Councils ‘face financial difficulty if funding reform delayed’

20 Dec 17

Councils in England will face a “financial cliff edge” if there are delays to an overhaul of how local authorities are funded, the Local Government Association has warned. 

Communities secretary Sajid Javid launched the Fair funding review: a review of relative needs and resources consultation during his announcement of the local government financial settlement at the House of Commons yesterday.

The review was first slated in 2016 as part of a plan to allow local authorities to keep money levied through local business rates and put an end to the revenue support grant by 2020.

It is designed to allay fears that some councils could lose out, particularly those in poorer areas.

The push for 100% business rate retention has now been pegged back, with Javid saying that 75% retention would be achieved by 2020/21.

In the latest consultation on fair funding the government has proposed a “simple foundation formula” to allocate resources to councils based on a small number of “common cost drivers”.

These include using official population projections in order to reflect changing population size, extra costs incurred by rural authorities and using the index of multiple deprivation.

The Local Government Association warned that “no council should see its funding reduce as a result of a new distribution system”.

LGA chairman Lord Porter said: “Delays to when these reforms will be implemented mean councils are facing a financial cliff edge that the government has to address.

“Councils will see their core funding from central government further cut in half over the next two years and almost phased out completely by the end of the decade.”

He said the government must “use the final settlement to slow the pace of funding cuts and provide replacement funding to all councils over the next two years”.

CIPFA said the increase of business rates retention from 50% to 75% would “mark a challenge” for councils in areas of lower economic growth.

The body for public sector accountants also criticised the lack of any pledge in Javid’s speech for additional social care funds, ahead of a green paper next summer.

A spokesperson said: “Social care is in a funding crisis now. It must be moved up the government’s priority list.”

Paul Carter, chairman of the County Councils Network and leader of Kent County Council, said counties collectively faced a funding black hole of £2.54bn by 2021.

He added: “We are therefore disappointed that the government has not heeded our calls for additional funding through the extension of transitional grants introduced in 2016.

“With no replacement announced for the vital £292m of transitional funding counties received over the past two years this further exasperates the precarious position of rural county services.

“Without additional resources our member councils will be unable to safeguard some highly valued frontline services.”

Louise McKinlay, cabinet member for resources at Essex Council, said: “We must bring an end to the current postcode lottery where Essex residents get just £193 per person to pay for services, compared to our London neighbours who receive £563 each.”

Javid also announced yesterday councils would have a 1% increase in council tax raising powers.

Paul Dossett, head of local government at consultancy Grant Thorton, said: “The settlement recognises that the council tax increase really only reflects the prevailing inflation rates that councils are already paying.”

He added “ongoing sustainability of key local authority services remains at risk” as councils were still facing the phasing out of revenue support grant in the next two years and that “solutions put forward so far” to cope with increased demand on services were “not sustainable”.

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