The government is “minded” to return to a notional, rather than actual, assessment of council tax levels when determining a council’s funding under the new formula.
Since 2016-17, the actual amount of council tax raised by an authority has been used when calculating how much revenue support grant a council receives. This led to county councils in particular receiving much less central government funding than they had anticipated, which they argued was unfair on their residents who were usually paying higher council tax than residents in more urban areas.
Use of a notional council tax level would mean that two local authorities with similar tax bases and a similar assessment of relative needs would receive broadly similar baseline funding levels, irrespective of their actual council tax levels.
Few would argue against the rationale for a notional measurement, as the use of actual levels would create a perverse incentive for councils to set lower rates locally.
However, it might create problems for those authorities, for example inner London boroughs such as Wandsworth LBC, which have lower council taxes, but do not now have the flexibility to “catch up” given the referendum and capping limits in play.
Ultimately, the importance of the issue will depend on the weight placed on it within the new mechanism, which is not yet clear.
County Councils Network director Simon Edwards said it was “crucial” that a notional level was used in the methodology as “counties’ higher tax base, a product of historical underfunding of rural areas, would mask their true spending need should actual levels of tax be used”.