Councils are ready for the tough year ahead, despite uncertainty over long-term funding

Julian Batson explains that while the social care challenges, staffing shortages and delays to long-term reform of local authority funding continue to loom large, the one-year financial package for 2023 leaves councils in a better position than anticipated.

Julian Batson

Head of Local Authorities, Barclays Corporate Banking

Looking back at 2022

As the impact of the pandemic began to recede in the early part of 2022, it was clear that resilient local authorities had worked hard to improve efficiency and exploit digitisation to become leaner and more agile organisations.

However, the long-expected full review and reform of local government finances had been postponed, with government funding being provided through a one-year financial settlement– potentially impacting forward planning.

The drive to meet zero carbon targets and other sustainability and environmental goals intensified last year. Staff shortages continued and growing demand for adult and children’s social care services placed considerable strain on resources, with no long-term strategic funding solution.

Pressure on local authority finances intensified in the latter part of 2022 as the economic headwinds of high inflation and rising energy costs hit already stretched resources. These cost issues are likely to continue, as the latest Government energy support package will see the Price Cap removed at the end of March 2023 for businesses in England, Scotland and Wales, replaced by a new discount mechanism based on wholesale prices. This of course applies not just to local authorities but also to their supplier partners, for example, care homes.

The 2023 financial settlement

Moving to 2023, all those key challenges are still very much here. As we all know, the better news is that the government’s £59.5bn funding package for 2023 gives councils a 9% year-on-year increase, equating to 5.8% after inflation, and a minimum 3% boost to core spending power before council tax.

Crucially, the settlement also confirmed the much needed £2bn worth of extra funding for adult and children’s social care for 2023/24.

While this is cautiously welcomed by sector bodies including the Local Government Association and the County Councils Network, revenue remains 15% to 18% lower than 2010, allowing for cuts, inflation and population increases, according to the Institute for Fiscal Studies.

Councils are naturally asking for more certainty on funding, but this is just a one-year settlement, with strategic planning not made easier amid news that the Local Authorities Fair Funding Review is likely to be delayed for at least two years.

Social care funding and recruitment

The extra money for social care will hopefully alleviate the situation for local government around funding and service provision for social care services, but in real terms this may only be a temporary solution for the next couple of years.

I think recruitment and retention are going to continue to be among the primary challenges for councils battling against a highly unusual combination of high levels of job vacancies in a recessionary environment.

Councils, and their partners in social care, find themselves competing against other sectors where working conditions and pay may be more attractive.

There’s no easy solution to councils’ employment situation as many services have already been outsourced, and headcounts drastically reduced, partly through the deployment of tech. With access to EU workers now more restricted, the solution might be to employ temporary staff from elsewhere overseas, particularly to support social care delivery.

Other financial concerns

Looking beyond local authority income from grants and council tax, in the current UK and global economic situation many councils will be understandably nervous about the performance of some of their investment portfolios.

With bricks and mortar retailers suffering and companies in urban areas downsizing or moving accommodation, councils must also be wary of falling business rates, particularly in areas of high social deprivation.

Increasing efficiency

So where will councils have to make further cuts? There isn’t a lot of obvious low-hanging fruit left, nor cutbacks in statutory services delivery, and reducing demand isn’t an option.

Realistically, costs will have to be kept down by increasing efficiency. That’s most likely to be achieved by raising levels of online interaction with users generally facilitated through further deployment of technology, such as AI and automation, in customer-facing services.

Central government has been allocating funds for this purpose, but councils will need to support less able and confident users to access online and tech-based services.

Barclays can support councils on their digital journey through the services of our expert Digital Eagles team. Its Digital Wings service is freely available to boost users’ digital skills and online confidence and create ‘digital champions’ within councils to support them. Our Digital Eagles can co-create councils’ own ‘digital champions’ teams, thereby supporting the digital journey for colleagues and the citizens they serve.

There are other examples of how digitisation has improved efficiency. In adult social care, many of our clients use our virtual account banking platform which can significantly reduce time spent on financial administration, whilst retaining rigorous controls.

ESG and levelling up

ESG has been an important and growing consideration for local authorities for some time but will almost certainly come into sharper focus as a result of the forthcoming Public Sector Procurement Bill, expected in early 2024, requiring even greater focus on how councils procure products and services.

The thinking is that this can galvanise the sector’s huge spending power to deliver policy objectives like levelling up and ESG targets, by supporting work and business generation, growing the green economy, improving diversity and inclusion, and encouraging sustainability.

Reasons for optimism

Despite the obvious headwinds local authorities significantly increased their in cash reserves over the pandemic period, albeit these funds are typically earmarked for emergency or capital expenditure rather than meeting recuring shortfalls in revenue expenditure. Government has committed to consulting with the sector on how some of these funds might be freed up to alleviate financial pressures.

Michael Gove, the Secretary of State for Levelling Up, Housing and Communities, has indicated he’s still minded to offer councils more in the way of devolved powers and funding, partly in recognition that local decision-making is desirable.

But clearly, it’s going to be a tough year ahead regardless, and where we can, we will assist local authorities through the strong partnerships we’ve built with them.

Whether we’re providing finance solutions, or advisory services like those we’re currently promoting through councils to help their customers tackle cost of living concerns, we are here to help.

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