The finance settlement 2021

A funding increase for councils will be dependent on them increasing council tax bills.

Communities Secretary Robert Jenrick MP published the ‘Provisional local government finance settlement: England, 2021 to 2022’ before the Christmas parliamentary recess, alongside separate announcements on COVID-19 funding.

The settlement includes new funding for adult and children’s social care, and for councils with responsibility for services such as homelessness, planning, recycling and refuse collection.This will help meet cost and demand pressures in the new financial year. 

There is also the potential to increase council core spending power by up to 4.5 per cent in 2021/22 to support vital local services.

However, the LGA has warned that more than 85 per cent of the potential core funding increase is dependent on councils increasing council tax by up to 5 per cent in 2021/22. This leaves councils facing a tough choice about whether to increase bills to bring in desperately needed funding to protect services when some households are facing significant burdens and challenges.

The ability to bring in extra council tax remains a sticking plaster and not a long-term solution. It falls short of the sustainable long-term funding that is needed to improve the services our communities and local economies will need to recover from the pandemic.

Councils need clarity and certainty about how all local services will be funded over the next few years and beyond. The LGA wants to see a three-year settlement and meaningful progress towards a long-term, sustainable solution to the adult social care funding crisis. 

We are also calling for the Government to restart its Fair Funding Review, and for its business rates review to look at new sources of finance for councils, and different ways of incentivising growth. Business rates account for around a quarter of all council spending power.

The consultation on the provisional settlement closes on 16 January. The LGA will be responding and is urging councils to help shape its submission by sharing their views by emailing lgfinance@local.gov.uk.

Please also share your views or submissions to the Budget, which will be on 3 March and will set out the next phase of the Government’s plan to tackle COVID-19 and protect jobs. The deadline for written Budget representations to the Treasury is 14 January.

Key funding announcements

Adult and children’s social care

  • Additional Social Care Grant of £300 million for adult and children’s services. 
  • Current social care funding to continue in 2021/22.

LGA view: “The £300 million sum is not significant in comparison to the cost pressures these services face. It is disappointing that the improved Better Care Fund has been frozen.”

Council tax

  • Referendum threshold is 2 per cent, or the higher of either 2 per cent or £5 on a Band D bill for shire districts.
  • 3 per cent adult social care precept, can be spread over two years.

LGA view: “An increase in council tax of up to 5 per cent will place a significant burden on households. In addition, increasing council tax raises different amounts of money in different parts of the country, unrelated to need. Council tax rises are not a sustainable solution to funding adult social care.”

Public health

  • No information about the national total, or individual council allocations, of the public health grant for 2021/22.

LGA view: “We call on government to provide councils with clarity on the public health funding available in 2021/22 as a matter of urgency. The current delay to the announcement is making it extremely difficult for councils to plan effectively at a time when public health services are vital to the fight against COVID-19.”

Fair Funding Review

  • Government will work with the sector and MPs to seek a new consensus for broader reforms to local government finance, including the Fair Funding Review and the business rates reset.
  • Councils will be set on a long-term trajectory of sustainable growth and fair resources.

LGA view: “The Government should resume the Fair Funding Review, but with a guarantee that the transitional mechanisms ensure that no councils experience a loss of income.”

District services

  • A new £111 million ‘lower tier services’ grant – £86 million for districts and unitaries in line with their shares of the ‘lower-tier’ element of the settlement funding assessment, and £25 million for districts to ensure no council sees its core spending power reduce in 2021/22.

LGA view: “Councils receiving this funding will welcome the additional resource, but full compensation for COVID-19-related costs, including lost income, is required.”

COVID-19 funding

  • £1.55 billion of unringfenced funding to meet expenditure pressures.
  • Continuation of the sales, fees and charges compensation scheme for the first three months of 2021/22, using a quarter of each council’s 2020/21 budgeted income as the baseline from which to assess losses.

LGA view: “Council services have been critical in the fight against COVID-19 and it is good that further funding has been provided to manage the cost pressures and income losses they face.”

New Homes Bonus

  • Provisional £622 million included in councils’ core spending power in 2021/22. 
  • Government to consult on the future of the scheme, and implement reforms in 2022/23.

LGA view: The Government needs to work closely with councils as part of its review of the New Homes Bonus to ensure it helps us deliver more homes and works for local government.”

Rural services 

  • Rural Services Delivery Grant will be £85 million in 2021/22 – up £4 million. 
  • Government is consulting on retaining the current method of distributing the grant.

LGA view: “Councils in rural areas will welcome this additional funding and we encourage affected local authorities to respond to the consultation.”

Audit

  • Audits deadline put back to 30 September in 2021 and 2022.
  • £15 million to pay for additional costs arising from new reporting requirements recommended by the Redmond Review and additional audit requirements arising from the new National Audit Office’s code of practice.

LGA view: “The change to the audit deadline is something that we called for and is welcome, and we also called for any increases in costs as a result of the review recommendations or changes in audit requirements to be fully funded.”

Fire and rescue

  • Fire and rescue authorities’ council tax precept of up to 2 per cent.
  • Increase in fire authorities’ revenue support grant in line with inflation.
  • Increase in the compensation grant for under-indexing the business rates multiplier.
  • Some authorities to get a share of the £4 million increase in the Rural Services Delivery Grant.

LGA view: “A further inflationary increase for 2021/22 following on from the inflationary increase in 2020/21 is helpful. However, fire and rescue services need to be funded to take account of the full range of risks, demands and cost pressures they face.” 

Business rates 

  • No new business rates pilots.
  • Pilots in areas with ratified devolution deals and the Greater London Authority will continue. 
  • Business rates multiplier will be frozen. 

LGA view: “We welcome that local government will be fully compensated for the freezing of the business rates multiplier. However, this decision reduces buoyancy in the business rates system and, without alternative means of funding, council income would reduce in the medium term.”

The LGA’s comprehensive on-the-day briefing on the provisional finance settlement is available at www.local.gov.uk/parliament/briefings-and-responses

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