Technical finance consultations are rarely items of news that get people talking, but under the surface of the papers released by the Department for Communities & Local Government last Thursday are some significant announcements that mark a turning point in the way that local government is funded.
Understanding local authority finance usually requires a familiarity with technical terms. In the latest rhetoric and figures from government, it appears as though the interpreter also requires some detective skills to get under some of the mystery of what is ‘new money’ and what is in fact old money but under a different name. The data provided of late has left even professional analysts scratching their heads.
The release appears to show a difference of £1bn between the cut announced in June’s spending review and the calculations only a month later. Explanations for this missing money have gone backwards and forwards between DCLG and LGA without a reliable conclusion as to its whereabouts.
This poses two problems. Firstly, the confusion does not help local authorities who are trying to budget and make plans for doing more with much less. Secondly, £1bn is a significant cut and there is a strong case to be made that the news included in the technical consultation was not just for technical consideration but is actually of political significance.
In figures released by government, this £1bn has been allocated to various pots of money including safety nets, the independent living fund and the extra burdens on councils for delivering the Dilnot reforms to social care funding.
This money was previously announced by chancellor George Osborne as “new” funding for the sector. The consultation’s release shows, however, that much of this is funded from revenue support grant, which call into question the government’s as yet unexplained claim that cuts to councils’ spending will be just 2.3% cut in real terms.
These changes in local government funding mark a notable juncture in its composition, since revenue support grant is now for the first time lower than funding from local share of business rates. We are at a crossroads where the connection between funding, need and business costs is superseded by the ability to raise funds locally.
Baseline funding for business rates is locked until 2020, which means that the bulk of cuts have come from reducing revenue support grant, which is allocated according to level of assessed need.
This has been exacerbated by using revenue support grant monies to fund the extra burdens on councils. If this is the case, then providing ‘new money’ is in reality more like asking councils to do more with the same, but with a different name for the funding pot.
The scale of the cuts means that revenue support grant has reduced from £15.2bn in 2013-14 to a forecast of £8.9bn in 2015-16. Local share of business rates has risen in line with the retail price index to £11.6bn in 2015-16, again paid for from revenue support grant.
As a result, these reductions have an unequal effect on councils across the country. Put simply, the more reliant an authority is on grant funding, the greater the impact of the cut. With Council tax rises pegged back below inflation, we are at a stage in which the only way for councils to keep pace with inflation is to increase business rates income well above forecasts. This is all while they operate under a government that seems intent on wiping out revenue support grant.
As predicted by Sigoma, the balance has tipped away from need, previously a pillar of our funding system. This is based on questionable assumptions that councils can substantially influence the number of businesses that locate within their boundaries and the numbers of houses that are built. The direction of travel means that the divide is growing and funding local services is at severe risk of becoming unsustainable.
We may never know definitively whether the overall impact on council budgets is £2.1bn or £3.1bn, 2.3% or 15%, due to the complexity of the system and the confusing nature of information releases. However, the mechanisms used to fund the cuts show a fundamental shift in the way that local government is financed; we are at a tipping point.
To date, whilst the public have be made very aware that council budgets have been cut by a quarter, most people don’t seem to have noticed a difference, as displayed in the Ipsos Mori satisfaction results. We may be moving into the next stage where people in the poorest areas don’t know about the cuts, but notice the difference on a daily basis.
Rob Newton is the principal policy officer for the Special Interest Group of Municipal Authorities within the LGA