Parts of the North East could be “big losers” from a Labour overhaul of how crisis-hit town halls are funded, a new report has warned.
The Government is planning major reforms aimed at addressing “unfair” disparities in the core funding it gives to councils, expected to divert money from wealthier parts of the country towards more deprived areas where needs are greater and local leaders are less able to raise funds through council tax.
But new analysis from the Institute for Fiscal Studies (IFS) claims that gains for cash-strapped local authorities in the North East “may be lower than expected” overall and pinpoints two areas, Sunderland and South Tyneside, that are actually “set to be big losers”.
According to the IFS report, around a quarter of councils in England could suffer a real-terms drop in money under the Government’s plans.
The worst-hit will be inner London boroughs, including Sir Keir Starmer’s own council in Camden, while some shire counties are also expected to lose out significantly from the redistribution.
It is estimated that London as a whole would see a 7% reduction in overall funding if the Fair Funding Review 2.0 changes were in force this year.
The East Midlands and Yorkshire and the Humber are named as the biggest winners, with significant variation seen across the North and not everywhere seeing major gains.
Overall, the North East is shown to be 2% better off due to the reforms if they were in place now.
The report’s authors warn that the benefit to the North East “may be lower than expected given its low council tax revenue capacity, in part because its population has grown slowly in recent years (and the updated funding allocations will account for this)”.
They add, despite an expectation that deprived urban areas would benefit at the expense of more affluent and rural areas, the Government’s baseline funding reform proposals “are not particularly redistributive to poor, urban areas of England”.
Image: Freepik
The report states: “Some deprived council areas – such as South Tyneside and Sunderland in the North East – are set to be big losers from the reforms, in part reflecting their slow population growth now being accounted for.”
South Tyneside councillor Jim Foreman, the council’s lead member for finance, said the IFS report confirmed the council’s own “deeply concerning” appraisal of the reforms.
He added: “As one of the more deprived boroughs in the country that has faced disproportionate funding losses in Government grant since 2010, we believe that funding allocations should reflect the real needs of our communities—not just population figures.
“Supporting residents in areas of high deprivation requires greater investment. It costs more to deliver services where people face complex challenges, and this must be fully recognised in any fair funding formula. Whilst there are elements of the review with which we agree, we continue to lobby for a system including responding to the Government consultation that takes full account of deprivation, health inequalities, and socio-economic factors.”
Cllr Kelly Chequer, deputy leader of Sunderland Council, said her authority “would be concerned if proposals resulted in a reduction in Government funding and the impact it would have on our residents and city”.
She added: “The council will be responding to the Government’s consultation emphasising the need to provide greater support to areas like Sunderland in order that we continue to deliver our critical services for residents.
“As the consultation continues and further information is provided by the Government, including the Local Government Finance Settlement later this year, the council will assess the impact.”
Kate Ogden, co-author of the IFS report and a senior research economist with the think tank, said: “England has lacked a rational system of local government funding for at least 12 years – and arguably more like 20. It is therefore welcome that the nettle of funding reform is being grasped, and some councils will benefit substantially under the new system.
“But the changes will sting for those councils that are assessed to currently receive too high a share of the overall funding pot, and so which lose out from moves to align funding with assessed spending needs.”
A spokesperson for the Ministry of Housing, Communities and Local Government said: “The current, outdated way in which local authorities are funded means the link between funding and need for services has broken down, leaving communities left behind.
“That’s why we are taking decisive action to reform the funding system so we can get councils back on their feet and improve public services, with the IFS recognising that our changes will better align funding with councils’ needs.”
