Clark announces £150m transitional grant after concerns over council funding changes

8 Feb 16

Communities secretary Greg Clark has announced the government will provide a £150m transitional support scheme for councils in each of the next two years in response to concerns over changes to funding calculations.

Setting out the government’s response to the consultation on the local government settlement, Clark also confirmed that councils would be given until 14 October to respond to the offer of four-year funding deals.

Clark said the first two years of the settlement were “the most pressing” for the funding settlement to the end of the parliament.

"I have agreed to the responses to the consultation which recommended additional funding to ease the pace of reductions during the most difficult first two years of the settlement for councils with the sharpest reductions in Revenue Support Grant," he stated.

"I will make additional resources available in the form of a transitional grant, as proposed in their responses to the consultation by colleagues in local government. The grant will be worth £150m a year, paid over the first 2 years."

Concerns had been raised by authorities that changes to funding formula for local government could "all but end" the provision of non-statutory services in some parts of the country.

Clark also said that following the changes to the provisional settlement, no council would be worse off than originally indicated, with the additional funds being made available by the Treasury.

In addition, the rural services delivery grant will increase from £15.5m to £80.5m. This is in addition to the transition grant and, taken together makes available an extra £93.2 million to rural councils in 2016/17, he said. He added that a forecast that a small number of councils would have to make negative their Revenue Support Grant payments in 2017/18 or 2018/19 will not now be required.

An analysis by the Labour party found a majority of the £300m two-year fund would go to county authorities, mainly in the south of England. Labour's figures found Surrey would get the largest single amount, at £24m, followed by Hampshire (£19m), Hertfordshire (£16m), Essex (£14m), West Sussex (£12m), Kent (£11m), Buckinghamshire (£9m) and Oxfordshire (£9m).

Responding to the announcement, Lord Porter, the chair of the Local Government Association, said the group had been working hard to highlight the financial challenges they face over the next few years.

“We are pleased it has listened to our fundamental call for new money to be found to smooth out funding reductions for some councils in 2016/17 and beyond without any other councils losing out further as a result.

“Extra funding of up to £416m, which includes an extra £93m for rural authorities, announced today will go towards easing the financial pressure on those local authorities who were adversely affected by the method of allocating funding and will ensure that no council will move into a negative grant funding position within the next three years.”

However, he added that funding reductions will still be challenging for councils over the next four years. “Any extra cost pressures, such as those arising from rising demand or policies such as the National Living Wage, will have to be funded by councils finding savings from elsewhere,” he stated. “Many will have to make significant reductions to local services to plug funding gaps and will be asking residents to pay more council tax while possibly offering fewer services in return as a result.”

CIPFA chief executive Rob Whiteman said it was welcome that ministers had listened to the concerns of local government and slowed the drop in funding levels.

“During this transition period, as councils move towards 100% business rate retention, it is important that no one is left behind, so it is encouraging to hear ministers acknowledge the importance of a review of the needs formula,” he added.

The changes recognised that some councils would have been left far worse off than they had planned to be due to a change in the way the RSG will be distributed, alongside ongoing cuts, the institute added.

Paul Carter, the chair of the County Councils Network said the announcement had “made a very difficult two-year settlement now more bearable, but still exceedingly challenging”.

“CCN has led the sector in making the case for a fairer settlement for all counties and our constructive dialogue with the secretary of state has delivered £292m of additional funding over the next two years for our member councils,” he added.

“This made a very difficult two-year settlement now more bearable, but still exceedingly challenging. Counties have delivered unprecedented efficiency savings since 2010 and will still need to make tough decisions in continuing to deliver balanced budgets over the coming years.”

Surrey Council leader David Hodge, who also leads the LGA Conservative Group, said the provisional settlement in December caused great concern as the profiling of funding meant many councils would have been required to find savings “well beyond their expectations in the first two years”.

He added: “I am pleased that both the chancellor and the communities secretary have listened and responded very constructively to the suggestions that I and other leading Conservative colleagues have been making since the provisional settlement was announced.

“The additional transitional funding made available during the next two years, combined with longer term funding certainty, will help us set sustainable budgets.”

Clark also confirmed the government would conduct a funding review as part of the moves to fully retain business rates locally from 2020. This would consider what should be included in the needs assessment formula for local government once sector is funded by local resources not central grant from 2020.

Hodge said that this review was “very welcome, and long overdue”.

“Other responses, such as no council being required to pay negative grant before full business rates retention is in place… are also very welcome,” he added.

“Councils are now in a much improved position, thanks to these changes, to be able to set their budgets for the coming year.”

 

 

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