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Finance settlement: transitional cash for revenue grant phase-out

Councils across England have had a significant share of their concerns addressed as communities secretary Greg Clark MP confirmed he will provide transitional cash to help authorities concerned about the phasing out of the revenue support grant (RSG).

 As part of today’s final finance settlement, Clark announced the transitional grant, expected to smoothen the “U-shaped funding curve” the LGA feared, will amount to £150m during the first two years of the four-year deal for those councils “with the sharpest grant reductions”.

Many councils were also worried that “too much time” had passed since the last substantial review of the 10-year-old needs assessment formula for councils’ finances.

As a result, Clark promised to review how the formula should look “in a world in which all local government spending is funded by local resources, not central grant”, and will use it to determine the transition to 100% business rates retention by 2020.

“Pending that review, I recognise the particular costs of providing services in sparse rural areas,” he continued. “So I propose to increase by more than fivefold the Rural Services Delivery Grant from £15.5m this year to £80.5m in 2016-2017. With an extra £32.7m available to rural councils through the transitional grant I have described, this is £93.2m of increased funding compared to the provisional settlement available to rural areas.

“Significantly, this proposal ensures no deterioration in government funding of rural areas compared to urban areas for the year of this statutory settlement.”

Clark will also allow “the most economical authorities” to charge a “de minimis £5 more a year” in council tax without requiring a referendum.

And well-performing planning departments will be able to increase their fees in line with inflation at most, “providing that the revenue reduces the cross subsidy that the planning function currently gets from council tax payers”.

Concerning the four-year element of the package, which councils are allowed to reject, Clark established a deadline of 14 October for authorities’ responses.

In its first reaction to the final settlement, the LGA considered that the DCLG listened to its “fundamental call” for new money to smooth out central funding reductions “without any other councils losing out further as a result”. As Clark outlined today, central grants, which represented nearly 80% of council spending in 2010, will drop to 16% by next year and just 5% by the end of the decade.

LGA chair Lord Porter commented: “Extra funding of up to £416m, which includes an extra £93m for rural authorities, announced today will go towards easing the financial pressure on those local authorities who were adversely affected by the method of allocating funding and will ensure that no council will move into a negative grant funding position within the next three years.

“Allowing all local authorities – not just the 51 districts with the lowest council tax bases – to raise their Band D council tax by £5 will also help some councils mitigate some of the additional funding pressures they face in 2016-17 and beyond.”

But Lord Porter recognised that funding reductions will still be challenging over the next four years, with extra cost pressures arising from increased demand or new policies, such as the national living wage.

“Many [councils] will have to make significant reductions to local services to plug funding gaps and will be asking residents to pay more council tax while possibly offering fewer services in return as a result,” he added.

Cllr Neil Clarke, chair of the District Councils’ Network (DCN), also acknowledged that the group’s member authorities “remain very concerned” about incentives for housebuilding, but, like Lord Porter, largely welcomed today’s adjustments.

“We particularly welcome the decision to row back from the concept of ‘negative RSG’ for 2017-18 and 2018-19 and we would encourage efforts to introduce the new 100% business rate retention scheme early to take care of subsequent years,” he said.

“We also welcome acknowledgement that planning fees needs to be addressed. Let’s hope the forthcoming consultation is realistic about the real terms gap that has emerged over the years. The way the statement on planning fees is framed clearly signals the importance ministers place on the performance of planning departments.”

No change was made to the method of distributing central funding compared to the provisional settlement, and no extra elements to address the social care ‘crisis’ were introduced.

Final 2016-17 allocations for the New Homes Bonus, a headline concern for the DCN, will bring the total cash pot to £4.8bn. A consultation on the bonus was opened last year and is due to close on 10 March.

The DCLG has published a list of final allocations and a bonus calculator online with council-level breakdowns.

(Top image c. Dominic Lipinski, PA Wire)