Summitry

** As the Labour Government passes the 100 days mark in office, LCA 's Insight Team has produced a Special Report looking at the Government's progress in the built environment. You can request a copy of the report here. **

What do Thomas Tuchel, Rachel Reeves and a London council Chief Executive have in common? Well, all three have near-impossible jobs. Tuchel carries the weight of history as England chase that elusive second World Cup. Reeves faces a parliament-defining Budget in under two weeks, juggling the nation’s precarious finances, desperately trying to free up money for investment without breaking Labour's manifesto promises on tax. And council bosses are trapped in what seems like a never-ending spiral of shrinking budgets and a relentless rise in the cost of and demand for services.

Before the last general election, Sue Gray (remember her?) had responsibility for pulling together a list of crises that could explode on Labour's watch. Her list included prison overcrowding, an insolvent Thames Water and bankrupt local authorities. While the parlous state of local government finance isn’t a new problem – rumbling on for well over a decade – it has certainly deteriorated sharply in the last few years. Councils bore a disproportionate share of public spending cuts under the Coalition Government – a neat way for Whitehall to displace the pain away from central Government. In more recent years, a string of councils have faced S114s - effectively bankruptcy – including Woking, Slough, Birmingham, Thurrock and Croydon. While not all of these can be blamed on austerity, it can hardly have helped matters.

Others have come close - if it wasn't for emergency support from central government and the granting of permission to sell assets to pay for running costs (which is an unwise thing to encourage), the list of bankrupt councils would have been even longer. The last local government funding settlement under the previous Tory government had all the hallmarks of kicking the can down the road, the sole aim to avoid any embarrassing council bankruptcies before the general election. The Secretary of State Michael Gove, no doubt with one eye on the polls, may also have had in mind that a delayed problem for the future would not be one his party would be left to deal with.

Recently I bumped into a senior local government official, and we talked about the state of council finances in London. I'll admit that it was a depressing conversation. The language used was of the desperate need for a lifeboat in the coming Budget to stave off a rush of effective bankruptcies. As we cover in today's LDN, we are seeing reports of London councils facing eye-watering budget deficits. While a lot of the coverage leads with the cancellation of the annual Christmas lights and the like, this masks more serious problems in key services upon which many thousands of Londoners rely.

Deep knowledge of local government finance requires a PhD. But there are two basic essentials that in part explain where we are. Council funding comes from two main sources. First, Council Tax which is around half of income, but governments have in recent years capped the amount local authorities can increase this by. Second, central government grants, retained business rates and income from Sec 106 and CIL payments from developers. But councils only find out how much grant they will receive a few months before the new financial year, and settlements have tended to be only for the coming 12 months. This creates great uncertainty and limits their ability to plan. It also gives great power to governments to squeeze funding.

Yet local councils have a legal duty to provide key services such as social care and temporary accommodation regardless of local demand. What we’ve seen in recent years is demand for both going off the scale with councils left in a bind – unable to raise enough additional income to fund the rising costs, nor can they cap demand. In London temporary accommodation is a particular headache - a product of the rapid growth of the city and our inability over many decades to build enough new homes. London Councils estimate that the temporary accommodation bill “threatens to break borough budgets’ with a ￡700m funding shortfall next year.

The built environment sector is understandably frustrated at under-resourced planning departments. But when councils are fighting day to day to stay afloat, the reality is that planning will be some way down the priority list even if it does generate important income. The Labour Government, focused on kickstarting growth and getting Britain building, will need to be very mindful of this – the extra 300 planning officers promised will barely touch the sides of what is needed.

So, while the lifeboat is desperately needed in the coming budget, it is only an emergency rescue. Longer term solutions on how we fund local services and what we expect from our councils will require very tough decisions by Ministers. These go to the heart of debates on decentralising power from Whitehall, how we tax property and development in this country and what additional finance-raising powers councils and Mayors might need to diversify their income streams.

With a 174 majority, the current Government is the best placed in recent times to grasp the thorny stinging nettle of local government funding. Let’s hope it doesn’t take as long as it has for England to bag another a World Cup.

Nick Bowes - Managing Director, Insight

This is a slightly modified version of the introduction from this week's LCA LDN Newsletter - join thousands of London's decision makers and opinion formers and receive LDN straight to your inbox every week by signing up here.