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LGA - Transitional support needed for councils following funding shake-up

Transitional support is needed for councils over the next two years or the impact of government funding changes risk leaving many at financial breaking point and the existence of some local services under threat, the Local Government Association is warning. 

The LGA said some councils are already perilously close to the financial edge after years of funding reductions. Many more now fear being pushed closer to a funding tipping point as a result of changes to the way they will receive government funding over the next few years. 

Local authorities have been preparing for Revenue Support Grant - core government funding used to pay for day-to-day services - to be phased out by the end of the decade. This is part of the move towards local government keeping 100 per cent of its business rates income – a move long-called for by councils.

A radical shake-up of the way the Government will allocate this funding and the speed at which it will stop altogether at a local level has left some councils facing deeper than expected reductions in 2016/17, the LGA said.

It said the funding changes also mean 168 councils – almost half of all councils and made up of districts, counties, unitaries and London boroughs - face losing all this government funding by 2019/20. 

own halls only have a matter of weeks to set budgets for 2016/17 and face difficult decisions about how to find millions more in savings than they feared and plug even bigger funding gaps. 

Councils have long-called for further flexibility in the setting of council tax and town halls across the country are considering rises of up to 1.99 per cent and whether to also add a 2 per cent precept onto council tax bills to try and raise desperately-needed money to pay for already chronically underfunded services for the elderly and disabled. 

While this added flexibility will help some councils offset some of the funding pressures they face, it may still not prevent the need for cutbacks to local services, especially as local authorities won't see the real benefits of extra council tax income until the end of the decade. 

In its response to the Local Government Finance Settlement consultation, the LGA, which represents more than 370 councils in England and Wales, wants the Government to prepare a plan of action for when councils are left with insufficient resources to run services. It is also calling for government to smooth out its grant funding cuts to councils over the next few years.

Cllr Sharon Taylor, LGA Vice Chair, said: 

"The pace at which government funding will be phased out over the next few years was hugely unexpected and is placing significant pressure on some councils and their local services already stretched to the limit by rising demand and years of growing funding pressures. 

"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. 

"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.

"While extra council tax flexibilities and income will help ease some of the funding pressures facing councils, it would be wrong to think this will be enough to solve the long-term pressures facing local services and communities. After years of striving to keep council tax as low as possible, town halls find themselves in the impossible position of having no choice but to ask residents to pay more council tax over the next few years while possibly having to offer fewer services in return.

"Smoothing out funding cuts over the next few years is one of the essential ways the Government can give local authorities the best chance of being able to protect the services communities rely on over the next few years."

Notes

1. On December 17, the Department for Communities and Local Government published its provisional Local Government Finance Settlement. It confirmed that core government funding to councils would reduce by 27 per cent (£2.6 billion) in 2016/17 but also proposed a new methodology for allocating this grant funding.

  • Previously, every council would expect to receive the same or similar in-year percentage cut to their own grant funding (in this case 27 per cent). This meant those receiving more government funding would receive a larger cash funding cut.
  • The new system now accounts for the differing extent to which councils rely on grants, making smaller reductions to those that rely a lot more on the grant as a proportion of their total income as a result.
  • Local authorities able to raise more of their own revenue from council tax and business rates will receive bigger grant funding cuts than they would have planned for under the previous methodology. They will see their grant funding phased out much earlier than expected. For some, the cut to their core government funding is 2016/17 is higher than the 27 per cent average they would have planned for.
  • Councils of the same type and providing the same services will lose the same or similar percentage of funding to their total spending power (council tax, business rates, government funding) under this new method.

2. The council tax referendum limit for all councils will remain at 1.99 per cent while social care authorities will be able to increase council tax by a further 2 per cent (3.99 per cent in total). Income from this additional precept must be spent on adult social care.

  • LGA analysis suggests that if all 152 social care authorities used the precept in full they would raise £400 million in 2016/17 and the average Band D taxpayer would see an average rise of £24 in their bill.
  • The LGA has previously estimated that the social care funding gap would grow by at least £700 million in 2016/17 – before the cost of the National Living Wage is taken into account in full.
  • The National Living Wage will cost councils at least £340 million in 2016/17 to lift pay for staff but primarily to cover increased contract costs to home care and residential providers.

3.In its response to the provisional Local Government Finance Settlement consultation, the LGA is also calling for:

  • All councils – not just the 51 district councils with the lowest council taxes in 2015/16 – should be allowed to raise their Band D council tax by £5.
  • Councils strongly support the offer of four-year funding settlements – a reform they have long-called for. The LGA said uncertainty around the outcomes of reviews into the New Homes Bonus and the improved Better Care Fund must be quickly tackled do councils do not have to estimate the total available resources in future years and therefore in a better position to take up the offer.
  • With almost all of the extra £1.5 billion social care cash promised by the Government unavailable until 2018/19, the LGA said the planned £700 million of new funding for the Better Care Fund must be also brought forward to 2016/17. This is vital in order to help alleviate social care funding pressures, to be exacerbated by the introduction of the National Living Wage in April, and with services supporting our elderly and vulnerable at breaking point now.
  • It would be of more immediate assistance to local authorities if they were able to use existing or recent capital receipts from the sale of assets to support revenue spending, rather than just new receipts as proposed.

You can read our full consultation response here.

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