LGA submission to the 2024/25 Provisional Local Government Finance Settlement

The LGA is the National Voice of Local Government. We’re on the side of councils: promoting their work, supporting them to improve and helping them make a difference to people, places, and the planet.

This response has been agreed by the Chair, Group Leaders, and Lead Members of the Economy and Resources Board.

• 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. Councils in England continue to face a funding gap of £4 billion across this year and next. The 2024/25 provisional settlement does not change the funding gap facing councils.
• It is therefore unthinkable that Government has not provided desperately needed new funding for local services in 2024/25. Although councils are working hard to reduce costs where possible, this means the local services our communities rely on every day are now exposed to further cuts.
• 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 something the Government should address in the final settlement.  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 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.
• The New Homes Bonus makes up a considerable part of funding for some councils, particularly shire district authorities.  We welcome the confirmation of the provisional amount for 2024/25. 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.
   

Question 1: Do you agree with the Government’s proposed methodology for the distribution of Revenue Support Grant in 2024/25?

We note that the methodology for allocating Revenue Support Grant (RSG) in 2024/25 is unchanged from previous years. As stated above, 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 further note that the Government has again decided not to proceed with ‘negative RSG’ in 2024/25. The affected authorities will welcome the Government proposal to again cancel the adjustment in the 2024/25 settlement.

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.

Question 2: Do you agree with the Government’s proposals to roll grants into the local government finance settlement in 2024/25?

We note the decision to consolidate the Home Office’s Fire and Pensions Grant, into the Revenue Support maintaining its existing distribution.  We call on the Government to publish the precise calculations that show how the adjustment to the Settlement Funding Assessment for 2023/24 has been made.

The outcomes of the cases on 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 (FRAs). Unless these additional cost pressures are funded by Government, they will have a significant impact on FRA budgets in 2024/25 and beyond. Therefore, whilst we agree with consolidating this grant in principle, we call on the government to keep the pressure under review.

Question 3: Do you agree with the proposed package of council tax referendum principles for 2024/25?

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 the extra 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.  According to LGA calculations 3 per cent or £5 represents just over 1 per cent of total district net revenue expenditure and 3 per cent represents just under 2 per cent of unitary net revenue expenditure.

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.

Question 4: Do you agree with the Government’s proposals to maintain the Funding Guarantee for 2024/25?

Councils receiving this funding will welcome the protection this guarantee offers although this is below the level of CPI inflation which, in November 2023, stood at 3.9 per cent.

The majority of councils receiving the funding guarantee are shire district councils and this emphasises the need for them to have access to the additional funding which the higher of 3 per cent and £10 council tax referendum limit would bring.

Question 5: Do you agree with the Government’s proposals on funding for social care as part of the local government finance settlement in 2024/25?

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.

Whilst the investment made at Autumn Statement 2022 was very welcome, it is disappointing and concerning that the 2024/25 Local Government Finance Settlement provides no new investment for adult social care beyond that.  People who draw on care and support will be understandably worried about the continuing impact of significant pressures on the service. Waiting lists for care assessments or the provision of support remain stubbornly high. Serious recruitment and retention challenges continue to beset the workforce. Unmet and under-met need remains and instability continues to characterise the provider sector. 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 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. The LGA considers that these should be minimal and their use determined by local partners.

With record numbers of children needing support, and the increasing cost of delivering support as a result of high inflation, councils – alongside charities and campaigners – are united on the urgent need for funding to ensure all children and their families get the support they need, as soon as they need it. Additional funding is urgently needed to stabilise the children’s social care system before it is pushed to the brink. The lack of investment in the 2023 Autumn Statement, and the 2024/25 local government finance settlement, risks councils’ ability to provide the critical care and support that children rely on every day, and risks diverting essential funding from other council services.

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 LGA does not take a formal view on distribution, pointing to arguments on both sides. We note that Relative Needs Formulae (RNF) 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 finally note that the equalisation element will go some way towards compensating for the different amounts raised through the Adult Social Care precept.

Question 6: Do you agree with the Government’s proposals for New Homes Bonus in 2024/25?

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 topslice. Councils need clarity on the future of the NHB 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 NHB 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.

Question 7: Do you agree with the Government’s proposals for Rural Services Delivery Grant in 2024/25?

Councils in rural areas will welcome the continuation of this funding albeit that it is reduced in real terms.

Do you agree with the Government’s proposals for Services Grant in 2024/25?

The un-ringfenced Services Grant will provide vital resources for local authority services. There is concern in the sector that it has significantly reduced from its 2023/24 level and consideration should be given to the impact of this reduction on individual councils, some of which were surprised at the scale of the reduction.

Question 9: Do you have any comments on the impact of the proposals outlined in this consultation document on persons who share a protected characteristic? Please provide evidence to support your comments.

We would recommend that in addition to section 7 in the consultation, which concerns the impacts of these proposals, the Government should review whether their distribution methodology leads to disparities on the basis of protected characteristics.

We would also note that although socioeconomic status is not a protected characteristic, it has a proven relationship with differential outcomes. It should therefore be considered, particularly given the strong evidence of health inequalities and economic impacts. This is in order to mitigate economic and financial inequality and ensure all communities are appropriately supported.

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

Question 10:  Do you have any views about the Government using levers in future local government finance settlements (those occurring after 2024-25) to disincentivise the so-called ‘4 day working week’ and equivalent arrangements of part time work for full time pay?

More than nine in 10 councils are experiencing staff recruitment and retention difficulties across a diverse range of skills, professions and occupations. It is councils who know what works best for their community, workforce and in their wider labour market conditions. They should be free to pilot innovative solutions to address local challenges and deliver crucial services to their residents without being penalised financially. Local voters should be the ones making a judgement on whether local council leaders have made good choices and delivered value for local taxpayers.

Levy account

We note that the draft Local Government Finance Report (section 7) states that the Secretary of State will decide the amount, if any, that will be credited to the Levy Account in respect of 2024/2025 when the necessary information becomes available and that this will be confirmed at the final Local Government Finance Settlement. We also note that £100 million of levy surplus was distributed in the 2023/24 final settlement and that according to the Levy Account for 2022/23 there is a closing balance of £220 million. We would expect any balances on the levy account to be distributed to councils.

Reform

We note that in the Local government finance policy statement 2024 to 2025 published on 5 December 2023 the Government stated that it remains committed to improving the local government finance landscape in the next Parliament and now is not the time for fundamental reform, for instance implementing the Review of Relative Needs and Resources or a reset of accumulated business rates growth.

The Government should commit to the Review of Relative Needs and Resources, 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.

Reserves and other areas

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.

Confirmation that the Statutory Override for the Dedicated Schools Grant will continue until 31st March 2026 provides councils with some breathing space regarding high needs deficits, but we are concerned that the lack of certainty beyond 2026 will increasingly impact on council’s medium term financial strategies. The estimated deficit across all councils could be as high as £3.6 billion by 2025.  We therefore continue to call for the Government to write off all high needs deficits as a matter of urgency to provide certainty and ensure that councils are not faced with having to cut other services to balance budgets through no fault of their own or their residents.

The extension of the flexible use of capital receipts scheme for an additional four years up until March 2030 is welcome. We continue to call on the Government to make the arrangement permanent. We will be responding separately to the call for views on new local authority capital flexibilities.

The Exceptional Financial Support that has been offered has been either an increased council tax referendum limit, or a capitalisation direction. The latter enables revenue costs to be spread over more than one year by being funded by borrowing or by capital receipts. Both of these will be funded by the local taxpayer.

Public Health

The LGA has continually called for councils to have earlier clarity about their public health funding. It is good the Government has published the indicative grant allocations earlier, this will help councils plan investment in vital sexual health, addiction treatment, health visiting and school nursing services for the year ahead. However, councils still await announcement of their final Public Health Grant allocations.

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.

Local authority public health interventions funded by the grant provide excellent value for money. However, we are concerned about the piecemeal nature of some of this. Although one-off pots of funding are helpful in the short-term, long-term clarity is needed if councils are to truly improve health outcomes in their communities.

Services such as local sexual health clinics have seen record demand coupled with staffing shortages. At a time when NHS and social care pressures are greater than ever, vital sexual health, drug, alcohol and health visiting services cannot keep living a hand to mouth existence with insufficient resources to meet this demand.

A coordinated Government wide strategy is required to improve the nation’s health together with a commitment to funding public health properly.

Mike Heiser, Senior Adviser (Finance)

Email: [email protected]