The Government needs to make major reforms to how local councils are funded to prevent authorities from facing financial collapse.
These are the findings of a cross-party committee of MPs, who say a £4 billion funding gap needs to be plugged to prevent councils across the country from going bankrupt.
The report, by the Commons Levelling Up, Housing and Communities Committee, comes as Bradford Council teeters on the brink of financial disaster due to huge funding gaps.
The report, which was published today claims there has been a “systemic underfunding” for councils, and argues the current business rate and council tax systems hit more deprived areas the hardest.
The committee is made up of both Conservative and Labour MPs, and Clive Betts, Labour chair of the committee said: “Long-term reform is vitally needed.
“The funding model for local councils is broken.”
Their report includes evidence from Bradford Council leader Susan Hinchcliffe, who said her council “cannot keep pace with demand” for social care services in the district.
Bradford Council has recently asked the Government for exceptional financial support to balance its books. This support would allow the authority to borrow money to help pay for services, as well as use income from asset sales.
If the support does not come, the council has said it is likely to be the latest to declare bankruptcy as it cannot balance its budget as required by law.
The Government committee’s report says: “Local authorities have seen significant reductions in their spending power coincide with increasing demand for their services and inflationary pressures exceeding those in the wider economy.
“Recent (Government) funding settlements, while increasing in cash terms, have not kept pace with these pressures leading to a downward spiral. The prospect of further term funding cuts is likely to exacerbate existing concerns about systemic underfunding, with the current funding gap already estimated at £4 billion.”
In its conclusion, the Committee says: “The Government must include additional funding in the local government finance settlement for 2024–25 to ensure local authorities bridge their estimated £4 billion funding gap.
“The Government must set out which local authorities are being prioritised and why for this financial settlement.”
It criticises the current council tax system, saying: “The Government’s increasing reliance on council tax to fund local authorities is causing a disproportionately negative impact on funding levels for authorities in the most deprived areas of England.
“The Government must urgently reform council tax by undertaking a revaluation of properties and introducing additional council tax bands, and should consider options for wider reform of council tax.”
It also says the current system of business rates – which are set by the Government – needs an overhaul, as it currently has a “disproportionately negative impact on those authorities in the most deprived parts of the country”.
Although the committee acknowledges that the Government has agreed that children’s social care needs reform, they add: “We are concerned, however, at the receding prospect of timely delivery of reforms.”
The committee has also raised concerns that the type of financial support Bradford Council has asked for could create further problems.
The report says: “There is a risk that local authorities, in using these flexibilities, are drawn into fire sales of local assets, or unsustainable borrowing, in attempts to bridge their chronic budget gaps.
“This could drive poor value for money for local authorities and their communities, and exacerbate existing financial distress.”
After the report was published, Cllr Hinchcliffe said: “As the report says, urgent action from Government is needed to make local government sustainable and to save local services across the country.
“The report says it is ‘no surprise’ that councils everywhere are facing this crisis given that council funding has been reduced so significantly at the same time as demands and costs have increased.
“In particular I back the MPs’ call for action on a national level to reform and increase funding for social care.
“Here in Bradford, we are taking the necessary actions to further reduce the size of the council and change our services.”
A Department for Levelling Up, Housing and Communities spokesperson said: “We recognise councils are facing challenges and that is why we recently announced an additional £600 million support package for councils across England, increasing their overall proposed funding for next year to £64.7 billion – a 7.5 per cent increase in cash terms.
“This additional funding has been welcomed by leading local government organisations, but we remain ready to talk to any concerned council about its financial position.”