Bridging the Brexit funding gap

As Britain prepares to leave the EU, Judith Keech, account director for Capita Local Public  Services explores how Brexit may impact on local government funding and the ways that  councils could look to bridge the gap to financial sustainability.

Six months on since Britain voted to leave the European Union and unsurprisingly there continues to be much discussion how the ‘Brexit’ vote could affect local government in the future.

Local authorities have faced and continue to face budget reductions. Many have relied on funding from the EU to bridge the shortfall and to help stimulate growth within their local areas.

While the future landscape remains unclear, it is likely that Brexit will see an end to many of these funding streams. For example, EU has funded a range of initiatives such as research and development, training and skills development, agriculture as well as loans to enable regeneration.

Almost all economists are also forecasting a slowdown in growth that will inevitably worsen public finances. This all makes it more urgent to find new funding sources to mitigate losses from traditional sources.

A discussion point from the Chartered Institute of Public Finance and Accounting conference in July for example, was the extent that devolution could help plug the funding gap.Some devolution deals are accelerating the transfer of 100% of business rates to local authorities, opening up the possibility of capturing the growth in value and yield for local determination. After 2020 all Councils will be in this position. Could this be one answer to the funding gap? For this to be the case local authorities need to successfully develop strategies to attract and retain businesses to their areas – that will then in turn pay their business rates and generate revenue for the council.

It’s an area that our customers are exploring more and more – how to become more financially sustainable to fuel growth, protect vital services and enhance local prosperity.

There are some ‘quicker wins’ for councils to maximise revenue through enhanced debt recovery, reviews into entitlements such as single person discount and bringing empty homes back into use. All of which provide income by increasing eligible contributions to council tax and business rates or grants that are currently available.

Then there are the more medium term-measures such as commercialising local authority services and working with public sector organisations to review and optimise their own assets to generate income.

Longer term, wider regeneration strategies will also play an important role. If councils can take a holistic view of regeneration across housing, education, healthcare, high streets and transport, successful projects can attract people, skills, investment and trade which will boost the local economy and long-term financial sustainability of the council.

Regardless of your view, the uncertainty of Brexit will undoubtedly add to budget challenges for local government – as will demographic changes and increasing demands on services. This means that the need for commercial thinking and initiatives within the public sector is becoming more important, Brexit or no Brexit.

By Judith Keech

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