Local councils across the UK say Brexit will hit local exports, reduce foreign direct investment, impacting business rates and central government funding. That’s according to The Local State We’re In, PwC’s latest annual survey of local government, published today [2 July 2019].
The PwC report reveals that 55% of councils expect that local businesses in their area will experience a downturn in international trade, while almost half (45%) of councils also anticipate a decline in foreign direct investment (FDI) into their council area.
Collectively, this reduction in commercial activity will reduce anticipated income from business rates, adding further pressures to councils’ ability to maintain essential levels of service delivery.
Though a relatively small number of people in Northern Ireland were questioned (56), 86% said existing cuts and reductions had impacted on them or their families, the second highest across the UK’s 12 regions. The North East was the highest, with 90%.
Council leaders already anticipate the ongoing impact of austerity will further erode their capacity to deliver savings and services. Just over half (53%) of councils are confident they can deliver savings in the next year without impacting on quality of service or outcomes, down from 72% last year and a high of 94% in 2012.
PwC’s ninth annual survey, The Local State We’re In, polled the views of over 100 local authority Chief Executives, Finance Directors and elected Council Leaders across the UK. The PwC survey reveals that half of local authorities expect central funding to decline post-Brexit and have no confidence that central government will engage with cities and local government in reshaping regional investment and regeneration funds in a post-EU landscape.
A parallel survey asked 2,000 UK consumers about the performance of their local authority and found that, while 41% of respondents believed their council was responsible for stimulating local economic growth, only 27% believed their council was effectively delivering that growth.
PwC’s public polling also suggested that austerity was continuing to impact consumers as well as councils, with over half (58%) of the public concerned about the impact that service reductions and closures will have on them personally, with 67% were concerned about the impact on their local community.
Three quarters (77%) of those consumers who were aware of cuts in councils services said that they or their family had been directly impacted by austerity measures in their local council area.
Commenting on the report, Jonathan House, PwC Health Industries and Local Government Advisory Leader, said:
“For many local government leaders, Brexit is the elephant in the council chamber.
“And, while the public focus is on Westminster and leadership politics, the most significant impact of Brexit negotiations will come at local council level, where concerns over FDI and local growth leadership may have a significant impact on provision of public services.
“Despite continued concerns over Brexit and local and government funding, council remain focused on delivering growth, business & jobs, and health & integration and these goals have not diminished.
“Their strategy is accurate, however delivering tangible outcomes in a world of uncertainty, austerity and financial constraints is particularly challenging.
“While councils have the desire and ambition to work collaboratively with other public services, their goals are frustrated by a continued focus on short term financial demands and the day-to-day pressures of maintaining service delivery.”
The impact of Brexit
While there is still uncertainty over the shape, timing and outcome of Brexit, half of the councils (50%) anticipate that Brexit will have an impact on the funding they receive. Nevertheless, while 43% of UK councils still say they feel prepared for potential Brexit outcomes, almost one in five (18% and up from 12% in 2018) are planning overseas trips to attract new FDI and develop trading links.
When asked which areas councils thought would be most likely to be influenced by Brexit, the top answer was the potential for a decline in international trade with businesses in their area (55%), with 45% also expecting a fall in FDI into their area. Collectively 44% of councils anticipate that the combination of reduced economic and trading activity in their region will result in falling revenue from business rates and other local taxes.
FDI in Northern Ireland increased during 2018 by 25% with 35 new investment projects, however UK-wide the level of foreign direct investment fell by 14%. The Department of the Economy warned that post-Brexit, Northern Ireland would become a less attractive location for FDI.
A determination to develop a proactive response to Brexit by engaging in overseas investment and trade trips suggests that councils are shifting in response to the changing trade landscape. However, when it comes to central government, three quarters (74%) say they are not confident that central government will engage with cities and local government in reshaping regional investment and regeneration funds in a post-EU landscape.
Austerity continues to impact Local Government
The ongoing impact of austerity is evident with just half (53%) of council respondents to our survey remaining confident of delivering savings in the next year without impacting on quality of service or outcomes, down from 72% last year and a high of 94% in 2012.
However, looking beyond the next 12 months, the picture is less confident. Whereas in previous The Local State We’re In surveys the ‘cliff edge’ was always three to five years into the future, it seems it has come closer than before for many councils.
When it comes to considering the UK local government sector as a whole rather than their own council, over half (54%) of all respondents believe that some councils will get into serious financial difficulty in the next year while 49% think that some councils will fail to deliver the essential services residents require over the next year. A worrying 93% expect that some councils will face a serious financial crisis in the next 36 months.
Concerns remain about the impact of council closures or reductions, with 59% of the public surveyed in Northern Ireland concerned about the impact that reductions and closures will have on them personally and 68% concerned about the impact on their community. Across the UK, when questioned about the impact of council closures and cuts, 58% of people were worried personally, with 67% worried about the community - up from 61% in 2018.
Paul Terrington, PwC Northern Ireland regional chair and head of UK regions said that, pursuing City Deals for Belfast and Londonderry / Derry would significantly help regenerate the region and address both finance capability concerns:
“Austerity has been with us for 10 years, with demand continuing to rise and expectations relentlessly increasing and a constant reduction in funding, local councils have recognised that it is here to stay for the foreseeable future.
“Aggressively pursuing and delivering City Deals for Belfast and Derry will bring economies of scale, focus investment and FDI resources and help position Northern Ireland as a preferred investment region, post-Brexit.
“While the absence of a functioning devolved Assembly remains a major challenge, local government and elected officials should drive to make these City Deals reality and I have no doubt that the business community will continue to support these goals.”
The public view
The PwC poll of 2,000 UK consumers of local government services indicates that over half (51%) accept that their local council needs to reduce or close services or facilities. However when broken down into regions, 29% of people in Northern Ireland fully opposed the cuts, the highest among the 12 regions.
Over half reported that they were aware of closures or reductions to services like street lighting, road repairs and libraries. And 31% of people felt their council was not working closely with the community to improve services and outcomes, slightly above the UK average of 28%.
When asked whether the balance of power between central and local government was about right, Northern Ireland respondents disagreed most, at 41%, compared to the UK average of 33%. Though people here were also the least supportive of the statement that local councillors and officials were up to the job of having more power over local services, 49% compared to the UK average of 33%.
While this presents a clear challenge, there are indications that the public is willing to engage but the methods currently being used are not appealing. Four in ten say they would participate more to improve their local area and help local people if their council made it easier to do so, and a third of the public say they would like more interaction with councillors, including 40% of 18-34 year olds.
With further closures or reductions likely in many areas, engaging the public in the reasons for these changes and working with them to co-create and co-design new service models is key.
Agenda for Action
This latest PwC The Local State We’re In survey highlights the continuing challenge for local public services to find the space, time and resource to build collaborative relationships that will be critical to creating thriving places.
The combined effect of ten years of fiscal constraint and increasing demand has left the local government sector in a very different place to where it began. Local government has changed significantly in that time, but it has not been possible to plan that change in a wholly strategic way. PwC says there is now a pressing need to “restack the blocks” of local government, in a purposeful way, to maximise the positive impact that can be made for people and places across the country.
Nevertheless, despite the pressures of ongoing financial challenges and capability concerns, council’s ambitions have not been dampened. Jonathan House, PwC Health Industries and Local Government Advisory Leader, said this year’s report illustrates that, in too many places, ambitions and visions are not translating into priorities, resources and deliverable plans:
“Given these sustained pressures, it isn’t a surprise that financial worries go hand in hand with capability concerns.
“While eight out of ten are confident about their financial management capabilities, only six in ten are confident about their transformation capabilities.
“In the next Spending Review, the resource challenges facing local government are stark. Councils have proved their ability to deal with significant demands in the past decade, but the greatest challenges may yet be to come.
“Councils, and their partners, will need to continue to adapt, innovate and collaborate as they look to 2020 and beyond."
Northern Ireland, PwC United Kingdom
Tel: +44 (0)289 024 5454
Northern Ireland, PwC United Kingdom
Tel: +44 (0)289 024 5454