Ministers didn’t do cost review of English council mergers

The UK government did not do its own analysis of the cost of the biggest reorganisation of councils in England for decades, the BBC has learned.

Deputy Prime Minister Angela Rayner said “a significant amount of money” could be saved by merging councils in 21 areas into single authorities.

Rayner’s department, the ministry of local government, based its cost estimates on a 2020 report commissioned by the County Council Network (CCN) that said £2.9bn could be saved over five years.

But the CCN has since revised its analysis and now says the reorganisation could make no savings and actually cost money in some scenarios.

Tim Oliver, chairman of the CCN, said local government reorganisation “could unlock billions in efficiency savings to be reinvested in frontline services”, if it was delivered at the right scale.

Oliver said the CCN supported the government’s reforms but added: “We are concerned over the potential costs of reorganisation where proposals seek to replace the two-tier system with multiple small unitary councils.”

Councils involved in the reorganisation have been submitting plans to create new local authorities in their areas.

Some councils have proposed setting up multiple smaller unitary authorities in their areas.

In Essex, for example, the county council has proposed three new unitary authorities in the region.

The government will decide which proposals to take forward and intends to inform most councils next year.

A government spokesperson insisted the reorganisation “will improve services and save taxpayers’ money”.

In initial guidance, Local Government Minister Jim McMahon said councils should “seek to achieve for the whole of the area concerned the establishment of a single tier of local government”.

McMahon said these new single councils should aim to cover a population of 500,000 or more.

But the minister has since clarified that guidance, telling councils the population size of 500,000 or more was a “guiding principle, not a target”.

“We understand that there should be flexibility,” the minister said.

Ministers talked up the potential to save money as one of the main benefits of local government reorganisation.

Speaking to MPs in June, Rayner said: “Local government reorganisation will lead to better outcomes for residents and save a significant amount of money that can be reinvested in public services and improve accountability.”

But her department insisted it was not necessary to commission separate in-house analysis of the cost of reorganisation at the public’s expense, in response to the BBC’s freedom of information request.

The government’s savings estimates were based on data produced by PwC, an accounting firm, and analysis by the CCN, a cross-party lobbyist group.

A PwC report in 2020 estimated potential savings of £2.9bn over five years if all councils in two-tier areas were replaced by single authorities.

But in updated analysis this year, the CCN said the reorganisation could cost £850m over five years and deliver no savings if 58 new councils, based on a minimum population of 300,000, were created in all 21 two-tier areas.

“Under this scenario no long-term efficiency savings would be delivered, meaning it would be more efficient to retain the current two-tier system in England,” the CCN’s analysis said.

Oliver said the CCN’s analysis showed “that splitting county areas into unitary councils with populations as small as 300,000 will create hundreds of millions of new unsustainable costs for local taxpayers”.

The councillor said the government must ensure the new councils created are the right size to achieve efficiencies, improve capacity and withstand financial shocks.

“Failure to do so could pile further strain on already under pressure care services and at a time when many county and district authorities could see their funding reduced,” Oliver said.

The District Councils’ Network (DCN) said the reorganisation could produce poor results given the funding pressures already facing local government.

“It’s astonishing that the government has undertaken no independent analysis before embarking on the biggest reorganisation of councils for 50 years,” said Sam Chapman-Allen, chair of the District Councils’ Network.

“Mega councils, with populations of half a million people or more, could be imposed on areas when there’s no independent, up-to-date evidence to justify councils of this size, and many large councils created previously are struggling financially.”

The DCN said it was not too late for the government to commission analysis on the optimal size of councils to maximise potential savings.

The Ministry of Housing, Communities and Local Government said: “Councils across the country have also told us that bringing services together under one roof means residents get joined-up support when they need it most, while clearer structures mean people know exactly who’s responsible for delivering their services.

“Councils will also develop their own proposals for how reorganisation works best in their areas, as we fix the foundations of local government through our Plan for Change.”