david phillips - ifs
TRANSCRIPT
David Phillips
Associate Director, Institute for Fiscal Studies
CIPFA Conference,10th July 2019
Council funding: what’s happened and what’s next?
Spending down 21% since 2009-10...
© Institute for Fiscal Studies Council funding: what’s happened and what’s next?
Source: IFS (2019) ‘English council funding: what’s happened and what’s next?’
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1999-00 2001–02 2003–04 2005–06 2007–08 2009–10 2011–12 2013–14 2015–16 2017–18
£ b
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... following big increases in 2000s
© Institute for Fiscal Studies Council funding: what’s happened and what’s next?
Source: IFS (2019) ‘English council funding: what’s happened and what’s next?’
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1999-00 2001–02 2003–04 2005–06 2007–08 2009–10 2011–12 2013–14 2015–16 2017–18
£ b
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2.3% of GDP in 2017-18
2.6% of GDP in 2000-01
3.5% of GDP in 2009-10
Large cutbacks in discretionary spending...
© Institute for Fiscal Studies Council funding: what’s happened and what’s next?
Source: IFS (2019) ‘English council funding: what’s happened and what’s next?’
-60% -50% -40% -30% -20% -10% 0% 10% 20%
Children's social services
Adult social services
Environmental services
Central services
Highways and transport
Cultural and leisure services
Housing services
Planning and development
Total service spending
Large cutbacks in discretionary spending...
© Institute for Fiscal Studies Council funding: what’s happened and what’s next?
Source: IFS (2019) ‘English council funding: what’s happened and what’s next?’
-60% -50% -40% -30% -20% -10% 0% 10% 20%
Children's social services
Adult social services
Environmental services
Central services
Highways and transport
Cultural and leisure services
Housing services
Planning and development
Total service spending
Core children’s social services only • Sure Start down 66% • Services for young people down 64%
Increased focus on critical services
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Core social care & public health: > 67% of non-schools spending
• Core social care services were 52% in 2009-10
Concentration on most critical needs
• Most severe social care needs (esp. younger adults)
• Looked-after children
True also for services where overall budgets cut significantly
• Homelessness
• Concessionary bus fares
Council funding: what’s happened and what’s next?
Overall purse strings have started to loosen...
© Institute for Fiscal Studies
90
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100
105
110
115
120
2018-19 2019-20 2020-21 2021-22 2022-23 2023-24
Inde
xed
valu
es (2
018−19
= 1
00)
Real RDEL
Note: RDEL refers to Public Sector Current Expenditure in Resource Departmental Expenditure Limits (PSCE in RDEL). Source: Ben Zaranko (2018), available at: https://www.ifs.org.uk/publications/13657.
Council funding: what’s happened and what’s next?
...and money seemingly to burn
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Cut Corporation Tax: £13bn
Raise NICs allowance: £11bn
Increase Defence spending: £13bn
Cut student debt interest: £1bn
Increase HRT: £9bn
20,000 extra police: £1bn
Council funding: what’s happened and what’s next?
Increase schools spend:
£5bn
...and money seemingly to burn...
© Institute for Fiscal Studies
Cut Corporation Tax: £13bn
Raise NICs allowance: £??bn
Increase Defence spending: £13bn
Cut student debt interest: £1bn
Increase HRT: £9bn
20,000 extra police: £1bn
Council funding: what’s happened and what’s next?
Increase schools spend:
£5bn
... but what about councils?
© Institute for Fiscal Studies
90
95
100
105
110
115
120
2018-19 2019-20 2020-21 2021-22 2022-23 2023-24
Inde
xed
valu
es (2
018−19
= 1
00)
Protected RDEL (inc NHS)
Real RDEL
Unprotected RDEL (inc MHCLG)
Note: RDEL refers to Public Sector Current Expenditure in Resource Departmental Expenditure Limits (PSCE in RDEL). Source: Ben Zaranko (2018), available at: https://www.ifs.org.uk/publications/13657.
Council funding: what’s happened and what’s next?
Adult care to take rising share of local taxes
© Institute for Fiscal Studies
0%
10%
20%
30%
40%
50%
60%
70%
Note: Figure shows the percentage of council tax and retained business rates (75% retention) required to meet adult social care spending needs. Source: IFS (2019) ‘English council funding: what’s happened and what’s next?’
3% council tax increases (referendum limit, excl. social care precept)
4.7% council tax increases (2019-20 average)
Council funding: what’s happened and what’s next?
So what to do?
© Institute for Fiscal Studies
Accept councils can do (even) less
Raise more revenues either nationally or locally
Council funding: what’s happened and what’s next?
Raise nationally if prioritise redistribution and consistency Raise locally if prioritise incentives and discretion
Possible income from tax devolution
© Institute for Fiscal Studies Council funding: what’s happened and what’s next?
Not all taxes are suitable for devolution
© Institute for Fiscal Studies Council funding: what’s happened and what’s next?
Value-added / Sales Taxes Broad incentives to boost value-added / sales
Administratively difficult
Sales are highly mobile
Corporate Income Taxes Broad incentives to boost local corporate profits
Administratively difficult
Profits are highly mobile
Stamp Duty Land Tax Properties aren’t mobile
Revenues very unequal and highly volatile
Tax that should be abolished – not entrenched via devolution
Income tax best option for part-devolution?
Identifying where taxpayers live and levying taxes appropriately much easier than identifying location of profits or value-added
Broader incentives to boost local incomes and employment – including via helping residents to access better jobs in neighbouring areas
Income taxpayers are local voters – shoppers and business owners often aren’t
Tax devolution per se not a solution to funding situation – more funding is, which means higher taxes (or, in short term, borrowing)
© Institute for Fiscal Studies Council funding: what’s happened and what’s next?
Uneven revs. at least some redistribution
© Institute for Fiscal Studies Council funding: what’s happened and what’s next?
So what to do?
© Institute for Fiscal Studies
More redistribution, weaker incentives
Stronger incentives, bigger divergences
Council funding: what’s happened and what’s next?
Fundamental question about the nature of English governance
Technical details matter – and
empirical analysis vital
Fair Funding Review (I)
© Institute for Fiscal Studies Council funding: what’s happened and what’s next?
Review of system of redistributing between councils
1. Updated and reformed assessments of councils’ spending needs
2. Updated assessments of revenue-raising capacity
Simple and transparent way of taking account of both
Most focus has been on spending needs assessments
• Proposal to base assessments of need for most areas apart from social care and public health on population only – hit poorer/urban areas?
But assessments of revenue-raising capacity and re-introduction of a functioning redistribution system likely to matter even more
Fair Funding Review (II)
© Institute for Fiscal Studies Council funding: what’s happened and what’s next?
Next stage of our work on Fair Funding will bring it all together
Initial work focusing on revenue-raising equalisation, and foundation formula suggests an interesting pattern...
Impact of resource equalisation (keep pilots)
© Institute for Fiscal Studies Council funding: what’s happened and what’s next?
Impact of population-only foundation formula
© Institute for Fiscal Studies Council funding: what’s happened and what’s next?
Fair Funding Review (V)
© Institute for Fiscal Studies Council funding: what’s happened and what’s next?
Remember still more to model / decide...
a. Need to consider updates to other spending needs assessments, new ACA method, etc.
b. Government may not opt to fully equalise on basis of revenue-raising capacity
c. Transitional arrangements / damping likely given magnitude of changes in some areas
Summary
© Institute for Fiscal Studies Council funding: what’s happened and what’s next?
• Large spending cuts mean spending on council services is at historic lows, measured as % of national income
• Council budgets increasing focused on statutory services, with social care and public health more than two-thirds of service budgets
• Still need to answer ‘what is local government for?’
‒ Further cutbacks or new national or local revenue streams needed
o Income tax the best option if significant tax devolution favoured
– National solidarity and consistency, or local responsibility and discretion?
• Fair Funding Review – impact may not be what many people expect
David Phillips
Associate Director, Institute for Fiscal Studies
CIPFA Conference,10th July 2019
Council funding: what’s happened and what’s next?