Economy and Infrastructure

19.02.18

Lord Porter: Uncharted waters

Lord Porter CBE, chairman of the LGA, analyses the expected impact of the final local government finance settlement on councils of all shapes and sizes.

This year looks set to be another busy and challenging year for local government with core central government funding to councils being further reduced by half over the next two years.

The final local government finance settlement, published this month, did include an additional £190m when compared to the indicative 2018-19 settlement announced this time last year.

This is made up of an extra £150m in 2018-19 for an Adult Social Care Support Grant, an additional £31m for the Rural Services Delivery Grant, and an increase in the region of £9m for the New Homes Bonus.

The new money is significant recognition of the LGA’s warning about the urgent need for the government to further try and help councils tackle some of the immediate funding pressures they face.

However, the additional one-off £150m social care funding is only a temporary measure and needs to be compared against an annual social care funding gap that will reach £2.3bn by 2020.

We have warned that councils also face an unprecedented surge in demand for children’s services and homelessness support. This is leaving increasingly less money for councils to fund other services, like fixing potholes, cleaning streets and running leisure centres and libraries.

Town halls therefore continue to face significant challenges as they try and set budgets this year, and some councils continue to be pushed perilously close to the financial edge.

Many will have to make tough decisions about which services have to be scaled back or stopped altogether to plug funding gaps.

However, councils will be able to increase their core council tax by an additional 1% in the next financial year, without a local referendum, and social care authorities will be able to increase bills up to a further 3% to bring in extra funding for social care.

This will helpfully give some councils the option to offset part of the financial pressures they face in the next year. But we continue to call for the referendum limit to be abolished entirely so that councils and their communities can decide how under-pressure services are paid for.

We also remain clear that this is not a sustainable solution to tackling a funding gap facing local government that will exceed £5bn by the end of the decade. Years of unprecedented central government cuts have left many councils beyond the point where council tax income can be expected to plug the growing funding gaps they face.

For 88 shire districts with the lowest council tax levels, the new limit does not provide any more spending power, as they can already increase council tax by 3% or more due to the £5 flexibility. For many other district councils, the positive impact is minimal for the same reason, with only 12 district councils able to benefit from the change in full.

Business rates reform

The government is also aiming for councils to retain 75% of business rates from 2020 21. Along with individual councils, the LGA will continue to engage extensively in discussions with the government on the implementation of further business rates retention.

Whitehall needs to allow local government to keep every penny of business rates collected to plug this growing funding gap and provide the £1.3bn needed right now to stabilise the care provider market.

The settlement also included progress on other financial and funding issues. A formal consultation has been launched on a review of relative needs and resources with the aim of implementing a new system in 2020-21. We will continue to work with the government on further business rates retention and the Fair Funding Review, including tackling the impact of business rates appeals on local authorities in time for the implementation of further business rates retention in 2020-21.

There are still almost 200,000 business rates appeals outstanding from the 2010 list. We are working with the government to find a better way to deal with the impact of business rates appeals under the business rates retention system, and it is a positive sign that the consultation document indicates that reforms will be implemented in 2020-21.

Separately, we call on the government to ensure that all outstanding appeals from the 2010 rating list are dealt with as soon as possible through providing resources to the Valuation Office Agency and other relevant organisations. This will be very important once the proposals for revaluations to take place every three years, after the next one in 2022, are implemented.

New Homes Bonus funding

It is good that the government also accepted our calls to avoid further changes to the New Homes Bonus.

The New Homes Bonus makes up a considerable part of funding for some councils, particularly shire district authorities. It is good news that the government has accepted our call to avoid further increases to the threshold and no holdback for decisions on new homes approved by the Planning Inspectorate. We call on the government to make it clear that it will not increase the housing growth threshold for any local authority in 2019-20 either and, if needed, provide additional resources for this to happen.

Far beyond Brexit

The four-year deal runs out in March 2020. We remain concerned that there is no clarity over funding levels, for both the national pot and local allocations, and any council tax referendum limits, after that date. This hampers meaningful financial planning at a time when central government grant funding is the lowest it has been for decades and demand pressures are increasing.

While negotiating Brexit will be a huge challenge for the government, it cannot be a distraction from the challenges facing our public services. The day-to-day concerns of our communities go far beyond Brexit, and securing the financial sustainability of councils and vital local services is urgent.

With the right funding and powers, councils can continue to lead their local areas, improve residents’ lives, reduce demand for services and save money for the taxpayer whilst the government gets on with negotiating the UK’s exit from the European Union.

FOR MORE INFORMATION

W: www.local.gov.uk

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