Local Government Finance Settlement 2016 – 2017

Local Government Finance Settlement 2016 – 2017

Final local government finance settlement 2016 to 2017. The way ahead of funding local government.

From:

Statement by the Secretary of State for Communities and Local Government on the final local government finance settlement for 2016 to 2017.

Mr Speaker,

I am pleased to report to the House my response to the consultation on theprovisional local government financial settlement for the next financial year.

I have considered all 278 responses to the consultation; my ministers and I have met with local government leaders of all types of authority, from all parts of the country.

I have listened carefully to each of them.

I am grateful to everyone who has taken the trouble to make such suggestions.

The provisional settlement contained a number of important innovations.

Firstly, although the statutory settlement is for 2016 to 2017, I set out indicative figures to allow councils to apply for a 4 year budget, extending to the end of the Parliament. Such a change permits councils to plan with greater certainty.

This offer was widely appreciated in the consultation; this is not surprising, since it has been a key local government request for years.

I want to give councils the time to consider this offer, and formulate ways to translate this greater certainty into efficiency savings. I will therefore give councils until Friday 14 October to respond to the offer – although many have done so positively, already.

Secondly, in the provisional settlement I responded to the clear call from all tiers of local government to recognise the important priority – and growing costs – of caring for our elderly population.

In advance of the Spending Review, the Local Government Association and the Association of Directors of Adult Social Services had written to me requesting an additional £2.9 billion a year be available by 2019 to 2020.

Through a dedicated social care precept of 2% a year – equivalent to £23 per year on an average Band D home, and a Better Care Fund of £1.5 billion a year by 2019 to 2020 to address pressures on care.

The provisional settlement made up to £3.5 billion available by 2019 to 2020.

Thirdly, recognising that council services in rural areas face extra costs, I proposed in the provisional settlement that the Rural Services Delivery Grant should be increased from £15.5 million this year to £20 million in 2016 to 2017 – the year of this settlement – and to £65 million in 2019 to 2020.

Councils and colleagues who represent rural areas welcomed this, but some asked that the gap between rural and urban councils, in terms of central government grant, should not widen, especially in the year ahead for which this statutory settlement is concerned.

Fourthly, this year’s provisional settlement marked the turning point from our over-centralised past.

At the start of the 2010 Parliament, almost 80% of council expenditure was financed by central government grant; by next year Revenue Support Grant will account for only 16% of spending power; by 2019 to 2020 only 5%.

Ultimately, Revenue Support Grant will disappear altogether, as we move to 100% business rates retention.

Local financing – through Council Tax and business rates – rather than central government grant, has been a big objective of councils for decades.

However, some authorities argued for transitional help in the first 2 years, when the central government grant declines most sharply; they argued that other local resources would not have had time to build up fully.

So, much in the provisional settlement was welcomed, but specific points were made about:

  • the sharpness of changes in government grant in the early years of this Parliament
  • concerns about the costs of service delivery in rural areas

Another very important point was made. Many councils felt that too much time has passed since the last substantial revision of the formula which assesses a council’s needs, and the costs it can be expected to incur in delivering services.

These responses to the consultation seem to me reasonable and ought to be accommodated if at all possible.

Everyone will appreciate that the need to reduce the budget deficit means that meeting these recommendations is extraordinarily difficult.

I am pleased to be able to meet all of the most significant of them.

I can confirm that every council will have, for the financial year ahead, at least the resources allocated by the provisional settlement.

I have agreed to the responses to the consultation which recommended additional funding to ease the pace of reductions during the most difficult first 2 years of the settlement for councils with the sharpest reductions in Revenue Support Grant.

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 £150 million a year, paid over the first 2 years.

On the needs formula itself, it is nearly 10 years since the current formula was last looked at thoroughly.

There is good reason to believe that the demographic pressures affecting particular areas – such as the growth in the elderly population – have affected different areas in different ways, as has the cost of providing services.

So I can announce that we will conduct a review of what the needs assessment formula should be in a world in which all local government spending is funded by local resources not central grant, and use it to determine the transition to 100% business rates retention.

Pending that review, I recognise the particular costs of providing services in sparse rural areas.

So I propose to increase by more than fivefold the Rural Services Delivery Grant from £15.5 million this year to £80.5 million in 2016 to 2017.

With an extra £32.7 million available to rural councils through the transitional grant I have described, this is £93.2 million of increased funding compared to the provisional settlement available to rural areas.

Significantly, this proposal ensures no deterioration in government funding of rural areas compared to urban areas for the year of this statutory settlement.

I have also, at the request of rural councils, helped the most economical authorities by allowing them to charge a de minimis £5 more a year in Council Tax without triggering a referendum.

I will also consult on allowing well-performing planning departments to increase their fees in line with inflation at the most, providing that the revenue reduces the cross subsidy that the planning function currently gets from Council Tax payers.

A final point from the consultation: although the figures for future years are indicative, a small number of councils were concerned that, as their Revenue Support Grant declined, they would have to make a contribution to other councils in 2017 to 2018 or 2018 to 2019.

I can confirm that no council will have to make such a payment.

Mr Speaker, these are important times for local government. The devolution of power and resources from Whitehall is gathering momentum.

Yet I am aware that there is serious work for councils to do to provide excellent services to residents – at the lowest cost possible – over the years ahead.

I acknowledge the important role of councils which deliver the services on which all our constituents depend.

I am grateful for all of their contributions.

My response to the consultation has responded positively to sensible recommendations, in as fair a manner as possible, while holding firm to our commitment to free our constituents from the dangers inherent in the deficit.

I commend this statement to the House.

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