DCLG urged to prepare action plan to respond to council cuts

1 Feb 16

The government has been urged to prepare an emergency action plan to protect services if local authorities run out of money amid wholesale changes to council funding.

In a submission to a consultation on the local government finance settlement, the Local Government Association said a plan of action was needed “for when councils are left with insufficient resources to run services”.

It also called for government to smooth grant funding cuts over the next two years as part of transitional support to ensure finance reforms, including moves to full local retention of business rates, do not put the existence of some local services at risk.

Publishing its response today, the LGA said the Department for Communities and Local Government’s plans to end all revenue support grants as part of business rate localisation by 2020/21 could place councils at a “tipping point”.

December’s settlement offered councils four-year spending agreements to provide them with funding certainty up to localisation of business rates in 2020. Revenues from non-domestic rates will then be used to set a funding baseline for authorities, with revenue growth in their local area then retained.

In its response to the changes, the LGA said the reduction of funding alongside these changes – an average 6.7% reduction in real terms over the Spending Review period – would push many more councils closer to a funding tipping point.

Other alterations to how funds are distributed, including a new methodology for allocating grants funding to account for the differing extent to which councils rely on grants, would leave some councils facing deeper than expected reductions in 2016/17.

LGA vice chair Sharon Taylor said the pace at which government funding will be phased out was “hugely unexpected” and would place significant pressure on some councils and their local services.

Smoothing out cuts over the next few years would be essential, she stated.

“Councils have been planning for further funding cuts in 2016/17 but some will have to find millions of pounds more in savings than they had planned for in even their worst-case scenarios next year,” she added.

“For some councils, this might push them closer to the financial edge. For many communities, things might get a lot worse before they might get better. It will be our residents who suffer as councils are forced to take tough decisions about which services have to be scaled back or stopped altogether to plug funding gaps over the next few years.”

According to LGA figures, 168 councils – almost half of all councils made up of districts, counties, unitaries and London boroughs ­– would lose all RSG by 2019/20. Those councils will then face the double blow of actually having to hand over more than £150m extra of their local business rates income under “negative” RSG payments.

Other recommendations in the consultation response include bringing forward the planned £700m of new funding for the Better Care Fund to 2016/17 to alleviate social care funding pressures. Proposed freedoms to allow councils to use capital receipts to pay for service changes should be expanded to recent receipts, not just new sales as proposed.

Responding to the publication, CIPFA said that it shared the LGA’s concerns. In a statement, the institute said that there had been a significant and largely unexpected redistribution of revenue support grant for 2016/17 and 2017/18.

“This explains why some councils stand to lose over 40% of their grant in one year, compared to the 27% average cut,” it stated.

“CIPFA does not take sides on distribution matters, however, the government’s lack of transparency, consultation, and seeming appreciation of the impacts that this level of redistribution will have on councils and public services is worrying.”

Neil Clarke, the chair of the District Councils’ Network said the group was “fully behind” the call for transitional support.

“The DCN is determined that full business rates retention should give councils a route to ‘financial independence’ and we are actively working with our County Councils Network colleagues to develop proposals about how this can work to ensure all elements of essential public services are funded.

“It is especially vital that those many districts, which have done the most to support new housing growth, should not be perversely penalised by negative Revenue Support Grant and cuts to New Homes Bonus payments.”

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