Councils across England have received their funding settlements for the four years to 2020 in a deal described as “historic” by communities secretary Greg Clark.
Yesterday’s announcement confirmed the Spending Review's projected 6.7% revenue cut for the sector over the course of the settlement period. Lobby group the Local Government Association (LGA) said the deal represented a reduction in core funding of 6.1% for 2016-17 alone.
The deal covers a transition period when councils will move to being funded primarily through the retention of locally-raised revenue, such as business rates and council tax, rather than by the current grant-led system. November 25’s Spending Review said the Department for Communities and Local Government’s own budget would be cut by 29% in the years to 2020, with a 20% reduction in the department’s paybill over that period.
DCLG's overview of the settlement – released yesterday – points to revenue figures for councils increasing from £40.3bn in 2015-16 to £40.5bn in 2019-20. The latter figure is based on a forecast by the Office for Budget Responsibility that includes the presumption that councils with adult social-care responsibilities will raise £2bn through a new flexibility to increase council tax to fund services.
Clark said the deal was an important step on the road to devolving full fund-raising powers to councils.
“This is an historic settlement for local government,” he said. "It makes local councils fully responsible to local people for their financing – rather than central government – something that local government has been campaigning for over a number of decades.
"In doing so it protects the resources available to councils over the next four years, puts more money into the agreed priority of caring for elderly people, and offers councils the certainty of a four-year budget.”
LGA chairman Lord Gary Porter welcomed the deal but admitted “significant challenges” lay ahead for councils, and pointed to general inflation, cost pressures in the care sector, and the impact of the National Living Wage.
According to LGA data, lifting staff pay to take account of the living wage will cost councils at least £340m in 2016-17.
Rob Whiteman, chief executive of the Chartered Institute of Public Finance and Accountancy, said replacing central government funding with fully retained business-rate revenues introduced real risk to council finances and was “something of a gamble” for many vital public services.
“The assumptions underpinning greater localisation are that the economy continues to grow and a much greater number of new homes are built, which recent experience shows is anything but certain,” he said.
Whiteman said top-tier authorities such as county councils and metropolitan boroughs were likely to benefit from the settlement, while district councils would “find a greater squeeze” on their budgets.