Debate on the Local Government Finance Settlement 2024/25, House of Commons, 7 February 2024

• The evidence of the financial strain on councils has been growing. The settlement does not provide enough funding to meet the severe cost and demand pressures which have left councils of all political colours and types warning of the serious challenges they face to set balanced budgets next year. The Government should provide multi-year and timely settlements for councils to allow them to plan and make meaningful financial decisions.
•  According to an LGA survey carried out in December 2023, before extra money was announced, one in five council leaders and chief executives in England think it is very or fairly likely their Chief Finance Officer will need to issue a Section 114 notice this year or next.  Half are not confident they will have enough funding to fulfil their legal duties next year (2024/25). This includes the delivery of statutory services. 
• Whilst the LGA welcomes the additional £600 million in funding for the sector – £500 million of which will be added to the Social Care Grant – councils will still need to raise council tax and many will need to make cuts to local services in order to plug funding gaps. 
• The LGA is calling for the Government to ensure that all councils have sufficient funding to deliver their 2023/24 budgets, set balanced budgets for 2024/25 and develop medium-term financial strategies that are not characterised by substantial funding gaps. Government also needs to recognise that greater funding is needed to prevent the ongoing decline in local service provision. Funding levels need to be sufficient to allow councils to rebuild local service provision. 
• The LGA has continually highlighted that council tax rises – particularly the adult social care precept – have never been the solution to the long-term pressures faced by councils. This is particularly the case for social care where increases in costs and demand do not align with capacity to raise council tax. Increasing council tax raises different amounts of money in different parts of the country, unrelated to need. 
• Shire district councils – which provide vital services like planning and waste and recycling collection – will see a lower core spending power increase on average next year compared to other councils. This is especially so given the dramatic increase in homelessness costs, which also fall upon shire district councils. 
• Government forecasts for Core Spending Power are based on the assumption that councils will raise their council tax by the maximum permitted without a referendum. This leaves councils facing the tough choice about whether to increase council tax bills to bring in desperately-needed funding at a time when they are acutely aware of the significant burden that could place on some households in a year of economic uncertainty and increased costs. 
• The New Homes Bonus makes up a considerable part of funding for some councils, particularly shire district authorities. Councils need clarity on the future of the New Homes Bonus to be able to plan their budgets beyond next year and into the medium term. Any changes should come with transitional funding to ensure that local authority services that residents rely on are not put at risk. 
• Councils hold reserves for a reason. Earmarked reserves are held so they can plan for the future and deal with known risks; unallocated reserves so that councils can respond to immediate events and emergencies. In many cases reserves are the result of levies to fund infrastructure or capital investments that can only be spent once sufficient levies have been raised. Reserves can only be spent once and using reserves is not a solution to the long-term financial pressures that councils face. If councils use reserves held to cover risks, to pay for day-to-day expenditure, they potentially face a situation of not being able to deal with emergencies when they arise.
• The Government should commit to the Review of Relative Needs and Resources Review also known as the Fair Funding Review, reviewing both the formulas and the underlying data used for the assessment of relative needs and resources. Transitional mechanisms attached to the outcome of the review should provide sufficient funding to ensure that no council experiences a loss of income. There should also be transitional arrangements for any business rates reset.
• This is the sixth one-year settlement in a row for councils which continues to hamper financial planning and their financial sustainability. Only with adequate long-term resources, certainty and freedoms, including a multi-year settlement, can councils deliver world-class local services for our communities, tackle the climate emergency, and level up all parts of the country

•    Councils’ financial pressures and needs must be seen in the context of the huge contribution that councils already make and of their potential to do more to support the delivery of public services.

•    Despite the financial pressures councils have faced since 2010/11, the vast majority have met their statutory responsibility to balance their books annually. But this does not mean that services remain unchanged and sustainable:

o    Council spend is increasingly concentrated in fewer services and on fewer people.
o    There are growing concerns over the quality and scale of service provision.
o    Increasingly unsustainable workforce challenges.
o    Reduced spend on preventative services.

•    These outcomes show that simply keeping councils on a financial drip feed has not prevented the steady narrowing and weakening of council services. The Government should not confuse councils’ ability to balance their books over the short-term with service sustainability over the medium-term. 

The main features of the Local Government Finance Settlement are:

• £4.6 billion extra in Core Spending Power (7.5 per cent). This includes:

o    An increase in the business rates baseline and revenue support grant– (as well as compensation for the freeze to the small business rates multiplier announced at the Autumn Statement) in line with the September Consumer Price Index (6.7 percent).

o    A core council tax referendum principle of 3 per cent plus an adult social care precept of 2 per cent for councils with social care responsibilities, with shire districts getting the higher of 3 per cent or £5.

o    Increase in social care grants of £1.5 billion of which £1.2 billion is for the Social Care Grant which is ring-fenced for adults and children’s social care.

o    A 4 per cent funding guaranteeing. Each council is guaranteed a 4 per cent increase in Core Spending Power before any decisions about council tax increases – amounting to £269 million.

o    Services Grant reduces to £87.4 million compared with £483.3 million last year.

o    The New Homes Bonus at £291 million – similar to last year - with no legacy payments for previous years.

o    An increase of £15 million in the Rural Services Delivery Grant to £110 million.

• An increase in council tax of up to 5 per cent will place a significant burden on households particularly during a year of economic uncertainty and increased costs. In addition, increasing council tax raises different amounts of money in different parts of the country not related to need.
   
• It is disappointing that the Government has continued to rely on council tax and the social care precept, alongside grant, to fund adult social care. As we have previously stated, council tax is not the solution for meeting long-term pressures facing high-demand national services such as adult social care. The assumption that not only the adult social care precept but also a substantial part of any council tax uplift should fund adult social care leaves little for other council services on which all citizens depend.
   
• The Adult Social Care Precept is calculated based on the council tax of single tier and county councils. This means that in two-tier areas the amount raised to address social care is lower as it excludes council tax to fund Shire District services. This is becoming an anomaly. We call for councils to be able to raise the Adult Social Care Precept on both the shire county and shire district element of council tax in two tier areas to help support social care and reduce demand for social care.
   
• We agree that shire districts should have extra council tax flexibility but would propose a limit of £10 rather than £5. We would also call for standalone fire and rescue authorities to be given the £5 flexibility as was the case in 2023/24.
   
• We have always maintained that the council tax referendum limit should be abolished so councils and their communities can decide, when the time is right, how local services are paid for, with residents able to democratically hold their council to account through the ballot box.

• The methodology for allocating settlement funding and Revenue Support Grant (RSG) in 2024/25 is unchanged from previous years. The LGA considers that both the formulas and the underlying data used for the assessment of relative needs and resources need to be reviewed and the Government should provide sufficient funding to ensure that no council experiences a loss of income.
   
• We welcome the fact that local government will be compensated for the freezing of the small business rates multiplier in 2024/25. However, freezing the multiplier reduces buoyancy in the business rates system, and without alternative means of funding or compensation, council income would reduce in the medium term.

• Steadily growing demand has seen councils with responsibility for children’s and adult’s social care devoting an average of 63.9 per cent of budgeted service spend (excluding education) in 2023/24 to these services. This demonstrates councils’ commitment to protecting these crucial services, but it comes at the expense of funding for other important services and is also completely unsustainable. We note that Social Care Grant is for both adults and children’s services. Both of these are under significant pressure as well as facing the impact of a high rate of inflation. The extra money can only be spent once and so councils will be forced to prioritise.
   
• The LGA welcomes that the Government has acted on the concerns we have raised and recognised the severe financial pressures facing councils, particularly in providing services to the most vulnerable children and adults through social care services and delivering core front-line services to communities. The extra government funding for the Social Care Grant for 2024/25, including £500 million announced between the provisional and final local government finance settlements, is positive, but significant challenges remain going into 2024/25 and beyond. Directors of adult social services remain worried that their budgets are insufficient to meet all of their statutory duties. 
   
• We also continue to call for a long-term workforce plan for adult social care equivalent to that for the NHS. Councils commission the majority of direct adult social care from external providers. Pressures on the frontline care workforce are acute and challenges around recruitment and retention are well-known. Increases in the National Living Wage (NLW) are therefore welcome, but providers will likely expect to see their increased wage costs reflected in the fees councils pay. This will pose a significant additional pressure on adult social care budgets, which are already considered by many directors to be insufficient to meet all statutory duties.
   
• In addition, the Improved Better Care Fund allocations have again been frozen at 2022/23 levels. Additional investment is an essential foundation for future adult social care reforms if councils are to play their part in delivering on the Government’s ambition. It will be also necessary to understand the conditions attached to the different streams of funding. The LGA considers that these should be minimal and their use determined by local partners.
• 
  Recent LGA research highlighted a sharp increase in the number of placements for children in care that cost more than £10,000 per week. While we know all providers are experiencing increased running costs as a result of high inflation, there is significant concern in the sector that this does not explain the cost of very high-cost placements. Work to increase transparency around the costs of residential placements for children is therefore welcome, and we continue to discuss with the Department for Education options to expand placement capacity to ensure that every child lives in a loving home that meets their needs.

• The New Homes Bonus makes up a considerable part of funding for some councils, particularly shire district authorities. The LGA supports a bonus which is easy to understand and easy to evidence, including provision for affordable housing and energy efficient homes and which provides incentive. It should not be funded from a settlement top-slice. 
   
• Councils need clarity on the future of the New Homes Bonus following a consultation in 2021. Any changes should come with transitional funding to ensure that local authority services that residents rely on are not put at risk.
   
• We would also point out that the New Homes Bonus is calculated on Band D equivalent properties. Councils with lower taxbases tend to benefit from the New Homes bonus to a lesser extent than those with the same amount of growth and higher taxbases.

• The Government continues to encourage local authorities to consider, where possible, the use of their reserves to maintain services in the face of pressures. Councils hold reserves for a reason. Earmarked reserves are held so they can plan for the future and deal with known risks; unallocated reserves so that councils can respond to immediate events and emergencies. Reserves can only be spent once and using reserves is not a solution to the long-term financial pressures that councils face.
   
• If reserves are used to address unfunded recurrent costs, the pressure is passed into future years. New funding will have to be found in successive budgets to replace the initial use of reserves. If councils use reserves repeatedly to offset recurrent pressures, they will rapidly find themselves still having to address unfunded pressures but now also with depleted reserves.

•    While the sector is currently in need of additional financial support we also want to draw your attention to the benefits that investment in councils can bring to the delivery of key national government policies while also protecting the public purse. There are three core areas where there is strong evidence that investing in and empowering councils will deliver a strong return for government:

o    Driving economic growth.
o    Delivering better life opportunities while protecting the public purse.
o    Convening power and understanding place to improve public services.

Driving growth

• Councils are vital to addressing government priorities to support more people into work and address employers’ skills needs. But fragmented initiatives and services to achieve this seldom align with each other or the needs of local communities. Councils and devolved authorities are already doing a lot to cohere the system. The Government should route the Universal Support programme through local government, and work with us to build capacity to deliver it.
   
• The sector wants to go further with the right powers and funding and we urge the Government to back the LGA’s Work Local and pilot it by giving local leaders a single pot of funding to work with partners, to design, commission and have oversight of a ‘one stop’ all-age skills and employment service. A cost benefit analysis reveals that for a medium-sized combined authority, a Work Local approach making more effective use of around £270 million per year has the potential of an extra 2,260 people improving their skills and an additional 1,650 people moving into work. This could boost the local economy by £35 million per year and save the taxpayer an extra £23 million per year.
   
• Councils need a long-term national commitment to support a council house building renaissance and improvements in existing stock. Long-term certainty on powers and funding could help councils scale up to deliver an ambitious build programme of 100,000 high-quality, climate-friendly social homes a year. It would also improve the public finances by £24.5 billion over 30 years, including a reduction in the housing benefit bill and temporary accommodation costs.
   
• An expansion of council housebuilding would provide a counter-cyclical boost to housing supply; offer a pathway out of expensive and insecure private renting towards home ownership; reduce homelessness; tackle housing waiting lists and support the growth of green skills and net zero supply chains. Key to achieving these gains is the need for further reform to Right to Buy. Councils should be given: the right to retain 100 per cent of receipts on a permanent basis; flexibility to combine Right to Buy receipts with other government grants; the ability to set the size of discounts locally; and the ability to recycle a greater proportion of receipts into building replacement homes.

Improving life chances while protecting the public purse

• Investment in council services is proven to lead to better outcomes and life chances for residents. But in addition, there is also strong evidence that high quality council services prevent demands and pressures being passed onto other public service providers, often requiring more costly forms of intervention.
   
• By capitalising on the local knowledge and expertise of councils in supporting children and families, government can not only improve outcomes but avoid significant societal costs. Research for the Care Review estimated the societal cost of adverse outcomes for looked after children at £9 billion per year, while the ‘Big Five’ children’s charities found that a failure to invest in children’s social care now will lead to approximately £1 billion in additional costs to the Government over the next ten years.
   
• Preventive public health services such as smoking cessation, weight management, health visiting and sexual health services are essential to prevent disease, improve people’s quality of life and reduce health inequalities. If the Government provides public health with the long-term resources it needs this will reduce the long-term cost of treatment on the NHS while maintaining a sustainable health and social care system. Academic analysis shows public health expenditure by councils is three to four times as cost-effective in improving health outcomes. 

Convening power and understanding place to improve public services

• Councils have unrivalled local knowledge and sit at the heart of dense networks of public, private and third sector bodies. This means that further empowering councils and organising and delivering public services locally through them can deliver huge benefits.
   
• Devolved models for delivering net zero are more efficient, and more effective. Innovate UK modelled interventions in heat, buildings, and travel, and concluded local targeted action would hit net zero by 2050 while saving around £140 billion, returning an additional £400 billion in co-benefits. Government should seriously consider our proposals for backing local climate action by giving all places the clarity, certainty, and flexibility to help deliver net zero through an evolving set of Local Climate Action Agreements underpinned by multi-year, place-based funding allocations which are reviewed and adapted over Spending Review periods up to 2050.
   
• Further empowerment of councils can help deliver the Government’s objectives in relation to children with special educational needs and disabilities (SEND). The Government’s SEND and Alternative Provision improvement plan rightly acknowledges that while councils and their partners are working hard to meet the needs of children with SEND in their local areas, not all children and young people with special needs are able to access the support they need. Councils, with their democratic mandate, are ideally placed to convene and lead local SEND systems, bringing health and education partners together to quickly deliver the right support to the children that need it. But councils need the powers to hold partners to account which they cannot do within the existing system. Without further change, sufficiency of funding will remain a major concern, as well as hampering efforts to ensure the needs of all children with SEND can be met effectively.

Arian Nemati (Public Affairs)

[email protected], 07799 038403