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A settlement that lived up to low expectations

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Commentary on local government finance settlement 2018-19

Sajid Javid said his provisional local government finance settlement today offered councils “the resources they need, the stability they’ve requested and the fairness they deserve”.

He was mistaken.

The communities secretary roped councils ever tighter to the twin masts of council tax and business rates, two forms of income that are already foundering in stormy seas. If you’re a northern met, today’s settlement offered you little; the picture was little better for counties (who are losing their transition grant) and other unitaries. Districts will be pleased they’re retaining the “continuity and certainty” of the new homes bonus, on which they are particularly dependent and which is unchanged.

In fairness to Mr Javid, the Tories’ lack of a parliamentary majority and Philip Hammond’s disappointing economic data means he neither has room for manoeuvre nor much money. Expectations were low and he lived up to them.

There was something: council tax bills will be able to rise by an additional 1% without a referendum, Mr Javid announced. This would bring the growth in core bills “in line with inflation”. Cost pressures brought about by the ageing population and the growth in demand for children’s services are, of course, much higher than inflation, while councils face a pay bill increase of 5.6% over the next two years as a result of the proposed much-needed 2% pay increase for council staff.

Any council leaders of the noughties who shunned the trend of the era to increase council tax bills probably thought they were serving their local population well. Little did they know that the only thing they were facilitating was the defenestration of their council a decade later. Low tax Northamptonshire CC made a mistake, didn’t it?

This decade has seen an enforced freeze on council tax bills, followed by an imposed percentage restriction on the level of increase permitted (OK – you can increase bills more if you win a referendum, but the consensus among councils is that such a local poll is unwinnable). Thus councils remain effectively bound by decisions taken last decade. Of course, the fact that bills are based on property valuations from 1991 hardly shows that this tax really adapts to local needs.

There was another big development on council tax. Most combined authority mayors will, subject to the agreement of their member councils, be able to levy a precept on bills without a set limit, for this year at least. The Department for Communities & Local Government warned it would step in to “review” the level of precept; it should be “proportionate to their needs and not burdensome to their residents”.

On business rates there is some clarity at last. The new aim is for local government to retain 75% of business rates from 2020-21. This is far short of the 100% local retention planned in the Local Government Finance Bill that had to be shelved after Theresa May called the election, but nevertheless it does go some way towards localising the system.

Revenue support grant and the public health grant will be among grants incorporated into this pot of money, the latter move surely to spark concern among public health professionals that they will lose out.

And there are 10 100% retention business rates pilots in 2018-19 – double the previously planned five. Crucially the new ones will largely be non-urban.

LGC has detected a significant diminution in councils’ enthusiasm for business rate localisation in recent times. The fear is business rates are reaching the end of their life. Business of the 21st century will not be built around expensive properties – working from home will be the norm; internet shopping will reduce the need for expensive retail parks. It is hard to overcome the impression that central government is handing councils a poisoned chalice.

Where is the farsighted debate about devising a progressive tax system that provides a balance between taxing those with money to tax, offers an incentive to grow local economies and is workable? It doesn’t exist.

Late this afternoon the government published its consultation on what a fairer funding system for local government might look like. There is much unfairness in how central money is distributed between councils which needs to be addressed as business rates are localised. However, increasing the dependence on council tax will further advantage those councils which had high property values in 1991. LGC has previously suggested just about every government funding formulae seemed to work in the favour of Wokingham BC. While Wokingham will remain well-served, today’s announcements on the mayoral precept may swing the balance in favour of Cambridgeshire & Peterborough CA, which is surely the combined authority with the highest property values.

Today’s settlement offers little for the councils struggling most, who are still looking over the cliff edge. It does nothing to alleviate the crises in children’s services (Children England chief executive Kathy Evans described it as an “act of wilful neglect of the nation’s most vulnerable children”) or social care – “woefully inadequate” was the verdict of Margaret Willcox, president of the Association of Directors of Adult Social Services.

It was the settlement of a paralysed government. It will paralyse many councils.

Nick Golding, editor

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