New report: local government must embrace risk and change in order to survive

A new report by the Social Market Foundation think tank, supported by leading public sector insurer Zurich Municipal, says that councils will have to change how they operate if they are to cope with a range of challenges and risks facing them and the communities they serve.

The report – Local public services 2040 – identified six key challenges that local government will have to face over the next two decades:

  • that an ageing population will put increasing pressure on health and social services
  • more fragmented families will live in more dispersed communities, and will have higher expectations of service quality as a result of prosperity
  • localised environmental risks around flooding and air pollution to become heightened
  • huge opportunities because of technological advances which will also cause disruption to jobs
  • greater fiscal devolution presenting the opportunity for councils to control their destiny as well as risks around the resilience of their local tax basesIn order to respond to this changing environment, the report recommends five different models that councils could seek to adopt into in order to respond: “industrial councils” – which will address market failures in infrastructure and help their communities to adapt to technological change. “Ofcouncils” will pursue social objectives through greater regulation, including in the housing market, and “tech opportunists” will technology to their advantage, using robots and carers to provide a blended mix of support to those requiring social care. The report also recommends further actions councils will have to take to succeed: they will need to take on new responsibilities beyond statutory duties to help their communities, and become more creative in finding ways to sustaining and build their tax base and other revenue streams. They will have to act as a ‘market maker’ and manager to bolster their local economies and sustain their local community sector, whilst driving better value for money in contracted services through innovation and competition, and evolve new organisational competencies, such as around industrial policy, regulation and commissioning.
  • The commissioning council revisited” will use charity and voluntary providers to drive down costs, and will innovate with new practices such as financing services and projects through crowdfunding ventures. “Community councils” will make greater use of communities to deliver services, which will include addressing the shortfall of family carers and the growing problem of loneliness through networks of intergenerational support.
  • Our findings show that employment in local government has fallen by a quarter or 800,000 employees between the start of 2010 and 2017. Meanwhile, local government net borrowing has been increasing since 2013/14. These challenges are coming at a time when local government is already facing huge financial pressures: the last time local government ran a fiscal surplus – with revenue exceeding expenditure – was in 1996, but in the 2016/17 fiscal year, local government net borrowing stood at £8.6bn.The report is published as the LGA says that councils face a £5.8bn funding gap by the end of the decade, and that they believe that 75% of central funding is to be cut by 2020.

Nigel Keohane, SMF research director, said:

“Councils look set to be squeezed into the 2020s and beyond with continued funding constraints, growing demand from an older population and the need to respond to new environmental risks.

“We should expect significant innovation in how councils respond, whether this is looking to regulation, to industrial policy, to new technologies, or to communities themselves and the resources within them.”

Andrew Jepp, Managing Director, Zurich Municipal, said:

“Devolution is central to the future of public service provision in the UK. Power is flowing from Whitehall to Town Halls and City Halls across the country and citizens are demanding more from their local authorities. Councils are having to respond to these rising expectations whilst dealing with an incredibly challenging funding environment.

“In these circumstances, it can be easy to become preoccupied with the short to medium term risks and challenges. The local government sector must put in place robust plans to minimise and mitigate the risks and threats that will materialise over the long term and at Zurich Municipal we will do all we can to support them in this task.”

“We hope today’s report – with its recommendations and warnings – will become required reading for Council leaders up and down the country as they begin to plan today for the risk landscape of public services in 2040.”

James Kirkup, SMF director, said:

“Councillors already face fierce opposition when they make difficult decisions about local services and this report suggests that those pressures will increase in the years to come.”