Pugh, Alice

Riley, Rebecca

Taylor, Abigail

Tomlinson, Charlotte

English

Sources of funding for local authorities have changed substantially between 2010 and 2019, from being very dependent on central government grants, with council tax only representing a small proportion of funding, to an opposite situation. Local Authorities now rely heavily on the wealth of their people and businesses to provide services. In 2019/20 council tax represented 50% of funding received by local authorities, retained business rates provided 27% of their funding and government grants only accounted for 23% of their funding (Institute for Government, 2022). There is now an increased burden on local people and businesses to fund services and redistribution of funding nationally has reduced. This means Local Authorities with fewer people working and fewer businesses have less income to spend on services, widening the potential for inequality.Across England, there has been a £15 billion reduction in funding from central government between 2010 and 2020 due to a decade of austerity. Research by the LGA (2020b) has emphasised how over recent years councils have faced a proliferation of small grants. These grants are often very specific, and short-term in nature, limiting what councils can deliver. As a result, grants for some services cannot be guaranteed for consecutive years. Challenges have occurred where reductions in grant funding awarded have meant income from central government grants have been insufficient to fund services to their full capacity. Long term structural issues are therefore difficult to tackle within this short-term policy approach. Local Authorities face significant inequality, skills, employment and regeneration issues which take significant time to change are disadvantaged by this system.Grant allocations over the last decade have also changed into a more competitive model, whereby councils must bid for funding. Examples of competitive funding pots include the Community Renewal Fund, that specifically funds community projects. Between 2015/16 and 2018/19 competitive funding made up 32% of funding available for councils (LGA, 2020b). Competitive approaches distributing money in this competitive way, means that significant spend and time is wasted on resource on preparing the bids, which could be spent on delivery. There is also significant duplication and overlap in funding and pots are too small to tackle the issues faced.This approach also makes Local Authorities compete against each other. What is needed is collaboration, particularly in complex urban areas like the West Midlands, which should be working together across borders. But competitive processes like the Levelling Up Fund divide them as they are competing for the same pot of money. Many interventions need to operate across administrative boundaries, such as skills, employment sites, transport, tourism and leisure. Competition can lead to a disjointed or piecemeal offer to people and businesses, as it relies on multiple bids for different funds to be completely successful.Broadly equal reductions in core grant funding were introduced across local authorities between 2011/12 and 2012/13. The Government withdrew significant amounts of funding from specific grants that were allocated to local authorities based on levels of need. Therefore “those local authorities that rely more heavily on Government funding as a proportion of their budget were required to deliver a greater proportion of savings, in effect giving those areas in greatest need the greatest level of cuts to make” (Birmingham City Council, 2019a, p.9). The switch to relying on business rates also raises several challenges relating to current restructuring of businesses towards online models and reduced physical footprints. In particular, given shifts in retail and online businesses, the sustainability of business rates as a reliable source of income for local government has become a concern. Consumer shopping habits are changing with an increasing number of people shopping online rather than going in store. This has led to many retailers reducing their number of premises, to serve a larger market online. Business rates online apply to the premises of the business. If businesses are reducing their premises to serve online consumers, this will reduce income from business rates.Local authorities are limited in their ability to increase the level of council tax above 2% per annum without holding a referendum. This therefore becomes “an effective block” on councils being able to raise council tax since the low turnout in recent local council elections suggests that councils may struggle to achieve a high turnout in any such referendum. They also cannot change the effective tax based on house prices as this is fixed, so investment in places and regeneration does not change the income to the council.The changes to funding mechanisms, highlighted in this report, could lead to changing priorities for councils to generate increased income. For instance, prioritising increased large scale dense new house building, rather than regeneration, to raise council tax income and increased activity to attract new businesses, including competing with neighbouring areas to pull in businesses, to generate greater business rates income.Key Findings:• Overall, the spending power of Birmingham City Council decreased by 36.3% between 2010-2011 and 2019/20 in real terms in 2019-20 prices. Per capita, this represents a 40.8% decline in spending power.• Government funded spending power decreased by 53% over this period.• The spending power generated from council tax has increased since 2010-11 by 15%. This shows how council tax has been used to mitigate the fall in spending power from government grants.• The overall spending power of Birmingham City Council in real terms is comparatively lower than that of metropolitan districts. The spending power of Birmingham City Council has decreased by 36.3% since 2010-11, whereas for metropolitan districts it fell by 32.2%• Total revenue fell from £1.5 million to £1.27 million between 2010/11 and 2019/20. This represents a 17% fall in income. Income was lowest in 2016/17 at £1,129,807,056. Due to ten years of austerity, by 2019/20 the Council has had to implement savings of £736 million, including grant reductions.• When viewing these figures, what also must be considered is how despite this decline in total revenue since 2010-2011, Birmingham’s population has increased by 7.6%• Total gross expenditure by Birmingham City Council in 2019/20 was £3,109 million. This represents a near 12% decrease in expenditure in comparison to the 2010/11 expenditure of £3,548 million. In 2019 real terms prices, the 2010 expenditure would equate to £4,277 million, equating to roughly a 27.3% decrease in expenditure.• Between 2010/11 and 2019/20, the largest percentage decrease in spending was on planning and development (-84.8% over the period). Non-school education spending also experienced a 56.6% decrease. Environmental and regulatory services benefitted from the largest percentage increase in spending over this period with a 12.1% increase.• Service spending by Birmingham City Council has decreased from £1.4 billion in 2010-11 to £1 billion in 2019-20. This represents a 26% decrease.• Similar to trends for Birmingham City Council’s income, total spending has also decreased. Spending on all services has dropped by 26.4% since 2010-2011. The biggest drop in overall spending was in non-social care where spending dropped by 41.7% from 2010-2011 to 2019-2020.<br/

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Insights into Birmingham City Council’s Spending Power, Revenue Funding and Spending between 2010-11 and 2019-2020

http://pure-oai.bham.ac.uk/ws/files/184603106/insights_into_birmingham_city_councils_spending_power.pdf

Insights into Birmingham City Council’s Spending Power, Revenue Funding and Spending between 2010-11 and 2019-2020

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