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Paul Woods: We’re already missing opportunities for fairer funding

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The 2019-20 local government settlement is a chance for the government to make small steps towards a fairer funding system.

But the latest technical consultation paper misses some simple opportunities to make early improvements as a sign of commitment to fair funding. I hope that councils will raise these in their responses.

Several problem areas of unfairness have been highlighted in reports and notes to the fair funding working group over the last year or so. Addressing some of these now would prevent further unfairness in 2019-20 and could bring benefits to most councils.

The first action would be to halt the further cut in revenue support grant (RSG) – around £144m – for local council tax support currently planned for 2019-20. This would benefit most councils, including shire districts and fire authorities.

If this further cut went ahead, it would bring the funding cut for the tax support to over £1.5bn, with disproportionate cuts to councils with higher numbers of pensioners or poor families. In the response to the independent report to parliament, the request for transparency on the level of revenue support grant funding did not get a transparent answer from the ministry – with no mention of any grant cuts at all. Still, the ministry can act.

The second action would be to recognise the considerable children’s social care pressures that councils are facing, highlighted by the National Audit Office in its recent report on financial sustainability. These pressures are more concentrated in areas with the greatest deprivation and numbers of poor families.

While the government has recognised adult social care pressures, no extra funding has been allocated for children’s social care pressures. Some additional interim funding for the areas worst hit by children’s care pressures would help until the outcome of the needs formula review can be implemented.

The third action would be to introduce more flexibility in the council tax referendum limits by moving away from simple percentages to include cash limits, particularly for the adult social care flexibility.

This would be fairer on council tax payers around the country and potentially generate a little extra income for hard-pressed councils. My paper to the ministry in January identified that the cost to council tax payers of the adult social care flexibility varied enormously, from an extra band D cost of only £35 up to £130.

Taxpayers in shire two-tier areas would pay less than taxpayers in single tier areas because the adult council tax flexibility does not include the tax raised by shire districts. A move away from a simple percentage referendum limit to include a cash increase would help avoid the increasing divergence in council tax bills and be fairer for taxpayers in difference parts of the country.

It would also help councils and fire authorities with historically low tax bills facing mounting cost pressures. Councils could highlight the need for a change to fairer referendum limits in their responses.

Likewise, the change proposed to address so-called ’negative RSG’, produces an outcome which, when explained transparently to any reasonable person in the street – is unlikely to appear fair.

The council area that gains the most (£26.9m) of the proposed £152.9m adjustment would end up with an increase in its spending power next year of 3%, compared with a national average increase of 1.1% and spending power reductions for many other councils.

 

According to figures provided by the National Audit Office (see above) this county area’s spending power index in 2019-20, before this proposed adjustment, is 82.5% of its 2010-11 indexed level. This 17.5% reduction is one of the lowest cuts in spending power in the country, well below the national average of 29% and less than half the cut for the most deprived areas.

If the change is made by giving an extra £26.9m funding, the reduction in spending power since 2010-11 would be only 15% – significantly less than the cut in the most deprived areas (35% or more), which are also facing tougher children’s social care cost pressures.

Thus the negative RSG issue could be substantially addressed by technical grant changes, freeing up more local government funding for all councils.

Paul Woods, chief finance officer of the North East Combined Authority and local government finance adviser

 

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