Labour leader of Barnsley Council Sir Stephen Houghton said that, as well as the impact of a reliance on council tax to fund services, the current business rates system also rewards high-growth councils and creates an “ever-growing gap” between the poorest and wealthiest areas.

He added: “How can you level up when the poorest areas are seeing the biggest cuts to local services?

“The consequences of these cuts on the poorest areas have been dire. Reduced local spending has harmed economic growth and prosperity.”

The analysis traced the root causes of the resource disparities by examining the impact of decisions by successive governments over the last 12 years.

The coalition government’s first local government financial settlement in 2011-12 followed a decision to stop using formulae driven by levels of poverty to ensure councils with high needs and lower council tax revenues received more funding.

Direct government funding also reduced by a similar percentage for all councils at the time, meaning those most reliant on grants to meet greater demand for services were hit hardest.

Consequently, Knowsley had experienced a 25% decrease in its spending power by 2016-17.

In contrast, Wokingham – with a similar population size and overall volume of homes to Knowsley – experienced a reduction in spending power of just 1% over the period.

This equates to a loss of £263 per head in Knowsley, compared with £50 in Wokingham.

A form of “equalisation” was introduced by the government in 2016-17 to help address the variation in council tax revenues, but this had minimal impact on resource disparities, the analysis found.

Figures published by the County Councils Network on Tuesday showed 84 of the 114 local authorities in England who have published their budgets for 2023-24 plan to increase council tax by the maximum level.

A spokesperson from the Department for Levelling Up, Housing and Communities said: “We recognise the pressures councils are facing and have made almost £60 billion available over the next financial year – a 9% increase on 2022-23 – with the most deprived areas of England receiving 17% more per household this year than the least deprived.

“We’re committed to spreading prosperity more fairly across the UK, including through our flagship Levelling Up Fund which is providing over £3.8 billion of funding for over 200 projects that will benefit millions of people.”