Communities and Local Government CommitteeSupplementary written evidence from the Department for Communities and Local Government
IMPLICATIONS OF THE SPENDING REVIEW FOR LOCAL AUTHORITIES
The Spending Review for Local Government
The Spending Review made clear that all parts of the public sector, including local authorities, must contribute to deficit reduction. It set out how the Government would tackle public debt and put the public finances back on a sustainable footing.
It also announced that the Government would be delivering radical reforms for local authorities which gave councils the freedom and powers to deliver the key frontline services people rely on and make significant savings. The Government was clear that managing the impact of funding reductions would require tough choices, but by giving power away, the Government has looked to free authorities to focus on the priorities which matter most to their communities, and achieve better services for less.
The Spending Review announced the total formula grant from the Department for Communities and Local Government which local authorities will receive over the next four years.
|
£ billion |
|||||
|
2010–11 |
2011–12 |
2012–13 |
2013–14 |
2014–15 |
|
|
LG Resource DEL1 |
28.5 |
26.1 |
24.4 |
24.2 |
22.9 |
|
o/w funding for DCLG formula grant |
28.0 |
25.0 |
23.4 |
23.2 |
21.9 |
|
o/w council tax freeze grant |
0 |
0.7 |
0.7 |
0.7 |
0.7 |
|
o/w other |
0.5 |
0.5 |
0.4 |
0.4 |
0.4 |
|
LG Capital DEL |
0 |
0 |
0 |
0 |
0 |
The Provisional Local Government Finance Settlement 2011–12
The provisional local government finance settlement 2011–12 which was announced by the Government on Monday 13 December sets out how that grant will be distributed between authorities over the next two years in a fair and sustainable way, and how much each individual authority will receive.
The Government’s proposals ensure no council will see their overall spending power decrease by more than 8.9% in 2011–12 or 2012–13 as a result of a transition grant of £85 million in 2012–13 and £14 million in 2012–13. The settlement is more progressive than before as it takes into account that some councils are very dependent on central government grants, getting formula grant to where it is needed through the relative needs weighting and banded floors.
The Government have also taken action to provide help to struggling families and pensioners by providing additional funding to help councils freeze council tax bills in 2011–12, which will save typical households around £70 a week.
The Government have made several changes to the way that grant is shared out between authorities. Applying an equal percentage reduction to the grant would leave the poorest areas disproportionately worse off because they are more reliant on Government grant to meet their spending. The Government has changed the way that the grant is calculated: paying more attention to the levels of need in the area, and distributing less money per person.
The Government are getting formula grant to where it is needed most. The relative needs weighting is increased so that more money follows socio-economic indicators. This is more progressive that last year’s distribution. This targets resources at those councils which are the most dependent on central government grant and the most needy by paying much more attention to the level of need in calculating the grant each area receives—an 83 % weighting given to relative needs, with proportionately less going on a per head basis.
In addition for social services authorities and for shire district councils, councils have been grouped together in four bands, reflecting their relative reliance on central government grant. These bands are based on the percentage of the budget that the authority receives from central government formula grant. By setting different floors for authorities in different circumstances, the Government has capped the reductions in grant for more needy authorities at a lower level than more self-sufficient areas.
These actions will mean that areas which are more reliant on central government grant will therefore be protected from the greatest reductions in grant.
Ministers believe that the drivers of deprivation and social exclusion are extremely place-specific. The challenges are therefore best understood and addressed locally. The Government’s package of freedoms, flexibilities and incentives for local Government, our new approach to neighbourhood planning, and more flexible local budgets will strengthen local leadership, sweeping away the barriers that have been stifling growth and local innovation and holding back regeneration.
The provisional levels of grant floor proposed for the four damping groups of local authorities are set out below.
For 2011–12, the floor levels would be:
|
Social services authorities |
Shire district councils |
|
|
Four banded floors at: |
||
|
Band 1—most dependent |
−11.3% |
−13.8% |
|
Band 2 |
−12.3% |
−14.8% |
|
Band 3 |
−13.3% |
−15.8% |
|
Band 4—least dependent |
−14.3% |
−16.8% |
|
Police authorities |
Fire & rescue authorities |
|
|
Single floor at: |
−5.141% |
−9.5% |
For 2012–13, the floor levels would be:
|
Social services authorities |
Shire district councils |
|
|
Four banded floors at: |
||
|
Band 1—most dependent |
−7.4% |
−10.5% |
|
Band 2 |
−8.4% |
−11.5% |
|
Band 3 |
−9.4% |
−12.5% |
|
Band 4—least dependent |
−10.4% |
−13.5% |
|
Police authorities |
Fire & rescue authorities |
|
|
Single floor at: |
−6.703% |
−3.4% |
The Government has also acted to help councils manage the impact of reductions sensibly and effectively over the spending review period. The Government has therefore ensured that no authority will see their spending power fall by more than 8.9 % in either 2011–12 or 2012–13. The average fall is 4.4% in 2011–12. In order to guarantee this, Ministers have provided an extra £30 million in formula grant and a further specific grant of £85 million in 2011–12 and £14 million in 2012–13 shared between the councils who would otherwise have seen the sharpest falls in their spending power.
The Spending Review recognises the importance of social care and committed additional funding over the spending review period to protect access to services while improving quality and outcomes. £1 billion of this is coming from NHS funding, with the intention that this should help break down the barriers between health and social care, offering people a more coherent, effective service. The Government are also directing more formula grant resources to authorities that deliver social care, rather than the district councils who do not have this responsibility.
The Government is driving a radical shift in power with new powers in the Localism Bill. The Government has also substantially reduced the burdens of inspection, regulation, and regional bureaucracy.
The Spending Review announced ending the ringfencing of all revenue grants from 2011–12, except simplified school grants, and a new public health grant from 2013. This includes a single un-ringfenced Early Intervention Grant worth around £2 billion. The change will give councils significant financial autonomy. We have significantly simplified and streamlined grant funding, by rolling around £4 billion of grants in 2010–11 into the unhypothecated formula grant by 2014–15. The number of separate core grants for local government reduces from over 100 to around a dozen.
This means that in total, local authorities will have greater control over more than £7 billion of funding from 2011–12 which is moving into formula grant, being unringfenced or is new funding for the SR10 period, so enabling them to better meet local communities’ needs.
Capitalisation
As announced in the Spending Review, there will be £200 million of capitalisation available in 2011–12 to help authorities who wish to deliver savings early through organisational restructuring. This is important support to councils. But capitalisation increases revenue spending, and permits councils to borrow for revenue purposes, so must be accounted for in the deficit reduction plan. More capitalisation would mean less formula grant. Government cannot be expected to meet all redundancy costs.
Reserves
All councils keep sums of money in reserve so that they have a financial cushion to meet sudden unexpected costs. English Local Authorities currently have around £10 billion of in reserves for the period 2010–11 and over 50 individual local authorities have over £50 million in reserves. The Government considers that it is sensible, as part of wider financial planning, for council treasurers to consider drawing on their reserves to address short term costs and pressures, such as necessary restructuring, and to invest now in order to realise savings in the longer term. It is for each local authority to determine the level of reserves that it needs and how it uses its reserves.
Protecting the Voluntary and Community Sector
The Government considers that this will be vital. Measures to be taken in the Localism Bill will establish new rights for voluntary and community groups to deliver local services. The Government has also created a Transition Fund (£100 million from the Office for Civil Society), that will support the VCS during the first year of the SR. Spending decisions are, and will continue to be, a matter for local authorities, and the Government do not intend to place restrictions on any decisions they might make on funding, including grants to the voluntary sector. However, Ministers have been clear that they do not expect authorities to respond to reductions in their budgets by passing on disproportionate cuts to other service providers, especially the voluntary sector.