CIH response to Fair Funding Review 2.0

We support the government’s intention to simplify the grant landscape and eliminate wasteful and burdensome competitive bidding processes. Whilst the shift towards ‘outcomes-based accountability' for local authorities is welcome, there is a need for further clarification on what those outcomes will be, what targets they will have attached to them, and how they will be measured and reported. 

In our response to the technical consultation on the Homelessness Prevention Grant (HPG) earlier this year, we supported the government’s aim to ringfence money for local authorities to focus on their prevention duties and services, which are less costly and have better outcomes for households than moving into temporary accommodation (TA) that for many councils was dominating HPG spend. However, that consultation did not propose the consolidation of the retained HPG and the Rough Sleeping Prevention and Recovery Grant (RSPRG), which will have different ramifications. There is a distinct concern in the sector that non-statutory services e.g. for single homeless adults not owed a prevention duty, may be at risk if the ringfence from RSPRG is taken away, with funding diverted towards statutory homelessness duties.

The consultation proposes the consolidation of four named funding streams, with any remaining grant to be rolled into the Revenue Support Grant (RPG). Our concern is that rising statutory need will lead to local authorities cutting services with a preventative benefit and demonstrable savings to the public purse, resulting in further financial instability for local authorities to meet acute needs, and poorer outcomes for communities. Following the demise of the Supporting People programme in 2009, funding for supported housing has become increasingly short-term, unstable, and insufficient to meet rising need. The consequence has been the loss of quality provision and increased pressure across public services.  

This challenging operating environment has perpetuated a crisis-response approach rather than enabling investment in preventive services and long-term solutions; which could demonstrate the very ‘outcomes-based’ accountability required by these reforms. However, without a significant funding settlement and explicit recognition of supported housing as a key tool in the four consolidated funding streams and beyond, its vital role in contributing to the success of local authorities' to deliver, and the broader aims of the government for the NHS, on homelessness, and in creating safer neighbourhoods - is under threat. 

The consequences of this sustained lack of investment in the sector are already visible in other parts of the system. Last year, mental health trusts spent over £2 million on bed and breakfast (B&B) accommodation to discharge patients, due to a lack of suitable accommodation. In the latest homelessness statistics, the largest increase in the number of households by age of applicant since the previous year were those aged 65 and older. For many in this cohort, who are no longer able to be economically active, a secure tenure with adequate adaptations and support is far preferable to costly TA, or discharge into the private rental sector. Additionally, 58.4 per cent of all households owed a prevention or relief duty were recorded to have one or more support needs. People experiencing long-term physical ill-health, substance misuse, repeat homelessness or those fleeing domestic abuse, could also be more sustainably housed within the supported housing sector.  

Recommendations: 

1. Explicitly include supported housing in consolidated grant frameworks as a recognised component within the four proposed consolidated grants (Homelessness and Rough Sleeping, Public Health, Crisis and Resilience, Children, Families and Youth) to ensure it is funded as part of delivering statutory and non-statutory duties. 
2. To consult on an outcome-based accountability framework for local authorities, to ensure they reflect local realities, existing plans and strategies developed by local authorities and the preventative value of non-statutory services. With a commitment to reporting on how these grants are spent in the future.

Lastly, whilst the need is understood to tackle the administrative burden of statutory duties, we would warn against limiting the amount of data collected as part of H-CLIC returns. This data is imperative in the public’s understanding of the government's response to homelessness and its improvement is vital to assessing where resources should be directed in the future. More broadly, across all functions of local government we have heard from members that investment is needed in local authority data analytics capabilities, including the creation of secure, multi-agency data lakes, to better utilise the wealth of insight local authority data hold. 

We agree with the government’s intention to update the Relative Needs Formulae (RNFs), recognising that the current formulae are over a decade old and no longer accurately reflect demand or expenditure realities facing local authorities. We also support the principle of keeping these formulae up to date in future settlements.

We support the proposed ringfence to the Homelessness Prevention Grant to move the dial towards homelessness prevention. However, we have concerns that the ballooning cost of TA, (with known net cash expenditure rising by 55 per cent in 2023-24 alone), will have a negative impact on the funding available for delivering of non-statutory services, leading councils to issue Section 114 notices. 

Any reform of TA funding cannot exist in a vacuum; otherwise, we risk ‘pouring money into an already broken system’. We note the £950 million in investment announced in the Spending Review for the Local Authority Housing Fund to increase the supply of TA and decrease the reliance on costly nightly paid accommodation. Like the impetus to update the outdated RNF, further action needs to be taken to update is needed to update formulae across government that no longer reflect current realities. 

CIH has called for fundamental action to address this, including:  

1. Unfreezing Local Housing Allowance (LHA) rates to accurately reflect the cost of renting in 2025. This will have a dual effect of slowing the number of households needing homelessness services and increasing the number of viable private rental sector (PRS) homes that households can access to leave TA. 
2. Unfreezing the TA subsidy rate, which, remaining static at 2011 levels, has cost councils more than £700 million since 2019 and fails to reflect  of TA spend, at the expense of local authority stability.

Reports from the Institute for Fiscal Studies warn that the proposed formula, based on levels of demand, could embed a perverse incentive to maintain levels of TA, rather than investing in preventative services and alternative accommodation models to retain existing funding. We believe that statutory needs assessments, undertaken as part of a local authority’s strategies (on domestic abuse, supported housing, older persons, and homelessness) local plans and the Rough Sleeping Framework, are considered alongside demand when allocating funding to prepare for long-term housing needs. 

We agree with the inclusion of a Remoteness Adjustment and we have detailed some examples of evidence of additional costs faced by rural areas below. However, we note analysis from the Institute of Fiscal Studies (IFS) which outlines that, as the Remoteness Adjustment currently stands in relationship to other elements of the proposed funding formula, some more rural settings than others lose out due to their proximity to one large conurbation, rather than a number of smaller urban centres. 

Evidence:  

• East Sussex County Council reports that hourly home care rates in the most rural parts of the county are 49.8 per cent higher than the lowest rate across the county.  
• According to the Rural Services Network, government funding spending power in 2025-2026 was 40 per cent higher per person in predominantly urban councils, whilst rural dwellers paid 20 per cent more in council tax than their urban counterparts. 

We agree, as the bonus complicates an already complex system. It is understood that the £290 million New Homes Bonus will be rolled into RSG from 2026/27. We repeat our concerns from Q4, that statutory duties could absorb this money entirely, for example, being spent on unregulated and rising rates in TA, rather than on increasing social housing supply, supported housing, or homelessness prevention activities. 

We support measures already taken by government to support affordable and sub-market housing such as: reducing the scope of right to buy, in particular offering greater protection to newly built homes; allowing councils to retain all capital receipts from sales; establishing an enhanced Social and Affordable Homes Programme (SAHP); developing a new, long-term rent policy. These measures will help rebuild the financial capacity of local authorities to maintain existing homes and build new affordable homes for the local community. 

Other measures we believe that government should consider:  

• Rent policy – while the ten-year rent settlement is welcome, there is a risk that any change of government might result in a change of policy. CIH calls for the rent settlement to be set in legislation, which offers some protection making changes more difficult to implement in the future, requiring debate and parliamentary approval. 
• Housing Revenue Account (HRA) borrowing – it is unclear whether the new Housing Bank will be accessible to local authorities and whether debt would be cheaper than via the Public Works Loan Board. Obviously, it would be helpful if both routes were available to local authorities. 
• HRA accounting and section 114 notices – the government should consider what legislative or accounting changes are needed to ensure that, when a council’s General Fund is no longer viable and a section 114 notice is being considered or is actually issued, this does not affect council housing investment. One potential measure  to achieve this is the complete separation of the HRA from the General Fund, so that the HRA is a distinct account. Government guidance could then indicate to councils that HRAs are unaffected when s114 notices are issued. 
• Sustainability of HRA debt – both the CIH and the coalition of councils led by Southwark have urged the government to tackle this issue. Clearly, much relies upon decisions on rent policy and convergence, but once these have been decided the government is asked to review the state of HRA finances and consider what further measures could be taken, including supplementary funding or debt relief, to ensure that all councils have viable HRAs and are able to build new homes. 
• Status of council housing in the public accounts – council housing is already recognised as being in the ‘public corporation’ sector, so not part of ‘general government’ for accounting purposes. CIH has long advocated that this distinction should be strengthened to enable councils to borrow privately, as housing associations do, without this counting against the government’s debt measure. CIH urges the government to revisit this question and examine whether further changes in fiscal rules could facilitate more council housing investment. 
• Councils without HRAs – the government should consider what changes would make it easier for councils who have sold their stock to begin to build council housing again, and to encourage them to reopen HRAs so that its financing is ring-fenced. 

For more information about the consultation please visit the government's website.

For more information on our response please contact Stephanie Morphew, policy and practice officer on stephanie.morphew@cih.org