Government funding: welcome but not a game changer

It’s not often that we get some unexpectedly good news on funding, but that did come through in the middle of last week. After a strong campaign led by the County Councils Network, in which Kent County Council played its part and worked closely with our Members of Parliament, the government made an unusually late amendment to the Local Government Finance Settlement. This gave an additional £600 million to the sector, of which £500 million goes to councils (like KCC) with responsibility for children’s services and adult social care.

We do not yet know our precise allocation, but estimate it (on the basis of past methods of distributing the social care grant, which is the approach that will be used) to be somewhat over £10 million, probably between £11.5 and £12.8 million. 

This is, as I have said, welcome but not a game changer. It has to be seen in the context of our £1.3 billion budget and the £118 million savings gap with which we started our budget process. It does not address the underlying pressures that are driving up local authority spend, and the outlook for the next few years (whoever forms a government after the election) suggests that funding settlements or remain tight.The cavalry is not coming over the hill. 

Nonetheless, after a disappointing outcome to the Autumn Statement and the provisional Local Government Finance Settlement, it is a welcome recognition of at least some of the pressures local government is experiencing. And it all helps. 

You can find our statement here.

Building the budget: after the Autumn Statement

The joint letter from the Leaders of Kent and Hampshire came a few days before the Chancellor’s Autumn Statement (17 November).

The Statement was in many ways better than expected for local authorities, at least upper tier councils with social care responsibilities. There was £1bn extra for social care in 2022-23, rising to £1.7bn in 2023-24 (60% via the NHS, the remainder through the local government settlement); the social care charging reforms were delayed, but councils are able to keep the funding associated with them; and councils have the ambiguous opportunity to raise more council tax, with the referendum limit (for social care authorities) rising from 3% to 5%.

All this has made a big difference to KCC (and other authorities) in setting their budgets. But it does not stop the requirement to make very difficult and painful savings decisions - it simply reduces somewhat the mountain to be climbed. Nor does it resolve the longer-term issues central to the Kent/ Hampshire letter. As I wrote in an article for the New Statesman, “the wolf is still at the door, even if he is no longer in the kitchen”. I have written in similar terms in the Municipal Journal.

At tomorrow’s Cabinet meeting, we will consider the latest financial monitoring report, which shows a projected overspend of £60 million for this financial year. The process of building next year’s budget, now in its later stages, has been helped by the Autumn Statement but is still exceptionally challenging. 

Funding announcement - but uncertainty continues

On Thursday the Housing, Communities and Local Government Secretary, Robert Jenrick, announced a further support package to help councils respond to Covid-19.

Councils in England will receive a further £500 million to respond to spending pressures they are facing.  The government has recognised that councils are best placed to decide how to meet pressures in their local area, and therefore the funding has not been ringfenced. Individual allocations have yet to be confirmed, but a subsequent letter from the Minister of State, Simon Clarke, made clear that this would focus on spending needs alone, rather than income losses, as was the case in the last disbursement announced by government.

Income losses will be dealt with by a separate mechanism. Where losses are more than 5% of a council's planned income from sales,fees and charges (SFC), the government will cover them for 75p in every pound lost.

Thirdly, the government is also bringing in changes so that councils can spread their tax deficit over three years rather than the usual one year.

Any additional funding and measures to relieve immediate pressure are, of course, welcome. Nonetheless, the concern remains that this still leaves councils, including KCC exposed to significant financial risk.

In terms of support for the financial pressures faced by councils, the first two tranches of government funding totalled £3.2bn, compared with the current £500m tranche.  KCC's share of the first two tranches was £67m, compared with our forecast additional spending of £96.6m and loss of income of £21m for this financial year. On the basis of the allocation of the first two tranches, KCC might expect its share of the new allocation to be in the £8 -12m range, still leaving a big shortfall.

It is not yet clear how the compensation of 75p in the £ on losses of income on SFC above 5% of total planned income will operate. It does suggest that KCC would have to absorb this  before receiving any compensation for losses. This may not be as material for County Councils as it would be for Districts and Unitaries, however the amounts for KCC are significant – as a total as an indication, our total SFC in the 2018-19 outturn was £156.6 million. We will  need to look at the full year effect before being certain as to whether the 5% trigger will be reached.

At this stage there is no funding attached to the provision to deal with council tax and business rate collection losses over three years. In the short run, the pressure would be deferred, and a deficit recorded in the collection fund which could be carried over into years two and three. The announcement says that funding will be considered "in the next Spending Review."  The government appears to be deferring a decision on this and relying on a strong economic recovery which will see council tax receipts increasing. If losses from council tax and business rates are not cash backed, there could be a viability issue for councils with inadequate reserves to cover short term pressures.

While this does represent some additional support for the sector, it is highly doubtful whether this can meet the pressures incurred in year, and many key decisions are deferred until the spending round and greater clarity over the speed of economic recovery.  Local government still does not have certainty in relation to its financial position as we emerge from the immediate impact of Covid-19. The County Council will be considering a revised 2020-21 budget at our meeting on 10 September.

 Interest in this issue has remained strong, and you can find an article in the Huffington Post, which includes an interview that I gave, here.

Asylum seeking children: Kent's challenges

Today has seen significant media interest in the issue of the arrival of Unaccompanied Asylum Seeking Children (UASC) in Kent and its implications for the County Council. I gave an interview to Radio Kent on the subject this morning (shortly after 0745 on catchup), and BBC South East is also following the story and has interviewed me (for later broadcast).

The arrival of UASC in Kent, often at the port of Dover, has long been a challenge for KCC. While adult asylum seekers go to other parts of the country under a long-standing dispersal scheme, UASC become children in the care of the County Council.

KCC has a long and proud record of support for these young people (chiefly boys aged between 15 and 17), and responded strongly and effectively to the large-scale arrivals in 2015. However, there has always been a concern that, if the number of arrivals grows too quickly, this will put pressure on the support systems (social work capacity, accommodation) in a county which also has some 1450 local children in care and a similar number of children in the care of other authorities placed in Kent. In addition, government financial support has seldom been adequate and KCC has faced an annual funding gap averaging around £2million but sometimes as high as £4.5m. The problem has continued, often in slightly varying form, despite huge efforts by  KCC Members (including me in my previous Cabinet role in Children's Services) and officers.

What has added urgency to the issue is a combination of increasing numbers and the effects of Covid-19. Arrivals have been increasing sharply since the middle of last year, and so far in 2020 160 young people have come into the care of KCC. That is not far short of the full year totals in 2017 (214) and 2018 (172) and is now running at a rate not seen since 2015-16.

Thes newly arriving young people are staying in Kent. The National Transfer Scheme (NTS), set up by government (but on a voluntary basis) in the wake of the 2015 crisis in an attempt to place UASC young people across a wider range of local authorities, had initial success but then dried up. Kent has not placed a child with another authority under NTS since the spring of 2018. At the turn of the year, along with counterparts in Portsmouth, Cabinet Member Sue Chandler and I wrote to other authorities urging them to take more UASC young people.

When the NTS was set up, government set a UASC level of 0.07% of the total young people's population before transfers to other authorities were required. For Kent, this amounted to 231 UASC. Two years ago our UASC population was almost exactly at that level, and even in the spring of 2019 only a little higher; now, however, it stands at 469. In addition, there are 932 care leavers (young people aged 18-25) with a UASC background for whom KCC has continuing responsibilities (as is the case for all care leavers of whatever background).  

All this has financial consequences. Last year, the Home Office raised the rates for support for under 18 UASC, and in that financial year our funding gap was a relatively small £600K. Now, however, the effects of Covid-19 and its social distancing requirements have meant that KCC has had to expand significantly its reception centre capacity (going from one centre to three, and facing pressures to increase capacity further) and to run it on a more expensive, less cost effective basis. There is a lack of availability of suitable properties to provide lower-cost options for housing the young people. This has meant around £200K in additional costs already incurred, and future commitments of almost £700K. In addition, the increase in the number of young people in care means growing pressure on the council's social work and support capacity.

Longer-term, care leavers present a greater financial challenge to the County Council; government funding to match the council's responsibilities is inadequate and care leavers accounted for more than the net overspend of £600K in 2019-20. A Care Leaver Review has been under way for several years but has still not reached a conclusion.  

KCC is now urging action in three areas: recognition of the increased costs associated with the combination of increased arrivals with the effects of Covid-19; resolution of the issues addressed by the Care Leaver Review; and ensuring that other authorities take more young people, whether under a revived NTS or a more directive approach. None of this can wait.  

Funding: the interest continues

Further to yesterday's post, the financial pressures on local government remain in the spotlight, with two councils (Liverpool and Windsor & Maidenhead) warning that they might have to issue Section 114 notices (a brake on all but essential spending, triggered when a council hits financial crisis).

This evening, I gave a live interview to BBC South East Today on the issue. You can find the report here - it is the top news item (but will only be available to view for the next 24 hours). I reiterated my argument that central government's commitment of £3.2bn in two tranches of support for local authorities is very welcome, but does not address the full scale of the problem. For the present, cash flow is not a pressing problem for Kent authorities, because of the two funding tranches, the acceleration of payment of government grants for social care and the deferral of payment of business rates to the centre. However, the problem for the full financial year remains; for the combined total of Kent and Medway authorities, pressures (including anticipated shortfalls in council tax) come to around £370 million, while the support from government comes to some £99 million.

Ministers have said repeatedly that local authorities must do what it takes to meet the crisis and "we will back you." £3.2bn is a significant down payment on that pledge, but it must be delivered in full.

Allocating the £1.6bn - what it means for Kent

Ten days ago, the Ministry of Housing, Communities and Local Government (MHCLG) announced a second tranche of £1.6bn in support to local government. Yesterday MHCLG confirmed the allocation of this funding to individual local authorities - and it turned out to be on a very different basis to the first tranche.

The government made clear that the sharply different split of funding between County and District Councils reflects the financial pressure being felt (by Districts in particular) as a result of residents staying at home as requested during lockdown, and therefore not using services including car parks and leisure facilities. The first tranche was allocated overwhelmingly towards Counties in two-tier areas, with a strong focus on social care pressures. This time, the split between County and District authorities is 65:35.

The government has also confirmed that the Review of Relative Needs and Resources (the Fair Funding Review) and 75% business rates retention will no longer be implemented in 2021-22 to allow councils to focus on meeting the immediate public health challenge posed by the pandemic. The further deferral of the Fair Funding Review is deeply disappointing but inevitable under the circumstances; you can find the very measured assessment of this by the County Councils Network here.

Looking at the breakdown of allocations in Kent, the County Council receives £11m less in this second tranche than in the first (down from £39m to £28m), while the Districts in Kent will receive in total an additional £15m (up from £709K to £16m), meaning overall the allocation for the county has increased by £4m.

We are all aware of the enormous pressure being put on the whole local government family in Kent as we respond to this crisis. We will all continue to work together to ensure we keep our services running wherever this is possible and meet the new demands which arise from protecting the most vulnerable in the county with innovation and determination. It is not known how long the crisis will last and in the meantime the ongoing pressures on social care will remain; we will have to continue to provide PPE; support providers and businesses in Kent and deal with the many other calls on our funding.

Additional support for our District colleagues is very welcome; we all serve the same residents, and the pressures felt by Districts, especially through loss of revenue, are very real. However, as the County Councils Network has pointed out, Counties have seen a 29% fall in allocations between the two tranches and now face huge unfunded pressures, especially in areas such as social care, which could force a requirement to stop all non-essential expenditure . For KCC, while the £67m in grant from Government (combining the two tranches) is welcome, our latest forecast of the total financial impact on us in 2020-21 terms of extra spending and lost income is some £133m - twice the total grant so far.   

And so it will be necessary to continue to make the case directly to Government for recognition of the work we are all doing and the continuing costs of the essential support we are giving to Kent’s residents and businesses. Which is what we will continue to do.

MHCLG announces £1.6 billion for councils

Last week I wrote about the allocation of emergency Covid-19 funding to councils. Since then, the issue has remained high-profile, with councils highlighting the pressures that they face.

Today Robert Jenrick, Secretary of State at the Ministry of Housing, Communities and Local Government (MHCLG) announced a further £1.6 billion in funding for councils. This doubles the support previously announced, and was accompanied by a letter from the Communities Secretary to Council Leaders and Chief Executives praising the actions of councils and their workforce: "the unsung heroes as we tackle this virus."

This follows the government's earlier announcement that it was bringing forward £850 million in social care payments, and deferring councils' payments of £2.6 billion to central government relating to business rates. These are, however, timing differences in payments to assist cash flow; the £1.6 billion is additional money.

The sector, including the County Councils Network, has welcomed the announcement, while urging that, with major uncertainties regarding both revenues and expenditures, the need for support to councils must be kept under review. It is not yet clear how the funding will be allocated between councils; the MHCLG announcement says this will be communicated "as soon as practicable."

More on Anthony Roper funding issue

Following the concerns raised over the funding position at Anthony Roper Primary School, Sevenoaks MP Sir Michael Fallon and I met local parents and governors in Eynsford at the end of last week.

The discussion was a very useful one - with governors, as well as the MP and County Councillor, addressing questions raised by parents. My argument was that there is a strong case both for schools in general within the Comprehensive Spending Review (CSR), and for areas such as Kent to gain a greater share of the national allocation.

Much of this is captured in the 'activity-based' funding model proposed by the f40 group, of which I am an active member, and Michael Fallon has expressed his strong interest in this approach too. It is only by bringing a larger overall funding level to Kent that the lot of schools such as Anthony Roper can be improved.

Through my role as Cabinet Member at KCC, as well as my involvement in f40 and the Local Government Association (LGA - I serve on its Children and Young People Board), I will continue to argue for this approach.

Anthony Roper Primary School and the funding issue

The recent letter from the Chair of Governors of Anthony Roper Primary School in Eynsford highlighting the school's difficult funding position and asking parents to contribute to support the school has drawn a lot of local and media attention. The BBC Sunday Politics carried a report on it, talking to parents and also interviewing both Sir Michael Fallon MP and me (and in this I wear two hats - as local Member and with my KCC Education portfolio. Perhaps I should add a third, since both my children attended the school).

There are three major factors at work in the pressures faced by the school:

•  ARPS is one of the lower-funded primary schools in Sevenoaks (by one measure of per pupil funding, 37th out of 42). This reflects chiefly the way in which funding (which Kent receives from government in the form of Dedicated Schools Grant (DSG)) is allocated, much of it driven by factors related to deprivation. ARPS has relatively few pupils who meet these criteria. In addition, all schools get a 'lump sum' (in Kent, of £120,000) regardless of their size. As a relatively large primary school, ARPS has to spread this sum over more pupils

• Kent is one of the poorer-funded local authorities in the country; in the current financial year, we ranked 143rd out of 152. We have long campaigned as part of the f40 group of lower-funded local authorities for a change in the system; this has had some effect with the introduction of what is (rather misleadingly) called a 'National Funding Formula', currently being phased in. This has offered some help and improvement to Kent, but more to secondary schools than primaries, and is in any case only a very partial step in the right direction

• Nationally, schools funding has been tight since 2010 (and especially since 2015). More money has gone into the DSG, but the number of pupils has also increased, so money per pupil has been flat in cash terms, leaving schools under pressure as costs rise. In addition, like many local authorities, Kent has had to transfer DSG funds from the Schools Block (which meets most day to day needs of schools) to the High Needs Block, which supports children with more extensive Special Educational Needs and has been growing rapidly since the enactment of the Children and Families Act 2014

With government set to review its priorities with a new Comprehensive Spending Review (the last year of the current CSR is 2019-20) there is clearly a strong case to be made for schools - but also for areas like Kent to get a greater share of the resources available. I sit on the Member Board of f40, and we will continue to press government to move beyond the current National Funding Formula.

You can findmy more detailed analysis of these funding issues via this link. 

Northamptonshire, the canary in the mine

Every so often, I try to address an issue on this blog that goes wider than the specific concerns of the Division that I represent. The implications of the crisis at Northamptonshire County Council are such an issue.

Northamptonshire has fallen into deep financial crisis. It has twice had to issue what is called a Section 114 notice, stopping all but essential spending to meet its stautory obligations. Following the Caller Report into the financial problems at the authority, local government in the County is to be restructured, with both the existing County and seven District and Borough Councils being replaced by two unitary authorities. The Councils have agreed to this, effectively voting to end their own existence. The leadership, both officer and Councillor, at the County Council, has been removed. I know the new Leader, Matthew Golby, with whom I sit on the Local Government Association's (LGA) Children's and Young People's Board; he is an able man with an excruciatingly difficult job. Government inspectors have been sent in to oversee the Council's activities.

What has happened? The Caller Report identified many errors made by the Council's previous leadership, reflected in over-optimistic budgeting and excessive faith in ill-defined 'transformation' projects. The Council seems also to have clung too long to holding down Council Tax. But all this was an inadequate response to a set of pressures that are affecting all of local government, and County Councils in particular. As Professor Tony Travers, perhaps the country's foremost local government expert, put it: "the burden of lowering the deficit has fallen on unloved sectors and services, notably provision within the oversight of the Home Office and the Ministry of Housing, Communities and Local Government. Grants to councils in England fell by almost 50% between 2010-11 and 2017-18, and spending in real terms has tumbled by almost 30% on average."

This reduction came at a time when spending pressures were increasing. In the early years of austerity, a lot of attention was paid to what was known as the 'Barnet Graph of Doom' - a set of projections by that London Borough to show how rising demands in social care and waste disposal, coupled with grant reductions, would inexorably squeeze out other spending.

This is exactly what has happened, as commentators such as Tony Travers and Simon Jenkins have recorded. Adult social care needs continue to rise, even if in Kent we have partially mitigated this by delivering savings from an overhaul of services. Government has, to a degree, recognised this through allowing dedicated increases in Council Tax and support through the Better Care Fund, but this is only a partial response. Children's social care - part of my Cabinet responsibilities - continues to see upward pressure; the LGA estimates that there will be a £2 billion spending gap in this area by 2020. And so other services - the visible, universal services that most directly connect Councils to their communities - such as Highways and amenity services, as well as the preventative services such as youth work have taken the strain. Ever wondered about the state of roadside verges? This is why.

This affects all of local government, but as the County Councils Network has pointed out, counties are particularly vulnerable, because they have huge exposure to demand-driven services such as social care, yet benefit less from revenue from new homes than District or Unitary authorities. It is little wonder that other councils, some Counties notable among them, have been identified as being at risk.

In Kent, under the skilled stewardship of the late John Simmonds and of Andy Wood, we have delivered over £600 million in cumulative savings since the start of the grant reductions. While our reserves are not as high as those of some authorities, we have maintained a stable financial position. We have done this while defending services as much as possible; for example, our youth service is much reduced from its levels of a decade ago, but remains more substantial than that of many councils.

However, the next few years will remain very testing, not least because central government is approaching the end of its current spending cycle and will undertake a fresh Comprehensive Spending Review to cover the years from 2020 onwards. Additional commitments have been made to the NHS; by contrast, it is unclear whether local government will again be expected to be in the front line of reductions. With reducing government grant, a narrow financial base of its own and strong demand-led pressures, local government is in a position where, without significant change, something has to give. Whatever its past errors, Northamptonshire is telling us something.