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Finance settlement date unveiled ahead of 'huge' funding challenge

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The date of when details of the local government finance settlement for 2019-20 will be published has been unveiled. 

The Ministry of Housing, Communities & Local Government said it will deliver the provisional settlement for next year on 6 December.

This comes as the ministry said it will try to give councils more certainty and time with budget planning in the future as it will aim to deliver future provisional settlements on or around the 5 December and the final settlement no later than the 31 January.

Local government minister Rishi Sunak outlined the move in a response to an independent review into the department’s oversight of the business rates system. 

Mr Sunak said: “We recognise taking a more planned approach towards the provisional local government finance settlement in future will be fundamental to ensuring local authorities are given more certainty, and the time and space to consider their financial positions for the coming year.

“With this in mind we will aim to publish the provisional and final settlements on or around the same dates every year from this December.”

The review by former Treasury director general Andrew Hudson noted the provisional finance settlement had been delivered later in recent years.

The task of responding to this, he said, “has been made more challenging, both for the department and for local authorities, because announcements have been made at an increasingly late stage in the annual cycle”.

Since the 2012 announcement for 2013-14, the provisional settlement has been announced between 15 and 19 December, compared to late November or very early December in the 2000s, with the final settlement in the first week of February rather than the last week of January.

The late delivery has been attributed to when budgets are delivered and Mr Hudson’s report noted that could continue but warned: “The later policy decisions are taken, the greater the risk that there will be difficulties in implementing changes.”

While late delivery of the finance settlement impacts on councils, it also impacts on the ministry’s workforce too.

“The combination of complexity [with business rates] and a tight timetable has raised the risks for the department,” the report said. “These risks include later delivery of the figures, and making an overpayment or underpayment to local authorities, with knock-on consequences for service delivery, and for reputational risk to the department.”

The review noted how the number of people at the ministry working on the local government finance system has fallen by more than 13% - from 115 full-time equivalent staff at the end of March 2012 to just under 100 in August 2018.

Former housing and communities secretary Sajid Javid commissioned the review after some councils involved in business rates pilots were overpayed by a combined total of £36m.

Mr Hudson said he had found the ministry had generally “responded well to the challenges” of overseeing changes to the business rates system, despite last year’s error, but added: “That success, however, has relied very heavily on the efforts of the people in the teams, rather than on established structures and processes.”

The review said the methodology that underpins the distribution of funds to councils contained 78 variables in 2017-18 but that had almost doubled to 146 in 2018-19, largely due to the expanded business rates retention pilots programme.

Mr Hudson said “the rapid increase in complexity in business rates, for all concerned, has been exceptional. And this complexity could easily grow further if there is more focus on rates as part of business tax policy and hence wider economic policy at the same time as reductions in grant continue to increase local government’s overall dependency on business rates.”

Looking ahead to the 2020-21 finance settlement, Mr Hudson drew attention to next year’s spending review and 2020 when the ministry intends to implement the fair funding review. He warned the ministry “faces a huge challenge in bringing these three sets of changes together in preparing the 2020 settlement. And by the time the settlement goes live, the Valuation Office Agency will be well advanced with the preparations for the next full revaluation in 2021.”

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