Final Local Government Finance Settlement 2023/24, House of Commons, 8 February 2023

• The final settlement confirms an increase in local government core spending power of 9.4 per cent, assuming that all councils will be increasing council tax to the maximum allowed without a referendum, which will help councils deal with inflationary and other cost pressures they face next year.
• While the LGA welcomes an overall increase in baseline funding for local authorities, are concerned that a significant proportion of the increase in core spending power for 2023/24 has been achieved through a combination of potentially one-off grants, ring-fenced funding, re-allocation of existing funding, and the assumption that local authorities will implement council tax increases. We continue to make the case for multi-year settlements and for more long-term certainty around funding and budgets.
• The LGA has long highlighted that council tax rises – particularly the adult social care precept, are not the solution to the long-term pressures faced by councils, particularly in social care. 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 next year of 5 per cent on average. The LGA response to the settlement consultation called for them to have extra flexibility of up to £10 on Band D properties. It is disappointing that the Government has not responded to this call and has not provided significant further support to shire district councils
• We are pleased that Government will provide extra funding for adult social care and accepted our ask for funding allocated for the reforms to still be available to address inflationary pressures for both councils and social care providers. Councils have always supported the principle of adult social care reforms and want to deliver them effectively but had warned that underfunded reforms would have exacerbated significant ongoing financial and workforce pressures.
• The additional funding helps will help to tackle the most immediate budget pressures in children’s social care; however, it will not be sufficient to invest in the preventative and early help services that children and families need, nor to invest in the children’s workforce or the additional homes needed for children in care. The Government’s response to the Review of Children’s Social Care is positive, including its focus on earlier help, support that builds on the strengths within a child’s wider family network, and greater ambition for children in care and care leavers, which are all areas where we can make an enormous difference. We’re also pleased it intends to address the high and costly churn of agency workers, which does not always deliver the best for children. However, the funding announced, while helpful, falls short of addressing the £1.6 billion shortfall – estimated prior to inflation – required each year simply to maintain current service levels.
• The New Homes Bonus makes up a considerable part of funding for some councils, particularly shire district authorities and we welcome the confirmation of the provisional amount for 2023/24. 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.
• The public health grant also needs to be published as soon as possible, so councils know how much they can budget for essential services to help keep people healthy throughout their lives, including for treating drug misuse and tackling obesity.
• The Government has clarified that the Review of Relative Needs and Resources and a reset of accumulated business growth will not be implemented in the current Parliament. When the Review does happen, it needs to consider both the data and the formulas used to distribute funding and the Government needs to ensure that overall local government funding is sufficient, when new needs formulae are introduced, to ensure that no council sees its funding reduce as a result and that there are transitional arrangements for any business rates reset.
• Councils want to work with Government on a long-term plan to fund local services and a turbocharging of wider devolution where local leaders have sustainable funding and greater freedom to take decisions on how to provide vital services in their communities.
• This is the fifth 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, can councils deliver world-class local services for our communities, tackle the climate emergency, and level up all parts of the country.

The increase in core spending power for 2023/24 (which consists of income from retained business rates, grants, and council tax, assuming that councils increase their council tax by the maximum allowed without a referendum) for councils is 9.4 per cent.

This increase will help councils deal with inflationary and other cost pressures. However, we will continue to make the case to government of the underlying and existing pressures that remain as councils still face significant challenges in setting their budgets and trying to protect services.

Shire district councils - which provide vital services like planning and waste and recycling collection - will see a lower core spending power increase next year of 5 per cent on average. The LGA response to the settlement consultation called for them to have extra flexibility of up to £10 on Band D properties. It is disappointing that the Government have not provided further support to shire district councils.

Government Core Spending Power figures 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 whether to increase council tax bills to bring in desperately-needed funding at a time when they are acutely aware of the significant burden this could place on households during a cost of living crisis.

The Government has confirmed core referendum principles of 3 per cent with an additional 2 per cent adult social care precept for authorities with social care responsibilities.  The shire district referendum principle is the higher of 3 per cent or £5.

Such an increase will place a significant financial burden on households in a year of economic uncertainty and increased costs, including energy 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 as part of its package to increase funding for 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.

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.

As announced in the 2022 Autumn Statement, the business rates multiplier will be frozen for 2023/24. It will remain at 49.9p (small business multiplier) and 51.2p (national business multiplier). The Government will compensate local authorities for the loss of income for this decision up to the level of the September 2022 Consumer Prices Index (CPI), meaning that, taken together, the increase in the business rates Baseline Funding Level (BFL) and the multiplier under-indexation grant for 2023/24 provide an increase of 10.1 per cent.

We welcome the fact that local government will be fully compensated for the freezing of the business rates multiplier in 2023/24. 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.

We note that the Government is now compensating to CPI than the Retail Price Index (RPI). Whilst both are at historically high levels this year, we call on the Government to keep this decision under review when they drop again to more normal levels.

The Government has announced that it will repurpose the 2022/23 Lower Tier Services Grant and a proportion of the expired New Homes Bonus legacy payments in the form of a new funding guarantee, to ensure that all councils will see at least a 3 per cent increase in their Core Spending Power before any decisions about organisational efficiencies, use of reserves or council tax levels for 2023/24.

Councils receiving this new funding guarantee will welcome the protection this guarantee offers although this is well below the level of CPI inflation which, in December 2022, stood at 10.5 per cent.

The Funding Guarantee for 2023/24 amounts to £133 million.  The majority of councils receiving the funding guarantee are shire district councils. This emphasises the need for them to have access to the additional funding which a higher council tax referendum limit of 3 per cent or £10 would have provided.

The New Homes Bonus (NHB) will be £291.3 million in 2023/24. The method for calculating the NHB will not change from 2022/23 and new payments will not attract legacy payments. The threshold over which the bonus is paid remains at 0.4 per cent. The Government says that they will set out the future position of New Homes Bonus ahead of the 2024/25 local government finance settlement

The New Homes Bonus makes up a considerable part of funding for some councils, particularly shire district authorities and we welcome the confirmation of the provisional amount for 2023/24.  

Councils urgently 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.

Steadily growing demand has seen councils with responsibility for children’s and adult’s social care devoting nearly two-thirds of their total spending 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 are pleased that the Government will provide extra funding for adult social care and accepted our ask for funding allocated towards reforms to still be available to address inflationary pressures for both councils and social care providers. Councils have always supported the principle of adult social care reforms and want to deliver them effectively but have warned that underfunded reforms would have exacerbated significant ongoing financial and workforce pressures. The Government needs to use the delay to reforms to learn from the trailblazers to ensure that the appropriate funding and support is in place to ensure they can be implemented successfully.

We note that the repurposed reform funding 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.

Although the additional funding to adult social care is welcome, it falls significantly short of the £13 billion we have called for to address the severity of the pressure facing the service, including rising demand, and ensure councils can meet all of their statutory duties under the Care Act. In addition, the Improved Better Care Fund allocations have been frozen at 2022/23 levels. Additional investment for here and now pressures and core services 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.

Demand for children’s social care has risen significantly over the last decade. Latest statistics show that there are now record numbers (and a record proportion) of children in care, over 15 thousand more than ten years ago. Referrals rose by 8.8 per cent last year as the impact of the pandemic started to become clear, with referrals from schools at record levels. While the number of children and families requiring support has risen, so has the cost of providing homes to children in care. Council spend on placements from independent providers grew by 57 per cent between 2016 and 2021, driven largely by increasing residential care costs. This compares to a 15 per cent increase in the number of children in care over the same period.

Councils have increased their children’s social care budgets, but this has not been enough to meet the impact of rising demand and rising costs. LGA analysis, prior to high levels of inflation, indicates an existing shortfall of £1.6 billion per year simply to maintain current service levels. Councils welcome the opportunity to work with Government on much-needed reform of the system, but as the Independent Review of Children’s Social Care identified last year, the system must have the resources to change. The review recommended investment of at least £2.6 billion over four years, prior to the impact of inflation, to improve the system to better meet children’s needs. If we are to keep children safe and provide them and their families with the support they need to thrive, children’s social care must receive sufficient investment both to stabilise current services and to start to build the new system envisaged by the care review.

The additional funding helps to tackle the most immediate budget pressures in children’s social care; however it will not be sufficient to invest in the preventative and early help services that children and families need, nor to invest in the children’s workforce or the additional homes we need for children in care.

The Government’s response to the Review of Children’s Social Care is positive, including its focus on earlier help, support that builds on the strengths within a child’s wider family network, and greater ambition for children in care and care leavers, which are all areas where we can make an enormous difference. We’re also pleased it intends to address the high and costly churn of agency workers, which does not always deliver the best for children. However, the funding announced, while helpful, falls short of addressing the £1.6 billion shortfall – estimated prior to inflation – required each year simply to maintain current service levels. Much of the additional funding committed in this strategy will go to pathfinder and pilot areas. This means that children living in the majority of the country will not benefit from the level of additional funding that the care review and our own analysis have demonstrated is desperately needed. We already have a significant amount of evidence about what works, including that developed through the Department for Education’s own innovation programme. Significant additional funding for all councils, not just those in pathfinder areas, can be wisely invested in stabilising the current system to ensure strong foundations on which to build future reform.

Most of the social care grants are being distributed through the existing Adult Social Care relative needs formula (RNF).  The LGA does not take a formal view on distribution, pointing to arguments on both sides. We note that RNFs are a recognised way of allocating grant resources although the data was last updated in 2013/14 and the formula was developed some years previous to that. 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. We also note that the new discharge focus funding is being distributed differently to the current year funding for discharge making it harder to deliver continuity. We finally note that the equalisation element will go some way towards compensating for the different amounts raised through the Adult Social Care precept.

The Government must urgently publish the response to the SEND Green paper, setting out policy reforms that will reduce pressure on high needs budgets, ensure councils can eliminate their High Needs Budget deficits before the end of March 2026 and include a focus on increasing levels of mainstream inclusion.

We note that the settlement includes no information about the national total, or individual council allocations, of the public health grant for 2023/24. We call on Government to provide councils with clarity on the funding for public health 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 help mitigate pressures on the NHS and social care.

Public health teams have faced an unprecedented period of funding and demand pressures and continue to face significant pressures and challenges. Sufficient ongoing funding is needed to ensure all local authorities can continue to meet their statutory public health responsibilities.

Uncertainty also remains in terms of the additional funding announced last year for locally commissioned drug treatment services and the Family Hubs and Start for Life programme. We call on Government to provide councils with certainty beyond 2022/23 as soon as possible.

The Public Health Grant allows councils to fund vital preventative services such as stop smoking and sexual and reproductive health services. At a time when NHS and social care pressures are greater than ever, a greater focus on prevention through an uplift to the Public Health grant will support the Government’s wider aims by improving health outcomes, reducing health spending and putting the NHS on a better footing for the long term.

The Government has clarified (in the Policy Statement for 2023/24 and 2024/25 published on 12 December 2022) that the Review of Relative Needs and Resources and a reset of accumulated business rates growth will not be implemented in the current Parliament. When the Review does happen, it needs to consider both the data and the formulas used to distribute funding and the Government needs to ensure that overall local government funding is sufficient, when new needs formulae are introduced, to ensure that no council sees its funding reduce as a result and that there are transitional arrangements for any business rates reset.

This is the fifth 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, can councils deliver world-class local services for our communities, tackle the climate emergency, and level up all parts of the country.

Alongside the introduction of greater funding certainty there should also be a move away from piecemeal pots of funding allocated through wasteful competitive bidding processes. LGA research estimated that the average cost to councils in pursuing each competitive grant was in the region of £30,000, costing each local authority roughly £2.25 million a year chasing down various pots of money across Whitehall. Government should instead adopt a place-based approach in which funding is aligned with local needs and opportunities.