Local authority financial sustainability and the Section 114 regime

Tools

Murphy, P. ORCID: 0000-0001-8459-4448, Eckersley, P. ORCID: 0000-0001-9048-8529, Lakoma, K. ORCID: 0000-0002-2583-3813 and Dom, B.K. ORCID: 0000-0002-0889-2571, 2021. Local authority financial sustainability and the Section 114 regime. London: Housing, Communities and Local Government Committee, House of Commons.

Preview

Text
1400099_Murphy.pdf - Published version
Download (315kB) | Preview

Abstract

This submission provides evidence on all of the key issues outlined in the terms of reference.

There are increasing numbers of long-term and complex financial challenges besetting local government, that if not addressed, will continue to make an increasing number of authorities financially unsustainable. Under current financial reporting arrangements this will lead to the issuing of more Section 114 Notices.

The scale of the problem is significant, and the long-term unsustainability of local authority finances is fundamentally due to underlying structural issues in the collection, allocation and distribution of revenue raised to support local public service provision.

Continuing to provide short term and piecemeal financial support on the basis of the system last revised in 2013 is increasingly inefficient and sub-optimal in terms of distribution, with all parts of the current model becoming demonstrably more regressive in terms of their impact.

COVID-19 impacts and authorities’ involvement in risky commercial investments exacerbate and intensify this long-term problem and have accelerated the process, but neither are they the fundamental causes of these problems.

There is a long-term need to re-establish a new regime for local authority financing that is fair and sustainable; that reflects the levels of need for local services and the ability of individual local areas to generate revenue.

The implementation of the Redmond proposals for local audit, the adoption of CIPFA’s financial resilience index and the provisions of the Fair Funding Review will not resolve these fundamental issues on their own. A new local audit regime and a fairer distribution mechanism are both necessary, but not sufficient to generate long-term stability and a robust new regime.

A new regime will require significantly improved data and information, not least for the assessment of need, as the basis of calculating the future property tax component, and for the economic and efficient operation of the re-distributional mechanism.

An improved and updated Resilience Index; changes to the oversight of the Prudential Framework, capitalisation and reform of the Public Works Loan Board are necessary in themselves and as part of a new local government financial regime.

The submission provides detailed analysis and recommendations on each of these issues.