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21.12.15

Council cuts will be spread more fairly during this Parliament – IFS

Cuts to council spending power will be more evenly spread across this Parliament, rather than hitting poorer authorities harder as happened between 2010 and 2015, according to the Institute for Fiscal Studies (IFS). 

Following the publication of the government’s ‘Provisional Local Government Funding Settlement’ it has been forecast that council spending power will drop, on average, by 8%. 

Communities secretary, Greg Clark MP, announced that the government has acceded to a key demand of local authorities and issued a four-year funding settlement available to "any council that wishes to plan ahead with confidence". 

The IFS noted that, as in the last Parliament, grants to councils are set to be cut substantially over the next four years. Taken together, the amount councils receive in Revenue Support Grant (RSG) and other grants from DCLG are set to fall by 60%. 

But with the additional ability to increase council tax to pay for social care, the average council tax bill for a band D property could rise by £205 a year by April 2019 if these powers are used in full, with the potential for further rises to pay for police and fire authorities. 

The IFS added that councils also have other sources of revenue: they retain a portion of business rates revenues and levy and retain council tax, and taken together these are a much bigger source of revenue than grants from DCLG. 

IFS research economists David Innes and David Phillips stated that despite the more even spread, “cuts will still be a bit larger on average for (principally poorer) areas who are most reliant on grant (for which cuts are set to average 9.2%), than for those who are least reliant on grant (for which cuts are set to average 6.8%)”. 

They said that this is because while the DCLG’s new allocation of funding accounts for the initial level of grant reliance, it does not account for the fact that things change over time as councils’ other sources of revenue – notably council tax – grow. 

The IFS experts added that the settlement has some big changes in it: “an easing in the pace of cuts, a change in the way cuts are allocated across councils, and the return of rising council tax bills”. 

But they added that “bigger changes” are on the horizon. For instance, the government will soon begin consulting on how to fully devolve business rates revenues to councils. This change, planned to take place by 2020, will mean councils’ spending power in future will be more directly linked to the performance of the local economy – meaning additional incentives to encourage growth, but greater risk when things go wrong. 

Alexandra Jones, CEO of Centre for Cities, added that the four-year funding commitment offers local authorities helpful certainty on what’s ahead, which will help them adjust to the new financial climate. 

But she added the government must continue to give cities more of the fiscal powers and incentives they need to boost key areas of economic growth like housing, skills and infrastructure. 

In response to the settlement, the LGA stated that core funding for local government, including income from retained business rates, revenue support grant and council tax, will fall by 6.1% in 2016-17. 

The LGA’s chair, Lord Porter, said 2016-17 “looks set to be the toughest year of this four-year Spending Review period for local services” as a result of the drop.

Comments

Cllr David Sheard   21/12/2015 at 13:16

" the average council tax bill for a band D property could rise by £205 a year" for this to be true council tax would have to be £10,000 a year now. Where is it so high. I live in a band D property and am a very long way from that.

PSE   21/12/2015 at 17:16

Hello David, It's important to note that a rise of £205 is by April 2019 - so that's accounting for a number of year-on-year rises until then. The rise next year would be closer to £30-50, depending on how it's calculated.

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