Labour urged to focus on local government finances over ‘sexier’ devolution amidst council housing crisis

The Institute for Fiscal Studies has said that Labour needs to use the Spending Review process, coming up later this year, as a way of overhauling an “out-of-date and arbitrary” system.

Failure to do so will make it harder “to tackle major inequalities in health, wellbeing and life chances between different parts of England”, the IFS added.

Since coming to power in July, increasing devolution has been a key focus on Sir Keir Starmer and Angela Rayner.

The pair met England’s metro mayors in Downing Street in their first week in government, and have promised to increase planning, transport and skills powers to the regions.

However, the IFS has said the government needs to fix the “no longer fit for purpose” system of funding local government first, or at least at the same time.

Current funding allocations for councils are largely based on data from the 2000s and early 2010s and while the previous government did a lot of the analytical work needed to prepare for change, it ultimately kicked the can down the road.

David Phillips, associate director at the IFS, said: “Devolution may be sexier and an easier sell, but the Deputy Prime Minister Angela Rayner should not duck a trickier issue: the outdated funding allocations for councils in different parts of England.

“Updating funding allocations won’t be easy – either practically or politically. It will create losers as well as winners.

“But grasping this nettle and putting in place a mechanism for regularly updating assessments of local areas’ spending needs and revenue-raising capacity going forward would put council funding on a stronger footing, help tackle geographical inequalities, and be an important legacy for any minister.

“And a new government with a large majority and a clearly articulated commitment to take ‘tough decisions’ is perhaps best placed to deliver this much-needed change.”

He added that “waiting to tackle it until after powers are devolved is likely to be much harder”.

The IFS’ report comes as an “unprecedented coalition” of councils called for an emergency injection of £644 million from the Government to stabilise their housing accounts and prevent investment in new homes being delayed or cancelled.

In a meeting in Westminster yesterday, 100 local authorities warned that the financial model for council housing finances is “broken”, with a £2.2 billion “black hole” in councils’ dedicated budgets expected by 2028.

A report said that unless action is taken to stabilise the system’s “foundations” soon, most council landlords will “struggle to maintain their existing homes adequately or meet the huge new demands to improve them, let alone build new homes for social rent”.

Coun Anne Handley, leader of East Riding of Yorkshire Council, said her local authority is “pleased to be one of the many councils who aim to improve access to affordable homes for our residents through this coalition”.

“By investing in council houses together we can improve the lives of many as well as future generations to come,” she added.

A Ministry of Housing, Communities and Local Government spokesperson said: “We are facing the most acute housing crisis in living memory and that is why we are working at pace to reverse the continued decline in the number of social rent homes.

“The Government has already given councils more flexibility to use Right to Buy receipts to deliver more social housing. This is on top of an additional £450 million for councils to secure homes for families at risk of homelessness.

“We have made clear we will give councils and housing associations the stability they need and will set out further details at the next spending review.”