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By Aileen Murphy, Director at the UK National Audit Office

Eight years on from the dawn of the ‘austerity’ era and seven years on from the passing of the Localism Act, we must ask ourselves in what way has local government changed? The financial pressure exerted upon local government, combined with changes to the accountability landscape and progress in devolving some powers to some places and new powers, have all sparked off many different consequences. The NAO has produced a series of reports on local government covering financial sustainability, devolution, local economic growth and major service areas; such as adult social care, which has illuminated the changing landscape.

The main policy of central government towards local government since 2010, has been that the sector should become ‘financially self-sufficient’ by 2020, despite the lack of clarity over what financial self-sufficiency really means when put into practice. This has brought about change to the character and functioning of many places; the department has changed the components of local government finance, bringing in incentive mechanisms for funding that include business rate retention and the new homes bonus. The department has weakened the link between the funding settlement and local need while removing ring-fences from grants, rolling grants into one big pot. So, we are seeing less money on an ongoing basis but more flexibility; a weaker link with need but encouragement to improve local economic activity to bring in more money.

Alongside that, the Localism Act 2011 gave all authorities a general power of competence which enables councils to undertake any activity so long as it is legal. Councils also have borrowing powers, which are subject to the Prudential Code. The combination of these two puts councils in a powerful position to set up, support and invest in wholly owned companies, joint ventures and other ways of directing and supporting economic activity. When done well, this should contribute to the Code of Audit Practice’s guidance on ensuring that councils make proper arrangements for securing value for money so that:

In all significant respects, the audited body takes properly informed decisions and deploys resources to achieve planned and sustainable outcomes for taxpayers and local people.1

The ability of authorities to invest shows up in the capital assets data; a growth in both intangible assets and financial assets. Councils are borrowing from PWLB while lending to each other or to other public bodies, investing far less in more traditional asset classes of land, buildings and equipment.

Devolution of freedoms, flexibilities and powers to local government in England has been ongoing in fits and since 2010, culminating in the creation and election of 9 combined authorities and 6 directly elected mayors last year. The main lens of devolution has varied over time between encouraging local economic growth and public-sector reform. The Greater Manchester Combined Authority, now on its 5th iteration of its devo deal, and the combined authority and directly elected mayor are currently tackling both. Their progress towards integrating health and social care will hopefully provide a blueprint for other areas.

So, what are we to make of all these changes? One consequence is that the concept of ‘place’ is making a comeback. Local government in combined authority areas is having a strategic footprint big enough to make proper sense of transport and infrastructure investment, and hopefully the capital to do it long term. Another consequence has arisen from the cuts made to revenue support grant and the aim of financial self-sufficiency. Necessity being the mother of invention, has made councils search for revenue return and income streams of their own to ensure the future of services without being dependent on government grant. However, not all places have the same capacity for growth nor is growth in business rates synonymous with a bigger local economy. So, these changes are baking in existing variation and this makes oversight of the system more difficult besides raising questions of equity. Furthermore, the continuing reduction in funding, apart from money earmarked for adult social care and lack of reduction in statutory duties, means that local discretion overspending aligned to local needs is being squeezed.

Lastly, the legitimacy of local decision-making rests on its democratic mandate. Post-Brexit, this question is more acutely posed by the Leave-voting areas, while the question of democratic engagement and how to increase it remains.