Charity finance policy Environmental, social, governance (ESG)

What’s in local government’s Christmas stocking?

t’s Christmas and the Secretary of State for Communities and Local Government has unveiled the government’s provisional Local Government Finance Settlement for 2016-17. The Local Government Finance Settlement is effectively a ‘Local Government Budget’ for the year and its provisional nature means it is open for consultation. Overall, this year's stocking was filled with a combination of lumps of coals and a couple of potentially tasty oranges (ho, ho, ho). Here are the headlines that charities need to know.

Lumps of coal…

Smaller cuts, but harder ones

Over the period between 2010-2015, local councils had to made real term cuts of around 14% in their core spending power. They will be required to make savings of 6.7% over this Parliament, which although half around what the last Parliament will still be hard to achieve. As has been mentioned many times, local government has in most cases already grabbed the ‘low hanging fruit’. What is left are far more challenging decisions on the future of local services, including charging for them, reducing them and in some cases, closing them. However, there if there is a silver lining to this then it is that perhaps given the scale of these cuts, local commissioners will finally have to start properly reforming services and redesigning them. Alternatively, it could accelerate move even further towards increasing the size of contracts and bringing in larger providers. We need to be vigilant.

Adult social care keeps worrying Whitehall

Social care continues to dominate discussions around the future of local government financing. This is unsurprising, given the rising share of adult social care within local authority budgets (35% in 2013/14 compared with 30% in 2010/11). The government has confirmed that the ‘social care precept’ will go ahead however as the LGA points out – this will still leave a considerable gap in funding. Even if all 152 social care responsible authorities used the precept in full in 2016/17, they would only raise £400m despite costs rising by £700m. This shortfall will need to be made up elsewhere. Combined with the National Living Wage increase which will suck up considerable resources from the ‘Better Care Fund’ (£1.5bn over the Parliament) – the large amounts being promised by central government may not change very much on the ground. It will also vary considerably depending on local conditions. Charities working in other critical services will no doubt continue to find themselves squeezed over the next few years to pay for the increasing demand.

Business Rates - the announcement that keeps giving

Business rates income is being devolved to local authorities. You probably know this, given that this is about the fourth time it has been announced. Yet the details are still sketchy. Here is what we know. Local government will retain 100% of the business rates that they generate. There will still be top ups and redistributions. Yet councils will have the power to cut their business rates if they want to do so. Councils will keep any growth in business rates in their local areas. Confused? How these competing principles will work themselves out, we can only guess for now. The Secretary of State also denied himself the chance to be Father Christmas for  charity sector and rule out any changes to charitable rate relief in the review of business rates…I suppose that would have been too good a Christmas present to wish for... One of the details that we do know however is that if a council loses 7.5% of its business rate income in one year, they will receive support from central government. But 7.5% does appear a rather large figure given the current conditions. Any loss of revenue in one year given the current conditions is likely to have serious consequences for local councils.  Perhaps this may be revised down during consultations?

Tasty oranges?

4 year council budget deals on offer

The government has made a very interesting offer to local councils that they can come directly to the government and get one. There are a few catches though:

  1. These would be in cash terms – so if inflation increased significantly, they would lose out.
  2. Councils have to come forward with ‘efficiency plans’ for the government to approve (so much for devolution, you might say)
  3. These would need to take into account future transfers of functions and responsibilities – we know the government wants to make local authorities do more, so these budgets would need to take this into account, effectively, there is not likely to be extra funding for extra responsibilities if local councils take these 'four year settlements'.

But there are potential benefits. The main one is obviously certainty. Instead of worrying year to year, councils will be able to plan for four years – something that many in local government have wanted for some time. The other potential benefit from our sector’s perspective if the prospect of opening up reserves for investing. As the Secretary of State mentioned, reserves have grown by 71% since the Coalition Government took office back in 2010. This is despite being asked to make significant cuts. Not all of these can be used, but a significant portion of these reserves are unrestricted. Councils have often said that they cannot spend these because of budgetary uncertainty, if they take a four year deal these significant sources of funding could be opened up. The question is, what should they be used for? We’d argue that it should be investing in preventative services with local organisations so that we reduce future demand and generate real long term savings. Whether that happens in practice, we’ll have to see.

More money for rural areas

The last government provided around £15m in additional funding for local councils that operate in sparsely populated rural areas due to the increased costs of delivering services in these areas. The government has decided to keep doing that and has increased the level of funding to £20m in 2016/17 rising to £65m by 2019/20. For charities that work in sparsely populated rural areas this will be welcome news.

Nothing set in stone

This is a provisional statement so it is still open for change. Moreover, there are significant consultations still be to completed on the future of business rates, the future responsibilities of local councils and a variety of other issues. The future of local government is still taking shape, but CFG will be watching this space carefully for further developments. Any questions? Leave a comment below!

This post was last reviewed on 27 February 2019 at 15:54
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