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Ministers publish small print of new funding system

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Further details of the new funding model for local government have been published, including an indication of how individual councils could fare in baseline calculations.

Junior local government minister Bob Neill published a 250-page technical consultation on Tuesday setting out the mechanics of the business rate retention system which is set to replace the four block funding formula from April.

While councils’ individual baselines will not be set until the end of the year, the document does show how individual councils would fare were the new methodology were applied to 2012-13 settlements.

To see how your council could be affected by the changes, open the spreasheet here and click on the ‘councils’ tab

Districts gain the most from the changes, seeing an average 3% rise in their formula grant after damping and with some gaining by as much as 13% (see table). Losers would see cuts limited to 3% and it is outer London boroughs who look set to fare the worst as a group with average cuts of 0.6%.

 Change from 2012-13, after floor damping
Winners(£ million)(%)
Eden0.413.0%
Ryedale0.412.6%
Richmondshire0.310.5%
West Devon0.310.5%
Cotswold0.410.0%
   
Losers  
Christchurch0-2.7%
Reigate and Banstead-0.1-2.3%
Epsom and Ewell-0.1-2.0%
Poole-0.4-1.4%
Southend-on-Sea-0.7-1.2%

 

A Department for Communities & Local Government spokesman said the figures did not reflect spending control totals or the latest population figures.

Councils have 10 weeks to respond to the rate consultation which includes changes to needs assessments in areas such as concessionary travel and rural services, further news on which grants will be included and excluded from the system and details of how government will calculate forecasts of business rate income.

The consultation provides further details of which grants and funding streams are set to be included in the local share of business rates, a key question as all business rate income has been promised to local government by ministers even though it exceeds Treasury-set spending controls for the sector.

As part of the government’s announcement on academies funding, see page two, the Local Authority Central Spend Equivalent Grant (Lacseg) paid to academies is to be removed from the system and in future handled by the Department for Education.

The department also indicated it did not intend safety net payments, to be held by central government in case councils suffer a funding shortfall due to lower-than-expected business rate income, to exceed £250m a year. The consultation also suggests £100m a year will be held back to fund capitalisation requests, whereby councils use capital money to fund revenue expenditure, and that £345m of the New Homes bonus will be retained to fund both capitalisation and the safety net.

The LGA welcomed the consultation for moving councils closer to financial independence but repeated concerns about the level of control to be retained by central government.

Reaction

LGA chair Sir Merrick Cockell said: “This brings us closer to the level of financial independence we have been lobbying for in principle but the transition presents some significant risks for local authorities with the model set up to ensure the Exchequer won’t lose out under any circumstances.

“The transition was always going to be complicated and we recognise the difficulties associated with delivering a fair settlement at first attempt. However, if councils are to be able to plan for the future and deliver the services demanded of them, the final model must not be dictated by Treasury’s instinct toward excessive self preservation. A sizable amount of money is being held back from local authorities which would really help already stretched council budgets.”

The LGA is to respond to the consultation but has advised individual councils to examine the proposals in detail.

On the issue of Lacseg, a spokeswoman said he move would create a “two-tier funding” system “with local taxpayers effectively subsidising the roll out of academies”.

Stephen Hughes, chief executive of Birmingham City Council, said the extra detail was “helpful” but said it would “take some time to evaluate these papers to what are the unanswered questions and to work out the likely consequences on an individual authority basis”.

The Chartered Institute of Public Finance and Accountancy is set to issue some guidance to help local authorities assess where the new funding scheme could leave them.

David Smith, director of resources at Kirklees MBC and an adviser to the government on the setting of the system’s baselines, said the consultation provided “more of the technical detail as to how government will ensure that local authority spending is linked back to the CSR spending targets by scaling of revenue support grant”.

There were also “a clear set of proposals from the government – rather than the usual set of options” although the department was undecided about how to deal with rural sparsity and population figures.

David Cook, chief executive of Kettering BC, expressed concern that the government might use ten year old census data in the system as this would mean places that had grown would be underfunded and places that had shrunk would be overfunded.

“If the government are in the business of rewarding those that are growing, then they need to be in the business of using the latest data,” he warned.

Meanwhile, the Department for Communities & Local Government has also decided that so-called Tax Increment Financing 2 will be renamed New Development Deals. The city deals announced earlier this month with Nottingham, Newcastle and Sheffield account for the £150m worth of deals that the government was willing to authorise.

Draft regulations on the transfer of council tax benefit to local government were also published on Tuesday, allowing councils to finalise the design of local schemes ahead of public consultations this Autumn.

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