Local government funding

The extra funding in the 2018 Budget showed that the Government is listening to the LGA’s call for desperately needed investment to ease some of the pressure facing local services next year.

This included an additional £650 million for children and adults, and £420 million for roads funding (see first 630).

But while there was also some new money in the provisional local government finance settlement for 2019/20, announced last month, councils still face an overall funding gap of £3.1 billion in the next financial year – and continuing uncertainty about funding after March 2020.

The Government has decided not to increase the New Homes Bonus (NHB) threshold further in the coming financial year, and has provided up to £20 million to fund this. This makes up a considerable part of funding for some councils, particularly shire district authorities.

We also acknowledge that the Government has provided extra resources to some councils in 2019/20 to cancel the ‘negative revenue support grant’ adjustment to tariffs and top-ups. It has also made an extra £16 million available through the Rural Services Delivery Grant, which will be welcomed by councils in rural areas.

The additional one-off funding for adults and children’s services announced in the 2018 Budget is confirmed in the settlement. However, there is still a substantial funding gap facing children’s and adult social care in 2019/20. An injection of new money from central government is the only way to protect the vital services that care for older and disabled people, protect children and support families.

The council tax referendum limit for 2019/20 will be 3 per cent, or the highest of either 3 per cent or £5 for shire districts. Social care authorities will be able to add another 2 per cent as long as precept increases do not exceed 6 per cent over the three years from 2017/18 – giving some councils the option of raising extra money to offset some financial pressures.

However, for shire districts with the lowest council tax levels, the new limit does not provide any more spending power, as they can already increase council tax by 3 per cent or more due to the £5 flexibility.

The LGA continues to call for the abolition of the council tax referendum: no national taxes are subject to referenda. On its own, council tax flexibility is not a sustainable solution to the funding crisis. Increasing council tax raises different amounts of money in different parts of the country, unrelated to need. This also adds an extra financial burden on households.

Further business rates retention pilots will enable aspects of the 75 per cent retention system to be tested prior to implementation for all in 2020/21. Consultations on further business rates retention and the Fair Funding Review have been published alongside the settlement. We will continue to work with the Government on these reforms, including tackling the impact of business rates appeals on local authorities.

The four-year funding deal runs out in March 2020. There is no clarity over funding levels, nationally and locally, after that date, hampering meaningful financial planning. It is vital that the Government provides new funding for all councils in the final settlement, and uses the 2019 Spending Review to deliver truly sustainable funding for local government.

Business rates

The 15 areas that will pilot 75 per cent business rates retention in 2019/20 were announced. The Government plans to introduce 75 per cent business rates retention for all in 2020/21, and published a consultation on possible changes to the system. The main proposals relate to balancing risk and reward, resets, the safety net, the levy, tier splits within areas, incentivising pools, and central and local rating lists.

LGA view: “Extra business rates income should go towards meeting the funding gap facing local government and no council should see its funding reduce as a result of a new distribution system.”

Council tax

The council tax referendum limit for 2019/20 will be 3 per cent, or the higher of either 3 per cent or £5 for shire districts. Police and crime commissioners, and the GLA charge for the Metropolitan Police, will have a limit of £24 on a Band D bill. Social care authorities will be able to increase their council tax by up to 2 per cent (over the 3 per cent referendum threshold) as long as precept increases do not exceed 6 per cent over the three years from 2017/18.

LGA view: “The adult social care precept raises significantly different levels of resources in different council areas which do not necessarily match spending pressures.”

Fair Funding Review

Alongside the settlement, the Government confirmed that it is looking to implement the Fair Funding Review in April 2020 and published a further consultation on its progress. The deadline for responses is 21 February. The consultation sets out the Government’s preferred options on the structure of the relative needs assessment and on measuring the council tax base, and outlines options on transition issues, including baselines and targets.

LGA view:“Local authorities must receive as much advance notice as possible of their provisional funding baselines to enable proper financial planning. Any outcome of the Fair Funding Review will not be sustainable unless it is introduced alongside sufficient additional resources to meet the funding gap facing local authorities.”

Commercial investments

The Government is considering intervening in authorities that are continuing to undertake significant borrowing for commercial purposes.

LGA view: “Councils have been encouraged to find ways of protecting services by generating income from alternative sources. They have to follow strict rules and undertake assessments to ensure they invest wisely and manage the risk of their investments appropriately.”

Fire funding

Fire and rescue authorities will be able to raise their council tax precept by 3 per cent in 2019/20.

LGA view: “The reductions fire and rescue services will have to continue to find will have an impact on national and local resilience as well as operational capacity, and their ability to respond to unpredictable events… the referendum limit on their precept should be removed.”

Brexit preparations

The 2018 Budget confirmed that the Government will have invested more than £4 billion in preparing for the EU exit since 2016. The settlement did not contain any announcement on funding to support councils to prepare for Brexit.

LGA view: “Any new responsibilities or added financial pressures for councils arising from Brexit must be fully funded.”

The local government finance settlement is the annual determination of funding to local government from central government. We expect the final 2019/20 settlement to be laid before the Commons, for its approval, in late January or early February. For more information about the settlement, please read the LGA’s full on-the-day briefing at www.local.gov.uk/parliament/briefings-and-responses

Recommended
A long-term project aimed at empowering councillors to help their local communities continues to deliver results.