MHCLG: Brokenshire sets out funding measures for Councils

Councils in England are to share an extra £1.3bn under funding plans published by Communities Secretary Rt Hon James Brokenshire MP today (13 December 2018).

The provisional local government finance settlement gives councils a real-terms increase in core spending power for 2019-20 – up from £45.1bn in this financial year to £46.4bn.

The funding allows councils to deliver the services residents need while protecting taxpayers from excessive increases in bills.

Measures will help the most vulnerable in society, support and reward local economic growth while setting out a more sustainable path to future funding.

This forms the final year of the multi-year funding settlement accepted by 97% of councils in return for publishing efficiency plans.

Communities Secretary Rt Hon James Brokenshire MP said:

“I’m delivering a settlement which paves the way for a fairer, more self-sufficient and resilient future for local government and a brighter future for the people and places they serve.

“This settlement delivers a real-terms increase in spending for local authorities in 2019-20 and gives them more control over the money they raise too, while protecting residents against excessive council tax rises.”

What the financial settlement includes

Additional Support for Social Care

The Autumn Budget committed £650m more for social care for 2019 to 2020. This includes £240m towards easing winter care pressures on adult social care, with local authorities able to use the remaining £410m on adults or children’s social care, and, where necessary, to relieve demand on the NHS.

This additional funding, alongside the adult social care precept and the improved Better Care Fund, means the Government will have given councils access to £10bn in dedicated funding which can be used for adult social care in the three-year period from 2017-18 to 2019-20.

The Budget also confirmed that £84m is available, over five years, to drive improvements in social work practice and decision-making in children’s social care. The additional funding is part of the Government’s measures to address pressures in services helping society’s most vulnerable.

Future of business rates retention

The Government is aiming to increase the level of business rates retention from the current 50% to 75% from 2020 in a way that is fiscally neutral. It is also intending to implement reforms to the business rates retention system to ensure local councils have the levers and incentives they need to grow their local economies.

A consultation seeking views on the proposed reforms has also been launched today. The consultation seeks views on how the business rates system can be reformed to continue to provide a strong incentive for local authorities to grow their business rates bases. It proposes a change in how the system is administered to mitigate the volatility business rates appeals have on local authorities’ income and to help minimise complexity in the system.

Business Rates Pilots

To test out aspects of proposed business rates reforms in a wide range of areas across the country, the selection of 15 areas as 75% retention pilots for the 2019-20 financial year has also been announced. 

Communities Secretary the Rt Hon James Brokenshire MP also confirmed that London would be piloting 75% rates retention in 2019-20.

And as previously confirmed, pilots originally launched in 2017 in devolution deal areas will continue on the existing basis in 2019-20.

The pilots will inform the Government’s proposed reforms ahead of a renewed business rates retention system being introduced in 2020-21.

Business rates levy account surplus to be redistributed to councils

Local authorities play a key role in supporting economic growth.

The current business rates retention scheme is performing well, with local authorities estimating in 2018-19 they will keep around £2.4bn in business rates growth.

As a result of increased growth in business rates income, the Government has announced it is intending to distribute £180m of the levy surplus to all local authorities and proposes to share it on the basis of need.

A consultation on this has been launched as part of the provisional settlement.

Negative Revenue Support Grant

Negative RSG is where changes in the way in which Revenue Support Grant is calculated from 2016-17 have led to a downward adjustment of some local authorities’ business rates top-up or tariff for 2019 to 2020.   For many less grant-dependent authorities the required reduction of core funding exceeds their available Revenue Support Grant. This means that for next year, in some cases, this would result in a downwards adjustment to a local authority’s business rates tariffs and top ups. Having listened to the views of local authorities, Government has announced it intends to directly eliminate the £152.9 million of Negative Revenue Support Grant (RSG) RSG in 2019-20 through the use of foregone business rates. This will prevent any local authority from being subject to a downward adjustment to their business rates tariffs and top-ups which could act as a disincentive for growth.

New Homes Bonus

An additional £20m in funding will be provided for the New Homes Bonus and the baseline for growth, below which new allocations of the Bonus are not paid, will stay the same at 0.4%.

This housing growth baseline provides a further incentive to local authorities to welcome housing growth and build more homes to relieve housing need. This strikes the right balance between supporting local authorities and ensuring they work to give more people the opportunity to have a place to call home.

Rural support

Communities Secretary Rt Hon James Brokenshire MP has responded to a number of councils’ concerns over rural services funding by announcing the level of Rural Services Delivery Grant in 2019-20 will increase by £16m to £81m, in line with the levels of grant funding provided in 2018-19. This recognises the extra costs of providing services in rural communities.

The Government will further consider the specific challenges faced by rural areas, and other areas, to inform the future formula for the distribution of resources to local authorities from 2020-21.

Review of relative needs and resources

Having consulted last year on a review of local authorities’ relative needs and resources, the next stage of consultation ahead of the Review’s planned implementation in 2020 was announced today.

This continues the Government’s work to address concerns about the fairness of current funding distributions by determining a robust and effective funding formula.

Maintenance of Council tax referendums thresholds, aside from further flexibility offered on the police precept level

The threshold at which a referendum is triggered for rises in council tax will stay at 3%.

Further flexibility is also available for certain local authorities, such as those with responsibility for Adult Social Care services. The provisional settlement has also announced extended precept flexibility for Police and Crime 

Commissioners, in recognition of changing demand facing police forces. This strikes the right balance between local authorities having the power to raise income while protecting council tax payers from excessive rises.

Fire funding for pensions

Around £97m of funding has been announced to cover fire pensions liabilities. This responds to concerns raised by the sector over increased pensions liabilities for Fire and Rescue Authorities.

Further information

This relates to England only.

The provisional settlement gives councils a 2.8% cash-terms increase, and a 1% real-terms increase in core spending power in the 2019 to 2020 financial year – up from £45.1 billion in this financial year to £46.4bn.

The areas selected for business rates pilots are: