The local government finance settlement is the annual determination of funding to local government from central government. This briefing covers the consultation on the local government finance settlement for 2018/19. We expect the final 2018/19 settlement to be laid before the House of Commons, for its approval, in February 2018.
- Almost no new money from central government has been included in the settlement. The Government has increased the general council tax referendum limit from 1.99 per cent to 2.99 per cent for 2018/19 and 2019/20. Further flexibility for local authorities in setting council tax levels will give some councils the option of raising extra money to offset some of the financial pressures they face next year. For 88 shire districts with the lowest council tax levels the new limit does not provide any more spending power, as they can already increase council tax by 3 per cent or more due to the £5 flexibility. For many other district councils, the positive impact is minimal for the same reason. We call on the Government to offer further flexibility to these councils.
- No other national tax is subject to referenda. 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. However, this is not a sustainable solution as increasing council tax raises different amounts of money in different parts of the country, unrelated to need. This also adds an extra financial burden on already struggling households.
- Local services are facing a £5.8 billion funding gap in 2019/20, as well as a £1.3 billion pressure to stabilise the adult social care provider market today. The additional council tax flexibility – estimated by our analysis to be worth up to £540 million in 2019/20 if all councils use it in both 2018/19 and 2019/20 – is nowhere near enough to meet the funding gap. The Government needs to provide new funding for all councils over the next few years so they can protect vital local services from further cutbacks. Further business rates retention income could be used to meet the funding gap facing local government.
- The New Homes Bonus makes up a considerable part of funding for some councils, particularly shire district authorities. It is good news that the Government has accepted our call to avoid further increases to the threshold and no holdback for decisions on new homes approved by the Planning Inspectorate.
- It is extremely disappointing that the Government has again chosen not to address the continuing funding gap for children’s and adult social care. We have repeatedly warned of the serious consequences of funding pressures facing these services, for both the people that rely on them and the financial sustainability of other services councils provide. An injection of new money from central government is the only way to protect the vital services which care for older and disabled people, protect children and support families.
- Ten further 100 per cent business rates retention pilots will enable aspects of the 100 per cent business rates retention system to be tested. At the same time, discussions will continue between Government officials, the LGA and councils on the introduction of further business rates retention for all in 2020/21. The Government has also confirmed that the Fair Funding Review will be completed in time for implementation in April 2020. We will continue to work with the Government on further business rates retention and the Fair Funding Review, including tackling the impact of business rates appeals on local authorities in time for the implementation of further business rates retention in 2020/21.
- Councils will see their core funding from central government cut in half over the next two years and almost phased out completely by the end of the decade. We acknowledge that the Government has recognised the need to find a way to help councils who will not receive a penny of Revenue Support Grant funding in 2019/20. It must now also use the final Settlement to provide funding to all councils over the next two years.
- The four year deal runs out in March 2020. We remain concerned that there is no clarity over funding levels, for both the national pot and local allocations, after that date. This hampers meaningful financial planning at a time when central government grant funding is the lowest it has been for decades and demand pressures are increasing.
- Autumn Budgets needs to be earlier in the year so that the provisional Local Government Finance Settlement can be brought forward. This would allow councils to make robust and efficient medium term plans.
The settlement means the following council tax referendum principles now apply:
*For fire authorities, a general council tax referendum principle of 3 per cent in 2018/19 and 2019/20;
*For Police and Crime Commissioners, the higher of 3 per cent or an extra £12 on a Band D property;
*For Mayoral Combined Authorities (excluding the West of England), directly elected Mayors will have an ability to set the required level of council tax by agreement of their Combined Authorities;
*No referendum limit for parish councils for the next three years.
We will continue to work with the Government to help shape the details of today’s announcements ensuring that the views of councils are heard and understood, and will continue to respond to all related consultations. We will be particularly pushing the Government to provide new funding for all councils as they prepare for the final settlement, as we have done in previous years. This is the only way to help plug the growing funding gaps facing our local services.