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18.12.15

Local government core funding to drop by 6% next year – LGA

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 has said.

In its more detailed response to the government’s four-year finance settlement revealed yesterday, 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.

He said the settlement also brings radical changes to the way council services are funded in the medium term, meaning it is vital the Whitehall works closely with local authorities to “ensure the views of all councils are heard and understood” in order to guarantee sustainable service financing.

“Despite receiving a flat-cash settlement over the next four years, there are still significant challenges ahead for councils who will have to make efficiency and other savings sufficient enough to compensate for any additional cost pressures they face,” he continued.

“These include those arising from general inflation, cost pressures in the care sector, increases in the number of adults and children needing support and rising levels of need, increases in demand for everyday services as the population grows, pressure on homelessness budgets and increases in core costs, such as national insurance, the National Living Wage (NLW) and pension contributions.”

Considering the NLW, councils will have to cover costs of at least £340m next year alone to lift staff salaries. Another £797m will be used to pay for increased contract costs to home care and residential providers, as well as higher national insurance contributions as a result of the end of state pension contracted out arrangements.

While he said councils’ spotlight on social care funding pressures has been acknowledged, they are still concerned about not seeing the benefits of the £1.5bn of extra Better Care Fund investment until the end of the decade.

According to the LGA’s analysis, if all 152 social care authorities use the 2% social care precept in full next year, they will raise around £400m – falling significantly short of the £700m needed to plug the association’s predicted funding hole.

As previously revealed by PSE, there will be winners and losers as a result of the settlement, with top-tier authorities set to benefit and district councils expecting to find a greater budget squeeze after the new homes bonus is reduced, according to CIPFA’s chief executive.

Similarly, Jon Trickett MP, shadow communities secretary, said the settlement reduced central government grant to local government by more than half, without acknowledging the extra cost pressures on council finances “which amount to double the total amount local government is to receive from Whitehall”.

“These cuts are a political choice and not an economic necessity. The House of Commons Library have calculated that if the central government grant was maintained at the same level throughout this Parliament, the government would still be running a surplus of £4bn in 2019-20. Therefore there is no fiscal need for these cuts,” he said, echoing a point made by many Labour MPs in the Commons in reaction to Clark’s statement.

“Also, local authorities in deprived areas have seen cuts of £220 per head, compared to £40 per head in more affluent areas. It is clear that the Tories’ ideology is to hit the worse-off hardest.”

For more details on the settlement, check out the LGA's comprehensive review of what it will mean for local government.

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