Spending Review: council tax hikes to shore up social care funding

25 Nov 15

Councils will be allowed to increase council tax by up to 2% in order to fund adult social care, chancellor George Osborne announced in his Spending Review today.

This would bring in almost £2bn a year, enough to support 50,000 older people in care homes, or around 190,000 in their own homes.

However, the statement also revealed that local government central grant is to be cut by more than a half over the next four years, from £11.5bn this year to £5.4bn in 2019/20, a drop of 56%. Meanwhile, councils’ self-financed expenditure (from revenue and business rates) is expected to increase by 13.1% over the same period – from £28.8bn to £35.1bn.

By the end of the parliament, councils will be able to retain 100% of all business rate revenue, while the uniform rate is also being abolished.

The Treasury said, with income from both council tax and business rates forecast to increase, councils will need to find real-terms savings of 6.7% in this Spending Review period, compared to 14% at SR2010, a smaller reduction than most other unprotected areas.

In cash terms, local government spending is forecast to be higher in 2019/2020 than in 2015/16, from £40.3bn this year to £40.5bn by the end of the SR period. However, in cash terms, spending will dip to a low of £38.6bn next year before starting to slowly increase again.

To help manage these funding pressures, local authorities are also to be incentivised to release some of the £225bn they hold in assets, and will be able to retain 100% of receipts to invest in making services more efficient.

Councils will also be issued with guidance to rein in “excessive salaries”. The Treasury noted that a chief executive of a top-tier authority is typically paid more than the prime minister.

Local government secretary Greg Clark said councils have worked hard to make savings while maintaining satisfaction with local services: “Whilst councils need to continue to play their part in cutting the deficit, they will still have almost £200bn to spend on local services over the lifetime of this parliament – a reduction of just 1.7% in real terms each year.”

Osborne’s statement acknowledged that many local authorities are not going to be able to meet rising demands for social care without a new source of funding.

“So in future, those local authorities who are responsible for social care will be able to levy a new social care precept of up to 2% on council tax,” Osborne told MPs.

“The money raised will have to be spent exclusively on adult social care – and if all authorities make full use it, it will bring almost £2bn more into the care system,” he added.

The Better Care Fund will also be increased, allowing councils to draw on an extra £1.5bn by 2019/20.

However, pre-statement analysis by consultants iMPower showed the amount the social care precept would raise would differ significantly from authority to authority.

It suggested that, in general, Conservative-controlled boroughs such as Richmond and Rutland could increase their adult social budgets by almost 5%, but the gain in largely urban, Labour-run authorities such as Newcastle and Liverpool is set to be much lower, at less than 2%.

  • Vivienne Russell

    Vivienne Russell is managing editor of Public Finance magazine and publicfinance.co.uk

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