The local government finance settlement

It is a case of ‘as you were’ this week as the Government announced the provisional local government finance settlement for 2019/2020. 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 £46.4billion.

Much of James Brokenshire’s statement was already widely known before the Secretary of State made his statement to the House of Commons on Thursday, but it will still receive a mixed reception from councils across the country.

The Daily Mail have reacted to the news with the headline, ‘Council Tax Bombshell’ as the government announced plans for council tax to rise by up to 2.99% alongside a rise in the social care precept and the doubling of the police precept. Many in the local government family believe that the funding of the police and social care should be borne from general taxation and not from the introduction and then raising of precepts on the council tax.

Negative RSG

With the continued absence of the much-awaited Business Rate Retention White Paper, councils have faced a prolonged uncertainty which has hampered medium term financial planning. However, one small piece of good news for some councils, particularly the districts, is that the Government has announced it will write off £153 million of ‘negative revenue support grant’.

The perverse calculations did mean that some councils would have to essentially pay the Government back millions of pounds in April. However, they won’t now need to do this which has offered a one-off reprieve for the next financial year.

Status Quo in the Housebuilding Revolution

Councils were nervous that the government was planning to raise the threshold before New Homes Bonus would be received. The Prime Minister has made clear that she wants to see homes built quicker and councils were expecting to be incentivised to act quicker in the passing of local development plans in order to ensure homes were built and additional monies were coming into the council by building even more each year. The government has instead opted not to press ahead with this and keep the baseline for growth at 0.4%. This is perhaps a nod to the uncertainty that is creeping into the housing development market around Brexit and its impact on house prices and import tariffs.

More Pilots than Ryanair

It has become something of a theme in recent years as the Government has weighed up its chances of getting legislation through the House of Commons that it announces pilots instead. This year 15 more pilots were announced which will trial 75% business rate retention.

The areas selected for business rates pilots are:

• Berkshire
• Buckinghamshire
• East Sussex
• Hertfordshire
• Lancashire
• Leicester and Leicestershire
• Norfolk
• Northamptonshire
• North and West Yorkshire
• North of Tyne
• Solent Authorities
• Somerset
• Staffordshire and Stoke-on-Trent
• West Sussex
• Worcestershire

Following negotiations with London authorities, the Greater London Authority, the City of London and all London boroughs will also form a 75% business rates pilot pool. Existing pilots in devolution deal areas will continue on their current basis.

Protecting the Base

Conservative rebel MPs in the shires will have been partially placated at the news that the level of Rural Services Delivery Grant in 2019 to 2020 will increase by £16 million to £81 million, in line with the levels of grant funding provided in 2018 to 2019.

One to watch…

There were further warnings that the Government will take steps to intervene in councils who are borrowing money to acquire commercial assets. The Secretary of State indicated that he was worried about the risks councils were opening themselves up to. Many Council Leaders and Chief Executives will be asking; if councils are to be financially self-sufficient but not able to borrow to invest and return a yield, what can they do to plug the considerable gaps in their budget left by the removal of the revenue support grant? Expect a battle in the new year on commercialisation if the Government do follow through with their threat to intervene.

Conclusion

Local Government is still being asked to do even more with even less. Whilst in Conservative Party conference speeches made by the Chancellor and Prime Minister they suggested that there might be movement on general taxation to support the funding of more bobbies on the beat and social care support, the reality has been that the buck has been passed to councils to take the unpopular decision of raising taxes locally. The Government’s fudge isn’t sustainable and if it continues then the Prime Minister will come to realise that she’s about as popular in town halls as she is in the House of Commons.