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Councils face ‘U-shaped funding curve’ in four-year deal

Communities secretary Greg Clark MP should consider providing transitional cash support to soften the depth of the expect ‘U-shaped’ funding curve as a result of the four-year local government finance deal, the LGA has said.

In its response to the local government finance settlement 2016-17 consultation, the LGA said some councils will face cuts in 2016-17 significantly higher than they had planned for as a result of the move towards locally-raised cash pots.

While the association said it would not take a formal position on these changes to the way funding reduction was allocated, it argued pressures arising from the deal’s uncertainties will fall differently on authorities across the country.

Given that reductions in the settlement were frontloaded, with higher cuts in the earlier years of the deal, there is now a ‘U-shaped funding curve’ in the local government spending profile.

And some councils, it said, were “close to the edge” of financial sustainability altogether, requesting that “consideration be given” to how to manage an authority whose resources are too insufficient to operate.

Highlighting the challenges earlier on, the LGA said it would be “more of immediate assistance” to local authorities if they were able to use existing or recent capital receipts from the sale of assets to support revenue spending on reform projects, rather than just new receipts as proposed.

The LGA did welcome the offer of a four-year settlement, a reform which they have long called for, but said this “has got to be put into the context of a rebalancing of funding, with both council tax and localised business rates playing a more important role than centrally allocated revenue support grant”.

There is still much uncertainty around the impact of retaining 100% of business rates receipts, it said, and the outcomes of the New Homes Bonus and the widened Better Care Fund consultations. Many councils will be left having to estimate the total available resources in future years as a result of these remaining question marks.

“This brings both opportunities and risks which relate to both council tax and business rates,” the response said.

“Specifically the risks relate to the council tax base buoyancy, the impact of business rates revaluation and the accuracy of projections of housing numbers and business growth.”

On the business rates devolution, the LGA said it expected the government’s active involvement and support towards the move, with a fundamental review of the needs basis “essential” to the new system.

The association was less kind in relation to social care, though it did welcome the ability to raise a 2% social care precept. It argued that despite the increased funding, there is no immediate extra cash available in the Better Care Fund in 2016-17, and only £105m in 2017-18.

The statement explained: “This, together with the incremental nature of the council tax precept policy, means a further two years of significant pressures on a system that is already under strain.

“The government has been clear in its intention to address social care pressures yet in 2016-17 the spending power of councils with social care responsibilities falls by 3.2% at a time when they are facing significant pressures in adult social care including rising need and demand and the cost of the national living wage. The government should bring forward the £700m of new funding for the Better Care Fund to 2016-17 in order to help alleviate these pressures.”


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