Local government settlement offers councils four-year funding deals

17 Dec 15

Councils are to be offered four-year funding deals as part of this year’s local government settlement to allow them to plan ahead for full local retention of business rates, communities secretary Greg Clark has announced.

Announcing local government’s financial settlement for 2016/17 to the House of Commons this morning, Clark also said there would still be a need for funding reductions in the sector following the Spending Review.

Town hall funding from Whitehall, excluding social care, will fall by 6.7% over the review period in real terms, compared to what Clark said was a 14% fall in at the Spending Review of 2010.

This includes an average 2.8% cut in 2016/17, but by 2019/20 the level of funding will be “virtually unchanged”, Clark told MPs.

According to figures in the settlement, core spending power for local authorities across England (the government’s preferred measure of council finance) will fall from £44.50bn in 2015/16 to £43.25bn in 2016/17. Authorities with social care responsibilities face a 3.2% reduction in spending power next year, compared to 1.1% for non social care councils.

However, over the Spending Review period to 2019/20, authorities responsible for social care will face only a 0.2% reduction in spending power, compared to an 8.3% reduction for districts and others not responsible for care services. Overall, local government spending power will be slightly lower in 2019/20, at £44.3bn – a 0.5% reduction in cash terms.

A long-term settlement and funding reform to make local councils fully responsible to local people for their financing were changes the sector had been campaigning for over a number of decades, Clark stated. In implementing these changes, the settlement had also protected the resources available to councils over the next four years and put more money into the agreed priority of caring for elderly people.

“This settlement has been achieved by listening to local government leaders who have had a good track record of making savings and delivering valued services over the last five years. The resources available, the funds for social care, and the long-term reform go beyond what council leaders dared hope for even a few months ago. It is a vote of confidence in the power of devolution.”

As part of the moves to fully devolve business rates to local government by 2020/21, the four-year settlements, covering the years from April 2016, can provide the funding certainty and stability to enable more proactive planning of service delivery and boost local collaboration.

According to Clark, core spending power for councils throughout this period would be virtually unchanged, from £44.5bn in 2015/16 to £44.3bn in 2019/20.

It was also confirmed that a reformed New Homes Bonus would be retained in the local government finance system in order to maintain the incentive for authorities to approve housing developments.

The document also stated that an extra £1.5bn would be available to councils through the Better Care Fund by 2019/20 to aid health and social care integration, while the proposed 2% social care precept for authorities with care responsibilities could provide an additional £2bn in funding for provision.

Outwith the social care precept, the government would maintain the 2% referendum threshold for council tax increases.

Responding to the announcement, CIPFA chief executive Rob Whiteman said that there would be winners and losers in the settlement. “Top-tier local authorities are set to benefit as high-demand critical services, such as social care, receive welcome direct support. However, it is likely that district councils will find a greater squeeze on their budgets as the New Homes Bonus is reduced by around £800m between now and 2019/20.”

He added that CIPFA welcomed the move to localised funding, which will give local people more power to set priorities for their communities, adding that there is still a long way to go.

“However, replacing central government funding with fully retained business rate revenues introduces real risk to council finances. It is something of a gamble for many vital public services - as the assumptions underpinning greater localisation are that the economy continues to grow and a much greater number of new homes are built, which recent experience shows is anything but certain.”

Local Government Association chair Lord Porter said government had listened to what councils said they needed, and councils would now be in greater control of their own destiny.

“More independence to serve our communities, a fair financial settlement for all types of councils, more resources to help care for the elderly and the certainty of long-term budgets; things we have asked of successive governments,” he stated.

“This settlement should mark the beginning of a new age of independence and responsibility for local councils. In local government we will make a success of it, building on the hard work of the last five years.”