In a timely new report, Biting the Bullet: Funding Local Government in this Parliament and Beyond, the think tank Localis outlines a vision for reforming the UK's local government finance system, warning that urgent action is required to avoid a crisis in essential services. The report underscores the critical need for a comprehensive overhaul, following years of austerity and mounting pressures on local authorities across the country.

Localis' research points to three key areas where funding pressures are most acute: temporary accommodation, Special Educational Needs and Disabilities (SEND) education, and adult social care. These sectors are facing spiralling costs and demand, with local authorities struggling to maintain services at a time when financial resources are stretched thin. As the report states, "The government must show political courage and expend political capital in driving urgent reforms to the local government finance system in next spring’s Comprehensive Spending Review."

Localis proposes a series of bold reform pathways to address these challenges, including:

• Updating the central government grant allocation formula to better align with local needs.
• Devolution of revenue-raising powers such as implementing local taxes like tourist taxes or environmental levies.
• Reform of business rates, moving beyond a property-based system and considering alternatives like local corporation tax.
• Council tax reform, including revaluing properties for the first time since 1991, adding extra bands, and addressing the regressive nature of the tax system.
• Introducing a land value tax, which could provide a stable revenue source while encouraging more efficient land use and discouraging speculation.

Sandy Forsyth, lead researcher at Localis, emphasises the urgency of these reforms:

"Local government plays a critical role in delivering essential services, yet it remains underfunded amid rising challenges. This report urges Treasury policymakers to adopt a bold and pragmatic approach to local public financial reform, ensuring that local authorities can meet the needs of their communities."

The report stresses that while short-term funding increases have been made, they are insufficient to tackle the long-term financial shortfalls facing local authorities. Localis calls for a "shift in political will" to ensure that local government is sufficiently funded to provide the services that communities rely on.

As Localis' Chief Executive, Jonathan Werran, notes:

"Fixing a broken system will require political choices and the expenditure of political capital – there will be winners and losers. However, as our report highlights, there is much in the wider arsenal of fiscal policy to draw on for a reformed local taxation system that is more efficient, fairer and sustainable."

This report is a critical call for action, and it provides both a comprehensive analysis of the financial challenges faced by local government and actionable recommendations to begin addressing these issues. We urge all members to engage with this important discussion as we move into the next phase of fiscal reform.

For further insights and to explore potential solutions, read the full report by Localis, available here.