Croydon could actually be among the “winners” of the next review of local authority funding from government, according to a report from the country’s leading independent economics research institute.
On the up?: Croydon could be among the winners under new council funding plans
The Institute for Fiscal Studies report, published today, probably doesn’t tell us anything we did not already know about local authority funding, after 15 years of “austerity” policies imposed from Westminster, with ever-rising levels of Council Tax and several councils, including Croydon, going bust.
The IFS research concludes that English councils need billions of pounds more in funding to meet rising demand, particularly for social care and housing.
The Labour government’s review is almost certainly not going to deliver extra funding across all councils, but it seems likely that under Angela Rayner, as Secretary of State at the Ministry of Housing, Communities and Local Government, it will act to redistribute some of what money is available to where it is most needed.
Which could be where cash-strapped Croydon, at long last, gets some help.
The IFS report says, “From 2026–2027, there will be a new system for allocating funding between councils, which will take account of new official assessments of councils’ spending needs and their relative abilities to raise revenues themselves via Council Tax.
“Changes will be phased in over three years to ease the transition, with funding floors in place to limit losses for those receiving less funding under the new system than currently.
“These reforms are welcome: for arguably 20 years, England has lacked a rational system for allocating funding between councils.
Independent findings: the IFS report was published today
“But after so long without such a system, reintroducing one will mean a significant redistribution of funding around the country. And there are different options for key elements of the system, which could have significant effects on the financial impacts of the final package of reforms.”
Inside Croydon has highlighted the inequalities in council funding many times over the years.
Twelve months ago, our columnist, Andrew Fisher, wrote: “In 2022-2023, government funding to Croydon Council was worth £239.25 per resident. Neighbouring Lambeth gets £481.73 for each of their residents…
“This inequality in funding has been the case for years. If Croydon got the same funding as Lambeth per resident, we’d have an extra £95million to spend every year – more than enough to balance the books.”
Coverage of the IFS report from the Inner London Standard and BBC Inner London, focused on how inner London boroughs, such as Lambeth, Southwark and Wandsworth, will need to increase Council Tax by the maximum allowed. Though it is difficult to recall a time when that was not the case (apart from occasional bouts of generosity from Wandsworth Town Hall).
Detailed findings: the Institute for Fiscal Studies has focused attention on funding inequalities across English councils
The inevitable robbing of inner London Peters to pay outer London Pauls will also see urban areas outside the capital, including Nottingham, Wolverhampton and Slough, get better settlements from central government.
The government argues the overhaul is necessary because councils’ funding has become out of step with local demand for services.
The portion of business rates income that councils have been allowed to keep since 2013 will also be redistributed.
The IFS predicts the proposed changes are set to redistribute around £2.1billion in annual government funding, with 186 authorities losing out and 161 benefiting.
It will not be possible to say exactly what the changes will mean for each area until the plans are finalised later this year.
The share of funding going to the very poorest areas will be substantially larger, it added, than for the least deprived.
A spokesperson for MHCLG said: “The current, outdated way in which local authorities are funded means the link between funding and need for services has broken down, leaving communities left behind.
“That’s why we are taking decisive action to reform the funding system so we can get councils back on their feet and improve public services.”
Across London, the average increase in government funding over three years will be 8%.
For Croydon, it is likely to be 15%.
Given Croydon’s funding has fallen in real terms by more than 20% over the past two decades, such increases in government grants could take 45 years before this council’s grant is back to levels it received at the start of this century.
Read more: Dear Angela: It’s time for you to act and fund Croydon fairly
Read more: Tory Chancellor cuts £45m from Croydon Council’s funding
Read more: Visit the IFS’s own website
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