The 2019-20 finance settlement technical consultation has cast a shadow which may extend beyond the settlement process and into the fair funding review for many local authorities.
For many, including the Special Interest Group of Municipal Authorities, it serves as a marker of government attitude to their own formulae.
The matter at issue is the elimination of negative revenue support grant (RSG), which unravels the four year offer agreed to by 97% of authorities in 2016.
RSG has been diminishing since 2010. At 2015, the total stood at £15.2bn, by 2019 it will have fallen to just £2.3bn. The four-year offer introduced a reduction calculation, incorporating council tax income, that meant RSG share fell below zero for authorities with the highest levels of business rates and council tax income. Negative RSG is £152m in 2019-20.
Authorities with negative RSG are crying “no fair” and have persuaded government to eliminate this impact in 2017-18 and 2018-19 and a further year’s elimination is proposed in the technical paper, increasing core funding for those authorities.
This additional funding of £152m will go to just 21 out of 152 top-tier areas. The implied distortion this causes in funding is illustrated by government’s own figures. They calculate that lifting all authorities to a level where negative RSG is eliminated would cost an additional £2bn pounds. Unsurprisingly they discount this option.
For Sigoma, focusing just on negative RSG is an artificial narrowing of the issues when they have to be seen in the wider context of all changes to local government finance. Under the old system all authorities would have handed all of their business rates to government and received grant in return – now we keep a share of rates locally. Some of us have more than we need and some less, so some negative adjustments are unavoidable at current funding levels if authorities are to be fairly funded.
In addition, many of the authorities affected by negative RSG have benefitted enormously from business rates growth. By Ministry of Housing, Communities & Local Government’s own estimates, shire districts will earn an additional £375m (65%) above their needs in 2018-19 and shire counties an additional £145m. The complainants appear happy to accept the upside of business rate retention in the four-year offer but not the formula adjustment that is an inseparable part of it.
Negative adjustments are nothing new. For example, many Sigoma authorities suffered negative damping adjustments, set in 2013, which still continue to this day within formula. The negative impact of damping in 2013 overall was around £570m and will be around £340m in 2019-20. One might argue that reversing this should be one of the first calls on additional funding.
When the four-year offer was made in 2016-17 it was widely accepted. Of course, for most authorities acceptance was reluctant as it offered yet more austerity. If government are now minded to put additional funding into local government that should be a cause for celebration; but when this is done for the benefit of the wealthy few rather than being allocated where funding is most needed, it brings the whole system into disrepute.
Sigoma members will be objecting strongly to the proposal.
By Sir Stephen Houghton (Lab), chair of the Special Interest Group of Municipal Authorities