Don't let the financial crisis destroy devolution

Local government policy is up in the air… and maybe we should stop waiting for it to land. These were the sentiments — albeit paraphrased — of South Yorkshire's Mayor Oliver Coppard and Sheffield City Council Chief Executive Kate Josephs at our recent Reimagining the Local State conference.

Certainly it seems that local government and devolution policy is destined to remain something of a moving target, for some time to come.

A long-promised White Paper should still be arriving shortly before Santa. If half of the trailed information is true, it will provoke enormous debate about the future of the sector. In practice it will fire the starting gun for years of debates, dilemmas, and disputes as everyone wraps their heads around structural change. And that's before we even get to plans for local growth, industrial strategies, planning reforms…

But there is one part of this system which cannot be allowed to stand in continued uncertainty. The current crisis will not permit it.

Recent developments in local government finance have raised as many questions as answers. The Autumn Budget offered targeted funding boosts and continued hints of multi-year settlements. Word has it we may learn more about both before everyone goes into winter hibernation. But neither will provide the shift required to solve this system's proliferating problems.

As The MJ''s readers will know better than me, local authorities are caught in a vicious cycle of growing costs, diminished fiscal autonomy, and systemic underfunding. Key cost drivers — adult social care, children's services, and homelessness prevention — continue to balloon, while outdated revenue systems like council tax and business rates fail to keep pace with demand.

Compounding this crisis is an alarming collapse in the systems that underpin local financial accountability and transparency. For the first time ever, the National Audit Office could not sign off on the Whole of Government Accounts due to missing, unreliable data from local authorities. Without robust, timely audits, both councils and central government operate in a fog, unable to plan effectively, spot risks, or credibly account for their stewardship of public funds.

The interconnected nature of these challenges demands a whole-system approach. Our latest reports, Accounting for failure and Back from the brink, outline a roadmap for stabilising and reimagining local government finance:

1. Rebuilding Financial Oversight

Effective local audit won't put a penny in the pocket of local government — but it might just make sure the pennies that are in there are being properly counted. The current system is paralysed by a shortage of qualified auditors, opaque accounting practices, and a lack of leadership. We propose empowering the Office for Local Government (Oflog) to act as a system leader for local audit. With the right mandate, Oflog could coordinate audit efforts, streamline requirements, and tackle the backlog, restoring integrity and confidence in local government accounts.

2. Reimagining Revenue

Local government must be empowered to diversify and expand its revenue streams, and align these with the strategic goals which will power-up local economies to drive receipts and reduce service demand. This includes overhauling council tax — starting with revaluations and greater local flexibility — and introducing innovative measures like a Land Value Tax. Councils should also have the freedom to levy new local taxes, such as tourism or congestion charges, and retain a greater share of locally generated income.

3. Targeting Cost Drivers

Significant savings and better outcomes can be achieved by addressing critical cost drivers. Money should be redirected out of the NHS to shore up the adult social care system. Regional authorities should be able to coordinate councils to pool resources and shake up the residential care market.

4. Leveraging Local Assets

English local government controls assets valued at nearly £400 billion — and in a lot of places these are now being sold off to survive. Far better to establish Regional and Urban Wealth Funds, modelled on successful examples from Copenhagen and Hong Kong, to unlock significant value while maintaining public ownership.

Getting all this right is a pre-requisite for achieving the other huge, ambitious shifts promised for local government. Reorganisation may or may not be worth the bun-fight it is about to provoke, but we can say with confidence that it cannot, alone, deliver the needed savings. Devolution is hugely important, but could easily founder on the rocks of the local financial crisis.

We literally can't afford to let that happen.

This piece was originally published in The MJ and can be found here.