The 2021/22 Provisional Local Government Finance Settlement: LGA response

1. The Local Government Association (LGA) is here to support, promote and improve local government. We will fight local government's corner and support councils through challenging times by making the case for greater devolution, helping councils tackle their challenges and assisting them to deliver better value for money services. 

2. This response has been agreed by LGA Resources Board Members. 

3. The settlement indicates that core spending on local services has the potential to increase by £2.2 billion in 2021/22, an increase of 4.5 per cent. Extra money to meet COVID-19 costs, new funding for adult and children’s social care and for councils with responsibility for services such as homelessness, planning, recycling and refuse collection will help meet cost and demand pressures next year. 

4. However, more than 85 per cent of the potential core funding increase next year is dependent on councils increasing council tax by up to 5 per cent next year. If council tax income is disregarded, the increase in Core Spending Power (CSP) is 1.5 per cent. 

5. At individual council level, 79 shire districts have a zero per cent increase in CSP.  Without taking council tax income into account, four London Boroughs, 18 unitary authorities and 139 shire districts would see year on year reductions. This leaves councils facing the tough choice about whether to increase bills to bring in desperately needed funding to protect services at a time when we are acutely aware of the significant burden that could place on some households.  

6. The assumed increase in overall council tax income within CSP, including maximum allowable increases in rates and a projected 1.7 per cent increase in the council taxbase, is 6.6 per cent. Council tax rises – particularly the adult social care precept – have never been the solution to the long-term pressures faced by councils, particularly in social care which is desperately in need of reform. Increasing council tax raises different amounts of money in different parts of the country, unrelated to need.  

7. Councils also need clarity and certainty about how all local services will be funded over the next few years and beyond. Next year we need a multi-year settlement and meaningful progress towards a long-term, sustainable solution to the funding crisis our adult social care services continue to face. There must be no further delays to the process of reform. 

8. It is vital that the Government guarantees the financial challenge facing councils as a result of COVID-19 will be met in full, including funding for cost pressures and full compensation for lost income and local tax losses.  

9. The Government must urgently publish next year’s public health grant settlement so councils can get on with the job of helping keep their communities healthy and resilient, in the face of the ongoing pandemic. 

10. The Government needs to work closely with councils during its review of the New Homes Bonus as soon as possible to allow them to plan their 2022/23 budgets and into the future. 

11. The impact of the pandemic has not changed the way general Government grants are distributed between councils which remains complex, opaque and out of date. We are calling on the Government to resume the Fair Funding Review, but with a guarantee that the transitional mechanisms ensure that no councils experience a loss of income. 

12. The Government must use its review of business rates to determine the future of the tax - which accounts for around a quarter of all council spending power - and shift attention towards developing new sources of finance for councils. 

13. We will continue to promote the role councils play in making a huge difference to the lives of our residents and communities. As we prepare our submission for the 2021 Budget and look ahead to the 2021 Spending Review, we will be campaigning for councils  to be given clarity and certainty over their funding  so that local services can be provided with a sustainable long term future. . This will allow local government to play our full part as we improve outcomes and value for money in public services, rebuild our economy, get people back to work, level up inequalities and create new hope in our communities. 

14. The proposals in the settlement are for Settlement Funding Assessment (consisting of the Business Rates Baseline Funding Level (BFL) and Revenue Support Grant) to be uprated by inflation. When this is added to the additional grant resources and proposed council tax flexibility this means that core spending on local services has the potential to increase by £2.2 billion next year. This will help meet service demand and cost pressures. 

15. However, more than 85 per cent of the potential core funding increase next year is dependent on councils increasing council tax by up to 5 per cent next year. If council tax income is disregarded, the increase in Core Spending Power (CSP) is 1.5 per cent. 

16. At individual council level, 79 shire districts have a zero per cent increase in CSP.  Without taking council tax income into account, four London Boroughs, 18 unitary authorities and 139 shire districts would see year on year reductions. 

17. We note that the council tax income within Core Spending Power is projected to grow by 6.6 per cent, assuming that councils take full advantage of the ability to increase council tax to the referendum limit.  This is also based on the assumption that the taxbase will grow by 1.7 per cent, the average annual growth in the council tax base between 2016/17 and 2020/21. This can be as high as 5 per cent for individual councils. No adjustments have been made by Government to the council tax base projection methodology for impacts due to the COVID-19 pandemic. This growth in the taxbase will be very difficult to achieve given the impact of COVID-19 on housebuilding rates. 

18. The Government’s view is that it is providing additional support to local authorities through the Local Council Tax Scheme (LCTS) and as a result methodology changes to growth in the taxbase are not required. We acknowledge this additional funding but would call for the Government to keep it under review if increases in LCTS working age recipients are higher than that predicted. 

19. We recognise that the Government proposes confirming the basic referendum principle for 2021/22 at 2 per cent, with the exception of all shire district authorities, for which a higher limit of either 2 per cent or £5 (on a Band D bill) applies. Social care authorities will also be able to raise a precept of up to 3 per cent on top of this. 

20. The LGA has consistently opposed nationally set referendum limits. No national tax is subject to a referendum. The council tax referendum limit needs to be abolished so councils and their communities can decide how local services are paid for, with residents able to democratically hold their council to account through the ballot box. 

21. Whilst it is good that there will be flexibility for councils to raise the adult social care precept by a further 3 per cent in 2021/22, this is not a sustainable solution to funding adult social care as increasing council tax, or introducing a social care precept, raises different amounts of money in different parts of the country, unrelated to need and also adds an extra financial burden on already struggling households. 

22. We agree that districts should have the extra flexibility but in view of the proposed £15 threshold proposed for Police and Crime Commissioners, we would call for a higher limit than £5. We would also call for more precept flexibility for Fire and Rescue authorities.  

23. Council services have been critical in the fight against COVID-19 and it is good that the Government has provided further funding for councils to manage the cost pressures and income losses they face as a result of the pandemic. 

24. The Chancellor’s pledge to compensate for 75 per cent of irrecoverable council tax and business rates income, and to extend the scheme to fund a portion of councils lost income from fees and charges during the early part of the next year provide some much-needed stability but will need to be reviewed and probably extended. 

25. We welcome the Government’s commitment to work with local government on the lasting impact of the COVID-19 pandemic.  We have replied to the consultative policy paper on COVID-19 funding for local government in 2021/22 separately.  It is vital that the Government guarantees the financial challenge facing councils as a result of COVID-19 will be met in full, including funding for cost pressures and full compensation for lost income and local tax losses in both 2020/21 and 2021/22. 

26. The additional funding for adult and children’s social care is welcome, as is that the funding will not be ringfenced, providing councils with flexibility on how their allocations are best used locally. However, the £300 million sum is not significant in comparison to the cost pressures that these vital services face. It is disappointing that the improved Better Care Fund has been frozen. 

27. Councils have increased children’s social care budgets year on year at the expense of other services, but have been unable to keep up with increasing demand. Additional funding is urgently needed to ensure children are safe and well, and to reinvest in the important preventative services that can prevent children and families reaching crisis point. 

28. The adult social care precept provides limited means to raise additional funding, but it is not sustainable. It raises different amounts of money in different parts of the country, is unrelated to need and adds an extra financial burden on households. Nearly 10 per cent of the average council tax bill is now made up of the precept. 

29. Overall, this is a continuation of the sticking plaster approach to funding adult and children’s social care. For example, the Prime Minister promised to ‘fix adult social care’ in July 2019 and everyone connected to adult social care is frustrated by the lack of progress on this crucial agenda; there must be no further delays to the process of reform. 

30. The provisional amount of £622 million for the New Homes Bonus (NHB) has been included in Core Spending Power in 2021/22. This is a reduction of £285 million from the total in 2020/21. 

31. The LGA has always been of the view that the NHB should be funded from outside the settlement and not by top-slicing other funding to councils.  

32. We will be responding to the consultation on the future of the New Homes Bonus. It is important that sufficient clarity about the outcome of the review is provided to councils as soon as possible to allow them to plan their 2022/23 budgets and beyond. 

33. The Government needs to work closely with councils as part of its review of housing incentives in order to ensure the review results in the delivery of more homes and that the revised scheme works for local government. 

34. We note that the government states that it will revisit the priorities for reform of the local government finance system, taking account of wider work on the future of the business rates tax and on the Adult Social Care system. Final decisions will be taken in the context of the 2021 Spending Review. 

35. In his statement to the House of Commons, the Secretary of State confirmed that the Government will work with the sector and Members across the House to seek a new consensus for broader reforms to local government, including the Fair Funding Review and the business rates reset, and will ensure that councils are set on a long-term trajectory of sustainable growth and fair resources. 

36. We are calling on the Government to resume the Fair Funding Review, working with councils to review progress made to date to ensure that it is still fit for purpose, or flexible enough to deal with shifts in council service models as a result of COVID-19, and to guarantee that transitional mechanisms ensure that no councils experience a loss of income. 

37. The move to 75 per cent business rates retention should only be revisited, if appropriate, once the business rates review concludes. 

38. The settlement includes no information about the national total, or individual council allocations, of the public health grant for 2021/22.  

39. We call on government to provide councils with clarity on the funding available in 2021/22 as soon as possible. The current delay to the announcement is making it extremely difficult for councils to plan effectively at a time when public health services are vital to the fight against COVID-19. 

40. Sufficient ongoing funding is needed to ensure all local authorities can continue to meet their public health responsibilities beyond COVID-19 as well. The Government should match the growth in public health grant to growth in overall NHS funding under the Long Term Plan. This means the public health grant would have to increase to at least £3.9 billion by 2024/25 and an increase of at least £130 million for 2021/22. 

41. As with councils, Fire and Rescue Authorities will be able to raise their precept by 2 per cent in 2021/22 and will , fire authorities will also receive an increase in their revenue support grant in line with inflation and an increase in the compensation grant for under-indexing the business rates multiplier. Some fire and rescue authorities will receive a share of the £4 million increase in the rural services delivery grant. 

42. After a number of years where there have been reductions in Fire and Rescue Authorities’ funding, a further inflationary increase for 2021/22 following on from the inflationary increase in 2020/21 is helpful.  

43. However, fire and rescue services need to be funded to take account of the full range of risks, demands and cost pressures they face. While, as mentioned above, we would prefer council tax referendum limits to be removed, in view of the flexibility given to Police and Crime Commissioners, an increase in the precept flexibility for Fire and Rescue Authorities would assist.  

44. The outcomes of the cases brought about discriminatory practices in the fire fighters pension scheme will have implications for the pension administrative costs and employer contributions to be made by Fire and Rescue Authorities. Unless these additional cost pressures are funded by government, they will have a significant impact on Fire and Rescue Authority budgets in 2021/22 and beyond. 

45. As has been identified in Her Majesty’s Inspectorate of Constabulary and Fire and Rescue Services reviews greater investment is needed in fire and rescue services protection teams and to meet the recommendations arising from reviews of building safety after the Grenfell fire and implementation of the provisions in the Building Safety Bill. Additional funding needs to be made available to the sector in 2021/22 to further enhance protection activity, respond to any further recommendations from the Grenfell Tower inquiry, and so services are better placed to work alongside the Health and Safety Executive in its new role as the Building Safety Regulator. 

46. We will continue to work with the Home Office and the National Fire Chiefs Council ahead of the 2021 Spending Review, making the case for additional funding to be made available to enable fire and rescue services to drive transformation in the way they deliver their services, as well as for the capital funding issues faced by some services to be addressed. 

47. After March 2022 there is no clarity over funding levels, both nationally and at the local authority level. This hampers meaningful financial planning. 

48. All councils face huge financial uncertainty over the next few years and into the next decade, particularly as a result of the COVID-19 pandemic and the measures taken to combat it. We look forward to working with the Government as a vital partner to help deliver its commitment to levelling up powers and investment in local areas in the run up to the 2021 Spending Review.  

49. In 2022/23 we need a multi-year settlement and meaningful progress towards a long-term, sustainable solution to the funding crisis our adult social care services continue to face. There must be no further delays to the process of reform. 

50. The response to the MHCLG consultation questions are in the Annex to this document. 

The responses to the MHCLG questions in the consultation are: 

Question 1: Do you agree with the Government’s proposed methodology for the distribution of Revenue Support Grant in 2021/22?

We note that the methodology for allocating Revenue Support Grant (RSG) in 2021/22 is unchanged from 2020/21. The LGA does not take a formal view on distribution, pointing to arguments on both sides. 

We further note that in freezing Baseline Funding Levels (BFLs) at their 2020/21 level, the Government has again decided not to proceed with the negative adjustment to top-ups and tariffs known as ‘negative RSG’ in 2021/22. The affected authorities will welcome the Government proposal to again cancel the adjustment in the 2021/22 settlement. 

Not resetting the business rates baseline will provide councils with some of the funding certainty and stability they need for next year. 

We welcome the fact that councils will be compensated for the shortfall in income from freezing the multiplier, via the section 31 grant for under-indexation of the multiplier. However, this decision reduces buoyancy in the business rates system, and without alternative means of funding, council income would reduce in the medium term.  

We call on the Government to make any decision relating to business rates reliefs for 2021/22 as speedily as possible to give councils an opportunity to implement them.  We would call for councils to continue to be fully funded for any COVID-19 reliefs.  

In our response to the Call for Evidence for the Business Rates Review, we stated that although property continues to provide a good basis for a local tax on business, we cannot look to business rates to form such a substantial part of local government funding in the future and alternative means of funding councils will be needed instead or as well as a reformed business rates system. 

All councils face huge financial uncertainty over the next few years and into the next decade, particularly as a result of the COVID-19 pandemic and the measures taken to combat it. We look forward to working with the Government as a vital partner to help deliver its commitment to levelling up powers and investment in local areas in the run up to the 2021 Spending Review. 

Question 2: Do you agree with the proposed package of council tax referendum principles for 2021/22?

No national tax is subject to a referendum. The council tax referendum limit needs to be abolished so councils and their communities can decide how under-pressure local services are paid for, with residents able to democratically hold their council to account through the ballot box. 

Whilst it is good that there will be flexibility for councils to raise the adult social care precept by a further 3 per cent in 2021/22, this is not a sustainable solution to funding adult social care. 

An increase in council tax of up to 5 per cent will also place a significant burden on households. In addition, increasing council tax raises different amounts of money in different parts of the country, unrelated to need. 

Should ministers proceed with referendum principles for 2021/22, we agree that districts should have the extra flexibility but in view of the proposed £15 threshold proposed for Police and Crime Commissioners, we would call for a higher limit than £5. We would also call for fire and rescue authorities to be given more flexibility.   

Question 3: Do you agree with the Government’s proposals for the Social Care Grant in 2021/22? and

Question 4: Do you agree with the Government’s proposals for the improved Better Care Fund (iBCF) in 2021/22?

The additional funding for adult and children’s social care is welcome, as is that the funding will not be ringfenced, providing councils with flexibility on how their allocations are best used locally. However, the £300 million sum is not significant in comparison to the cost pressures that these vital services face. It is disappointing that the improved Better Care Fund has been frozen. 

We note the proposals to allocate funding of the additional grant using £240 million as an equalisation component and £60 million using relative needs formulae (RNF). The LGA does not take a formal view on distribution, pointing to arguments on both sides. We note that the equalisation element will go some way towards compensating for the different amounts raised through the Adult Social Care precept.  RNFs are a recognised way of allocating grant resources, although we do not take a position supporting one or another distribution formula. For example, some authorities with high pressures relating to children’s services might have preferred the Social Care grant to be allocated at least partly according to the Children’s RNF. 

Question 5: Do you agree with the Government’s proposals for New Homes Bonus in 2021/22?

The New Homes Bonus (NHB) makes up a considerable part of funding for some councils, particularly shire district authorities. The decision not to pay legacy payments for the 2020/21 round of NHB, which was announced last year, is largely responsible for the fall in total New Homes Bonus of £285 million (almost a third of last year’s total of £907 million). 

The LGA has always been of the view that the NHB should be funded from outside the settlement. The Government needs to work closely with councils as part of its review of housing incentives in order to ensure the review results in the delivery of more homes and that the revised scheme works for local government. 

We will be responding to the consultation on the future of the New Homes Bonus. It is important that sufficient clarity about the outcome of the review is provided to councils as soon as possible to allow them to plan their 2022/23 budgets and beyond. 

Question 6: Do you agree with the Government’s proposal for a new Lower Tier Services Grant, with a minimum funding floor so that no authority sees an annual reduction in Core Spending Power?

We note that £25 million of the proposed £111 million will be distributed to ensure that no authority sees a fall in its core spending power and that the Government states that  this funding is in response to the current exceptional circumstances and is a one-off and that no local authority should take this funding floor as guaranteeing similar funding floors in future years, including in future finance reforms. 

As stated above we do not take a formal view on distribution. Councils receiving this funding will welcome the additional resource. 

Question 7: Do you agree with the Government’s proposed approach to paying £85 million Rural Services Delivery Grant in 2021/22 to the upper quartile of local authorities, based on the super-sparsity indicator?

Councils which receive the extra resources will welcome this proposal, which represents an increase of £4 million from 2020/21.  

Question 8: Do you have any comments on the Government’s plan not to publish Visible Lines?

We note that the Visible Lines for some services within Core Spending Power, published alongside the settlement in recent years, were not hypothecated and presumed allocation of council resources including council taxes.  We therefore support the discontinuation of this product. 

Question 9: Do you have any comments on the impact of the 2021/22 local government finance settlement on those who share a protected characteristic, and on the draft equality statement published alongside this consultation document? Please provide supporting evidence.

As mentioned in our response to question 1, the LGA does not take a formal view on distribution, pointing to arguments on both sides. 

We would recommend that in addition to the draft equality statement, the  Government should review whether their distribution methodology leads to disparities on the basis of protected characteristics (for example in terms of  resource going to areas with higher Black, Asian and minority ethnic (BAME) communities, who have evidentially been harder hit by COVID-19). 

We would also note that although socioeconomic status is not a protected characteristic, we know that it has a proven relationship with differential outcomes for many of the others (race, age, sex (i.e. women), disability) and should therefore be considered, particularly given the strong evidence of COVID-19-exacerbated health inequalities and economic impacts in order to mitigate economic and financial inequality and ensure all communities are supported through economic recovery. 

In addition, the LGA refers the Government to the response from individual member authorities.