While you might think that local councils are wholly funded by council tax, in fact, local government in England is funded by a combination of central government grants and local taxes.

What are the problems with local government funding?

There are three main problems with the way local councils in England are funded. First, funding is often short-term and uncertain, meaning that authorities cannot effectively plan for the long term and ensure the sustainability of their finances and the essential services they deliver. Secondly, it is fragmented across services and departments, and central government put a lot of restrictions on how it is used. Thirdly, councils often have to engage in competitive bidding for grants issued by central government, which may not be successful, placing an additional cost on councils trying to obtain funding.

The impact of austerity

On top of these issues, austerity completely reshaped local government finances, ‘shrinking the capacity of the local state, increasing inequality between local governments and exacerbating territorial injustice.’

The highly centralised system of national government in England, combined with weak local government, meant that austerity measures could be imposed from the centre onto local areas in England, unlike in the other parts of the UK. According to an analysis by the Institute for Government, since austerity began, spending on local government fell in England by 21 percent between 2010–11 and 2018–19. This is over ten percentage points more than in Scotland and Wales, which were able to prevent some of the worst cuts as they have a greater degree of autonomy over spending than councils in England.

The impact of the pandemic

Even before the pandemic began, councils had seen a significant reduction in core funding and were facing a 6.5 billion funding gap by 2024–2025. The covid-19 outbreak thus only served to expose the already precarious situation of local government finances, with the National Audit Office finding that, if the government had not provided emergency cash, there was the potential for system-wide financial failure. Some councils declared bankruptcy, while others had to ask the government for a bailout. Twenty-five councils were at acute or high risk of financial failure, with 92 at medium risk of insolvency. Because of cuts to local government finances, councils were less resilient and flexible in dealing with the impacts of the pandemic.

Current proposals for funding local government

In 2018–19, 50 percent of council funding came from central government grants, 31 percent from council tax, 18 percent from business rate revenues (collected locally but redistributed via a nationally-run system), and one percent from council reserves.

The reliance on central government funding, combined with the impact of austerity on local finances, means that local government funding in England is in need of reform. But the government seems to be continuing the top-down, centralised approach to local government funding, leaving councils with little say over the funding they receive.

Most of the government’s flagship levelling up policies, including the Towns and Levelling Up funds, allocate funding based on bids submitted by individual local areas. Central government retains full discretion to determine which projects are eligible and how funding will ultimately be allocated, rather than giving each area the autonomy to decide for itself how best to spend money to boost local growth.

The Towns Fund has already been subject to controversy due to the lack of transparency around the criteria used for determining the 100 towns which were to be invited to bid. The House of Commons Public Accounts Committee questioned the government’s approach in selecting the towns, stating that it was ‘not convinced by the rationales for selecting some towns and not others’, and has raised ‘concerns over the decisions being politically motivated’. A report from the National Audit Office had previously set out how, for some towns, ministers deviated from the recommendations of officials, and the Permanent Secretary at the Ministry of Housing, Communities and Local Government confirmed that ministers applied ‘their own qualitative assessment of those towns and their eligibility for funding’.

Further, it emerged that the towns invited to apply were ‘disproportionately drawn from marginal Conservative-held constituencies, and that the scheme might therefore benefit the Conservatives in any future election.’ This is particularly concerning given the nature of Westminster’s First Past the Post voting system and the key role played by marginal seats, with elections won and lost on a handful of seats changing hands. Focusing investment on these areas is a clear example of ‘pork barrel politics’ and has the potential to influence election results, and thus who forms the government. Due to First Past the Post, who wins these marginal seats can manufacture a large majority for a single party on a plurality of the vote. Further, it contributes to the neglect of and underinvestment in areas considered to be ‘safe’ from an electoral standpoint and thus not ‘worthy’ of political attention or funding.

What can be done about local government funding?

Compared to other countries in the Organisation for Economic Co-operation and Development (OECD), the UK has one of the most centralised local government funding systems, with little local autonomy and control over fiscal decisions around spending and taxation. For example, 30 percent of tax revenue is taken at the sub-national level in Germany, compared to under five percent in the UK, while spending by sub-national government is 2.5 times higher per capita in Germany than in the UK.

There is strong and growing consensus around the need to ensure fiscal autonomy for local government in England. In our new report, Democracy Made in England, we join the calls for financial and fiscal devolution to be among the powers available to English localities, depending on their need and capacity. This will allow areas to take on additional autonomy from central government and make long-term decisions for their specific area, while not precluding additional redistributive measures to ensure areas with lower revenue-raising capacity are not left behind.

We need to move away from Whitehall’s command and control approach to local government and ensure people and places are the heart of local decision-making.

Find out more about English local government and how it can be reformed, in the latest ERS report Democracy Made in England.

If you want to support the work like this, you can become a member of the Electoral Reform Society

Join the Electoral Reform Society today

Local government in England comes in many different formats, unitary, district and county councils all cover different parts of the country. In recent years, mayoral combined authorities have become an established part of the English constitutional set-up – if Greater London is included, 41 percent of England’s population (representing 43 percent of economic output but just 14 percent of land area) now lives in areas with some form of mayoral devolution deal.

Metro mayors themselves have come to increasing prominence in recent years, notably since the outbreak of the coronavirus pandemic.Turnout increased in the 2021 combined authority mayoral elections, compared to the same contests in 2017. The Tees Valley election witnessed the most significant turnout change in 2021, with incumbent mayor Ben Houchen being re-elected with a 12.7 percentage point increase in turnout.

What are combined authorities?

Combined authorities (CAs) are formed by the coming together of two or more unitary authorities, which agree to a bespoke ‘devo deal’ with central government in order to obtain some devolved powers. There are now 10 combined authorities in England, nine of which have a directly elected ‘metro mayor’ (mayoral combined authorities or MCAs). The North East Combined Authority does not have an elected mayor.

Directly elected mayors are seen as key to the success of the combined authority model of devolution, as they can provide a single, clear point of accountability, while being supported by a cabinet made up of local authority leaders and representatives of local economic sectors. By speaking ‘with a single and democratically mandated voice’ for their local area, mayors are seen as offering visibility for their community at the national level. Their election via the Supplementary Vote helps prevent unpopular candidates being elected on a small share of the vote, as can happen under First Past the Post, thereby ensuring that these important executive roles can command the support of a broad range of voters.

Why were combined authorities established?

The impetus for the ‘devo deals’ and the creation of mayoral combined authorities can be found in the aftermath of the 2014 Scottish independence referendum. In addition to promising further devolution to Scotland, Wales and Northern Ireland, then Prime Minister David Cameron announced that there would be a ‘wider civic engagement about how to improve governance in our United Kingdom, including how to empower our great cities.’

This policy was based upon a plethora of think tank reports published in 2014 and which, in turn, drew upon the 2012 independent report by Lord Heseltine on how to increase UK growth, which had proposed a fully unitary system of local government in England.

The first devolution deal, for the Greater Manchester Combined Authority, was announced in November 2014. Following the 2015 general election, the Conservative government set out its commitment ‘to building strong city regions led by elected mayors, building on the ground-breaking devolution deal with Greater Manchester in November 2014.’

To date, all devolution deals have initially been negotiated and agreed in separate, private, meetings between government teams and local authority leaders. After a deal was agreed and published, the local councils involved had to approve their participation in the deal (‘ratification’).

How does devolution work in combined authorities?

Devo deals typically consist of a ‘menu with specials’, with each metro mayor having different powers and budgets. Most deals include the devolution of powers around further education, business support, economic development, planning and land use, and local transport. In some cases, such as Greater Manchester, unique powers (the ‘specials’) are devolved as well, such as over housing and health.

Metro mayors make decisions about policy and spending alongside local authority leaders in their area, who may have different political standpoints or belong to different parties, and decisions must be signed off by a majority of council leaders. Metro mayors retain an effective veto over combined authority decisions in most areas, meaning their approval is needed to take a decision forward. Important decisions, such as on spending or local transport plans, can be rejected by a two-thirds majority of council leaders. Some decisions require unanimous approval from the mayor and CA members. This is unlike the situation in London, where the mayor can take decisions without reference to the boroughs.

Unlike arrangements in Scotland and Wales, and the London mayoralty, metro mayors are still a weak institution – they have limited powers and resources, lack meaningful control over funding and spending decisions, and cannot determine their own priorities where these diverge from the centre. But in spite of their few formal powers, mayors have sought to increase their clout in other ways. For example, they have taken on ‘orphan policies’, where no level of government has a clear duty to act, such as tackling homelessness or improving mental health provision. As shown during the coronavirus pandemic, mayors can also command attention from the national media, unlike other local government leaders.

Where next for metro mayors and combined authorities?

The government’s recently published levelling up white paper commits to extending and deepening devolution across England, including in mayoral combined authorities. The white paper makes it clear that the government’s preferred devolution model remains the mayoral one, with the highest level of devolved powers being available to areas with a single institution or county council and a directly elected mayor. A new MCA will be agreed with York and North Yorkshire, and existing MCAs will be expanded including in the North East, Greater Manchester and the West Midlands. The latter two will be able to access ‘trailblazer deals’ for further powers.

It is crucial that the targets set out in the levelling up white paper to extend and deepen devolution across England by 2030 are met. To date, progress on devolution has been very slow – almost 10 years after the first devolution deals were agreed, nowhere has yet the same powers as Greater Manchester.

Citizens themselves should also be much more involved in discussing the future of their communities, including around devolution and local government reform, as the ERS has long called for. Citizen involvement during the ‘devo deals’ negotiations was limited and this impacted public support for and legitimacy in these institutions.

Recent government proposals raise further concerns about the extent to which it is committed to ensuring local communities have a strong voice and representation. The Elections Bill currently making its way through parliament would change the method by which metro mayors, alongside local authority mayors and Police and Crime Commissioners, are elected from the Supplementary Vote to First Past the Post.

Scrapping the Supplementary Vote in favour of First Past the Post would be a step back for voters. The Supplementary Vote has been used for over 20 years and is an improvement on First Past the Post, which forces voters to vote tactically. Rather than making elections more accessible and enhancing participation, this addition to the Elections Bill would lead to voters having less of a say in our democratic processes.

Find out more about English local government and how it can be reformed, in the latest ERS report Democracy Made in England.

You can support the work like this by becoming a member of the Electoral Reform Society

Join the Electoral Reform Society today

England’s local government can sometimes be quite confusing. The history of devolution within England is one of ad hoc, piecemeal, top-down reforms united in their lack of a clear vision. This has left different areas with different arrangements, although generally, the purpose is the same wherever you are.

Firstly, local councils provide for an additional layer of democracy to that available from central government. Local government ensures the political representation of citizens at the local level, it is publicly accountable for local decisions and the implementation of national ones, and it fosters local engagement. Second, local government is responsible for providing a variety of public services, such as social care, education, housing and planning, and waste collection.

Local government is a devolved matter in the UK, so it takes different forms across the country. In Northern Ireland, Scotland, and Wales, there is a single layer of local government – with 11, 32 and 22 ‘unitary authorities’ respectively in each of these parts of the UK.

The landscape of local government in England is more fragmented and overlapping, with functions, powers and resources depending on the specific type of arrangement, and its shape has changed (and continues to do so) over the years.

There are three forms of sub-national government in England: local authorities, combined authorities, and London’s bespoke arrangements.

Local authorities in England

Currently, there are 333 local authorities in England, and these can be divided into two-tier and single-tier authorities:

• In two-tier areas, larger County councils cover multiple smaller District councils and these authorities share local government functions. County councils are responsible for social care and some aspects of transport and education (providing around 80 percent of services). District councils manage neighbourhood services, such as waste collection.
• In single-tier areas, one authority carries out all local government functions. Single-tier areas include: unitary authorities, London boroughs, metropolitan districts (effectively unitary authorities – the name is a relic of past organisational arrangements), and two unique authorities (City of London and Isles of Scilly). Around 62 percent of the population in England is covered by a single-tier authority.

Table 1: Principal Councils in England

Type of authority	Number of authorities
Two-tier
County councils	24
District councils	181
Single-tier
Unitary authorities	58
Metropolitan districts	36
London boroughs	32
City of London	1
Isles of Scilly	1
Total	333

Source: https://lgiu.org/local-government-facts-and-figures-england/

In both types of authorities, councillors are elected every four years using First Past the Post in wards that either elect one or multiple councillors each, with voters having as many votes as there are seats up for grabs. This can result in local councils that look nothing like the political make-up of the population that elected them.

The number of seats up for election can vary. In the majority of councils (68 percent), all council seats are elected at the same time. But, in 30 percent of councils, one-third of the councillors are elected every year, with the fourth year fallow. For voters, who may live in wards with three councillors, this would mean going to vote in three out of every four years. In two percent of councils, half of the seats are up for election every two years.

Both two-tier and single-tier types of local government are termed ‘principal councils’. Below this level, there are also around 10,000 ‘local’ councils, such as parish and town councils. All areas of England are also covered by a Local Enterprise Partnership (LEP), a voluntary body established in 2010–11 following the abolition of Regional Development Agencies, which coordinates economic development and growth policy in local areas. LEPs are not formally accountable to local authorities and thus to the electorate.

Combined authorities and London

In some areas, unitary authorities have joined together into a ‘combined authority’ with a directly elected mayor in order to access further powers from central government. There are now ten combined authorities (CAs) in England, nine of which have a directly elected ‘metro mayor’ (mayoral combined authorities or MCAs; the North East CA does not have an elected mayor). Mayors of combined authorities are not to be confused with elected mayors leading a single local authority, of which there are currently 15 in England. or for that matter, ceremonial mayors.

Devolution in Greater London is distinct from MCAs – the Greater London Authority, with a directly elected mayor and the London Assembly, was established following a referendum in 1998 and legislation in 1999.

Metro mayors and the mayor of London are elected using the Supplementary Vote, although the Elections Bill currently in parliament would change the electoral system used to elect mayors and Police and Crime Commissioners to First Past the Post (FPTP). Using the Supplementary Vote helps prevent unpopular candidates being elected on a small plurality of the vote, as can happen under FPTP, ensuring that these important executive roles can command the support of a broad range of voters.

Diversity in local government

There is quite a long way to go to ensure diversity in local government – indeed, until the election of Tracy Brabin as mayor of the West Yorkshire combined authority, all metro mayoral positions were occupied by men. Although demographic data on councillors are not officially collected, an LGA census of local authority councillors in 2018 found that almost two thirds (63%) of councillors were male, while 36 percent were female. Ethnic minority representation is also very low – a study by the University of Manchester found that only seven percent of local councillors in the UK come from an ethnic minority background, compared with 10 percent of MPs and 14 percent of the population.

Section 106 of the Equality Act 2010 would require political parties to publish diversity data on candidates standing for election to the House of Commons and devolved administrations, but is yet to be enacted.

The ERS has long called for section 106 to be enacted and to extend to local government, so that transparency about those standing for office at the local level is enhanced.

Devolution in England clearly remains very much unfinished business. You can find out more about English local government and how it can be reformed, in the latest ERS report Democracy Made in England.

Sign our petition for proportional representation for England’s local councils

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New ERS research finds over two-thirds of councillors feel they lack the powers to represent the needs of their local community.

Local government is at the front line of our democracy. It’s the closest level of government to our communities and deals with many of the bread-and-butter issues that affect people in their day to day lives in the places where they live.

But for too long our local democracy has suffered at the hands of an over-centralised Westminster system where the ‘centre-knows-best’ mentality has left local democracy to wither – and councillors without the power to represent the needs of their local community.

In a survey of almost 800 local representatives from across England conducted as part of the research for our new report Democracy Made in England, the ERS found growing support for moving the balance of power away from Westminster and to communities across the country.

Exclusive new ERS survey research shows:

• Over two-thirds (68%) of local representatives feel they do not have sufficient powers to represent the needs of their community
• 70% called for decisions to be made in partnership between the national and local levels and implemented locally
• 65% of local representatives think citizens should be more involved in making decisions about their local area

It is clear that, for many who serve their communities at the coalface of local democracy, questions remain unanswered about how relations between the centre and localities can be better structured in favour of local decision making.

With so many local councillors feeling powerless to serve their constituents’ needs, we must find a better balance between those two levels of government that truly serves the interests of communities across England.

A survey by the Electoral Reform Society of almost 800 local authority representatives found that two-thirds feel they lack the powers to properly represent the needs of their local community.

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— Electoral Reform Society (@electoralreform) March 9, 2022

One of the basic ways to shift the balance of power between the local and the national is by creating genuinely empowered local government – real devolution that recognises the democratic, as well as economic, benefit of bringing power closer to communities.

Levelling up?

We’ve seen much talk recently of ‘levelling up’ and the need for devolution to English regions and localities. But as it stands England remains one of the most centralised countries in Europe and, unlike in the other nations, the balance of power has never deviated from the British political tradition of centralisation, power-hoarding and Westminster dominance.

Decisions around devolution have always been taken top-down, and there has never been an attempt from the centre at creating empowered alternative centres of power and a healthy democracy at the sub-national level.

The ERS are calling for parties to back new proposals for an overhaul of English local government – with a plan for genuine and democratic devolution underpinned by principles and values that put communities, not Westminster, in the driving seat.

But as well as radically overhauling our approach to devolution, we also need to shift the balance of power between the local and the national, and radically reform democracy in England.

Reform locally and at the centre

We too must tackle the warping effect of First Past the Post on our local elections – an undemocratic anomaly in the 21^st century. Proportional representation for local elections, as used in Scotland, would help reinvigorate democracy at the local level, ending the proliferation of one-party states and single-party domination of council chambers, and opening up councils to a diversity of voices.

And those voices must have a place in Westminster too – an elected second chamber that allows for the fair and equal representation of the UK’s nations, regions and localities could play a crucial role in improving the central-local relations.

Something must be done to address the lack of democracy across England. With this call, we are showing not only why but how devolution within England should be comprehensively reformed.

Because only when our local communities and those that serve them have the powers they need can we begin to address England’s democratic deficit.

Read the full report – Democracy Made in England: Where Next for English Local Government