Local authority funding challenges

September 16th, 2014 Category: Local Authority & Housing

Funding continues to be one of the key challenges that many local authorities face. The economic downturn over the last few years has had a significant impact on local councils. 

As the economy has slowly started to recover, local authorities are struggling to keep ahead of the changes and maintain their level of service to the communities they serve.

This has come about because of a number of factors, which include:

Reduced yields from local tax – particularly council tax. Decreased income from fees and charges has also taken its toll on the finances of local councils.

Local authorities are also not getting as much money from reserves and balances due to low interest rates. 

In addition, there is also less money coming in from capital receipts and planning related income. All of this coupled with the rising demand for services due to cuts elsewhere has created pressure on services offered by councils.

New research has helped to shed light on some of the pressures they face. The Council Tax Advisors CIC urged people with debt arrears to take steps to clear them after the Guardian revealed that UK councils failed to collect up to 40 per cent of owed council tax payments since April last year.

Local authorities in Liverpool, Birmingham, Leeds, Nottingham and Sheffield were the most likely to be affected by council tax arrears,

Figures published by Council Tax Advisors CIC revealed that Liverpool collected 61 per cent of council tax due from struggling households, leaving a £3.5 million hole in the city’s finances. 

Furthermore, Birmingham was unable to collect 30 per cent of its council tax, equating to £3 million. At the same time, local authorities in Leeds, Nottingham and Sheffield are owed around £2 million each from low-income households.

Chris Richards, founder of Council Tax Advisors CIC, urged people with council tax debts to get in touch.

He said: “Many people across the UK are finding it hard to pay their council tax. We’ll help them find a manageable solution that will prevent the problem escalating.”

So how can local authorities overcome some of these challenges?

The first step is to find new, more efficient ways of working. This could include things such as streamlining or simplifying the approach taken to commissioning and paying for services.

In particular, local authorities should form partnerships with external agencies and businesses such as debt collection agencies and housing associations in order to collect payments more efficiently.

It is also necessary for local authorities to take a more proactive approach to financial management.

This can be done through the use of key performance indicators, which enable councils to track and measure their strategic and operational goals.

Tax increment financing may be another way forward for many local authorities. This is a mechanism through which councils borrow against predicted growth in their locally raised business rates.

That borrowing is then used to finance key infrastructure and other capital projects. This type of funding model works best in a growing economy.

Some councils also include contingency sums in their budgets, in order to plan ahead for financial risks and uncertainty.

However, the key thing for many local authorities will be to plan ahead financially and incorporate any risks into their corporate governance strategies.