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Home Publications What do the election manifestos mean for local government funding?

What do the election manifestos mean for local government funding?

Observation

Local government funding is rarely a major battleground in election campaigns. This ‘rule’ appears to be holding in the current campaign, despite evident pressures in areas like adults’ and children’s social care services, following a decade of cuts to councils’ funding.  

This observation looks at the plans for English local government funding set out in the Conservative, Labour and Liberal Democrat manifestos – which differ vastly. Broadly speaking:

  • The money allocated by the Conservatives would not be sufficient to meet rising costs and demands over the next parliament even if council tax were increased by 4% a year, necessitating a further retrenchment in services or unfunded top-ups to the plans set out.
  • The Labour Party has allocated more than enough money to meet rising costs and demands, allowing increases in service provision and quality, although not enough to restore them to 2010 levels. That is true even if council tax were frozen – although Labour has no plans for such a freeze.
  • The Liberal Democrats have allocated enough money to meet rising costs and demands if council tax is increased by 2% a year – although only if some the funding earmarked for bus services, youth services or homelessness is used to meet these pressures.

In addition, each party proposes reforms of adult social care services, including unfunded commitments to relax means-testing and/or introduce caps to costs. Funding these pledges could require tax rises beyond those announced, or risk breaking parties’ fiscal rules.

How big have the cuts to councils’ funding been?

Before looking at the parties’ plans in more detail, it is worth reminding ourselves of the scale of the cuts to councils’ funding over the last decade.

This is, in fact, a surprisingly tricky figure to calculate. Changes in both councils’ responsibilities and the way revenues and spending are recorded over time mean published figures do not reflect how funding has changed on a like-for-like basis. This means adjustments are required to make figures more comparable over time – and even then are best estimates rather than exact.

Doing this, our first annual report on local government funding, published earlier this month, found that budgeted revenues to cover day-to-day spending in 2019–20 will be approximately 18% lower in real-terms than in 2009–10. After accounting for population growth, that equates to cuts of 24% per resident.  

Cuts have varied significantly across the country though – and have been larger in more deprived areas. As a result, councils’ spending on local services has fallen around 31% in the most deprived areas, on average, compared to 16% in the least deprived areas. However, spending is still around 1.3 times higher in the most deprived areas as in the least deprived areas, down from 1.6 times back in 2009–10.  

How much was found for councils next year in the 2019 Spending Round?

Turning to the future, in the Spending Round this September, the Chancellor announced a £1 billion increase in grant funding for councils next year. Alongside assumed growth in the council tax base, if councils make full use of their powers to increase council tax in the coming year, this would mean an increase in councils’ funding of around 4% in real terms.

However, even if spent in full, this would still leave spending per person down around 20% compared to 2009–10. And if some of the additional funding is used to stop drawing down reserves (which councils’ budgets suggest they plan to do this year), spending per person could still be down around 22% per person next year, compared to 2009–10.

Figure 1. Increase in funding planned for 2020–21 in the context of the cuts to council spending in the 2010s

Note: The dashed lines with squares show the potential path for spending and per-person spending if the additional funding for 2020–21 is spent in full. The dashed lines with triangles show the potential path if councils use part of the additional funding to stop drawing down reserves in 2020–21.

The Conservatives’ manifesto provides no additional funding – except for pot holes

The Conservatives have confirmed they would maintain the £1 billion increase in grant funding announced for 2020–21 for the duration of the next parliament, but have announced no additional funding other than a £500 million a year fund for potholes.

This means councils would have to rely overwhelmingly on increases in council tax revenues and business rates revenues to meet the rising demands for and costs of local public services. And, as our annual report showed, revenues from these taxes is unlikely to keep pace with these demands and costs, even if council tax is increased by 4% a year – double the rate of inflation – every year. Therefore, unless councils’ productivity improves by more than has historically been the case, either further cutbacks to service provision would be likely, or funding would need to be topped up.

The funding situation would be most tricky in those typically more deprived parts of the country with smaller council tax bases – because such areas can raise less from council tax increases. In recent years, the government has offset this to some extent by allocating more of the grant funding to these areas. But if grant funding is frozen that could only be done by cutting grant funding in more affluent places, which may be politically difficult.  

The Labour Party’s manifesto provides for £20 billion for day-to-day spending by 2023–24

Labour’s proposals are strikingly different.

They propose £13 billion of additional funding for existing local government services, which would be more than sufficient to meet rising costs and demands even if council tax were not increased. This means it would allow increases in service provision and quality, although the funding would not be sufficient to return services to their pre-2010 levels.

In particular, the Labour Party proposes to provide:

  • £5 billion in Revenue Support Grant, and £1.1 billion labelled as being for tackling homelessness, but which would not actually be ring-fenced;
  • £3.5 billion in ring-fenced funding to meet rising costs and demands for the current Adult Social Care system;
  • £1.1 billion for public health, £1.1 billion for youth services, and £1 billion for Sure Start, all of which would be ring-fenced.

On top of this, they propose funding of around £7 billion to pay for free personal care for the over-65s – although only for those meeting current relatively stringent criteria for who needs care. Whether £7 billion would actually cover costs is unclear though, given Labour proposes to increase the National Living Wage, and make changes to the social care supplier and labour markets.

These pledges are, of course, not costless. They would be paid for by higher taxes, and not just on the top 5% of the population. A key choice facing voters is therefore whether they are willing to see taxes go up to pay for more spending on public services – including council services.

The Liberal Democrats’ manifesto provides around £5.5 billion by 2023–24

The Liberal Democrats also propose tax rises to fund increases in public spending – albeit not on the same scale as Labour. In particular, by 2023–24, they plan:

  • £2.2 billion in ring-fenced funding to meet rising costs and demands for the current Adult Social Care system;
  • £1.3 billion for local bus support, £1 billion for Sure Start, £0.5 billion for youth services, and £0.6 billion for a number of other areas like homelessness and environmental measures.

Taken together, this money would be enough to meet demands and costs if council tax increased by 2% a year, in line with inflation – but only if part of the funding earmarked for particular services is actually spent on meeting these pressures.

All the parties have unfunded commitments on social care services

On top of their costed plans, each of the parties makes uncosted pledges to spend more on adult social care services.

The Prime Minister’s promised plan to “fix social care once and for all” was notably absent from the Conservative Manifesto. Perhaps it’s a case of once bitten, twice shy, given the poor reception the plans set out in the 2017 Conservative manifesto received (despite actually representing quite a substantial increase in expenditure).

The fall out in the last election might also explain something the Conservatives did say: that housing would not be counted in means-tests, so that no one has to sell their house in order to pay for the cost of their care, even after they die. Whether this is even a step towards fixing the system is debatable though, as it could mean unfair differences between people who hold more of their wealth in their house and those who hold more of it in financial assets – such as those who have traded down, or have been renting. It could also cost several billion pounds, which is unaccounted for.

In addition to free personal care for the over 65s, Labour also pledge a £100,000 cap on how much people will have to pay in total – including for accommodation and food costs. The Liberal Democrats also propose a cap but have not said what it would be.

In addition, the Liberal Democrats plan a dedicated and ring-fenced health and social care tax. Getting the design of this tax and its linkage to spending right would be crucial with such a plan. Such a plan could also have important implications for the role of local government in the social care system. If this tax is truly ring-fenced, it would mean decisions over how much to spend on social care being centralised; and if people are paying a dedicated health and social care tax, they might be even less willing to see differences in service offerings across the country.

Labour’s National Care Service might also mean more central control of social care spending and services, unless it’s just a branding exercise.

Conclusions

Taken together, the differences between what the parties propose for local government funding are stark. This reflects manifestos that more generally set out vastly different futures for the country.

But all three main parties have unfunded commitments on adult social care spending – suggesting this will be an important and potentially problematic issue whoever forms the next government.

More on this topic

Report
The 2010s have been a decade of major financial change for English local government. Notonly have funding levels – and hence what councils can spend on local services – fallensignificantly; major reforms to the funding system have seen an increasing emphasis onusing funding to provide financial ...
Book chapter
A growing elderly population, increases in the number of disabled adults, and increases in wage and other costs, mean that English councils will likely need billions in extra funding over the next parliament if they are to meet the rising costs of providing adult social care.
Presentation
A presentation on recent trends and the outlook for local government spending. It includes a discussion of local tax devolution options, and the potential impacts of the ongoing Fair Funding Review.
Newspaper article
In this article, David Phillips argues that pivotal choices loom on local government funding, but if we don’t address what we expect from our councils we risk a system that fails to meet our objectives.
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Nearly a decade of cuts in funding from central government has left all councils having to make increasingly difficult choices about local services. In the article for the MJ, David Phillips looks ahead to the looming choices of the future - about the size and slicing of the funding pie available ...