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01.02.16

Speed of central grant phase-out ‘will cause negative cash levels’

Shifting council funding from central to local government by phasing out the revenue support grant will leave almost half of all local authorities struggling with “deeper than expected” cuts by the end of the decade, the LGA has said.

Building on its response to the local government finance settlement, published two weeks ago, the association warned a “radical shake-up” to cash allocations will threaten around 168 councils.

The “hugely unexpected” speed at which central funding will stop altogether at a local level has already left some councils facing steep cuts in 2016-17, it said. By 2017-18 and in future years, some authorities will be in a situation of “negative” revenue support grant.

The 168 councils – including districts, counties, unitaries and London boroughs – risk losing all government funding by 2019-20, and then face the “double blow” of having to hand over more than £150m extra of their business rates income to Whitehall.

Adjusting top-ups and tariffs is a technical solution to these cuts, but runs contrary to the principles of the business rate retention scheme (whereby top-ups and tariffs should only change by the relevant multiplier each year) – which may eventually affect the level of incentivisation within the scheme.

Town halls also only have a matter of weeks to determine budgets for 2016-17, despite having to make harsh decisions about how to identify “millions more in savings than they feared” and plug large service funding gaps.

Cllr Sharon Taylor, the LGA’s vice chair, said: “For many communities, things might get a lot worse before they might get better. It will be our residents who suffer as councils are forced to take tough decisions about which services have to be scaled back or stopped altogether to plug funding gaps over the next few years.

“While extra council tax flexibilities and income will help ease some of the funding pressures facing councils, it would be wrong to think this will be enough to solve the long-term pressures facing local services and communities.

“After years of striving to keep council tax as low as possible, town halls find themselves in the impossible position of having no choice but to ask residents to pay more council tax over the next few years while possibly having to offer fewer services in return.”

The LGA had already warned of a potential ‘U-shaped funding curve’ in the local government spending profile given that reductions in the settlement were frontloaded, with higher cuts in the earlier years of the deal. Through its finance settlement response, it asked communities secretary Greg Clark MP to provide transitional cash support to soften the blow of this expected funding curve.

Today, it also asked the DCLG to prepare a plan of action for when councils are left with insufficient resources to run their services, as well as to smoothen its central grant funding cuts over the next few years.

“Smoothing out funding cuts over the next few years is one of the essential ways the government can give local authorities the best chance of being able to protect the services communities rely on over the next few years,” said Cllr Taylor.

PSE asked the DCLG for comment, but at the time of publication had received no reply.

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