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The guessing game on local government finance must end

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Spending review 2015 will deliver between 25 and 40% real-terms cuts to the Department forCommunities & Local Government as one of the non-ringfenced departments.

Considering the 27% real-terms cut at spending review 2010 meant a 44% like-for-like cut to core funding, prudent finance officers will no doubt be assuming the higher figure.

However, exactly what this means for local government funding remains unknown. At the one-year spending round in 2013 a 10% real-terms cut to the local government resource departmental expenditure limits (DEL) saw a planned reduction to £23.5bn in 2015-16.

The subsequent removal of the local share of business rates (around £11.3bn) from resource DEL spending, and further departmental transfers, means the starting point is now just £10.6bn in 2015-16. 

Why is this important? 

Including or excluding the local share makes a big difference to the size of the cut. It’s the difference between 40% of £10.6bn and 40% of £22bn: around £4.5bn over four years by my reckoning.

Whether 25 or 40%, inclusive or exclusive of business rates, local government will have to balance the books. Over the past parliament it proved more resilient at coping with cuts than many thought possible.

To some extent, the size of the cut is less important than the uncertainty of not knowing long-term allocations. This guessing game must end.

The government can rectify this by awarding long-term settlements with fixed levels of revenue support grant. This will give more certainty for boroughs when planning over three to four years, often over local electoral cycles.

Fixing revenue support grant levels, however, requires greater transparency about where funding for local authorities comes from than is the case under the current opaque system.

If the government decides to create or increase a specific funding stream – say, council tax freeze grant – then without transfers to the local government resource DEL from other departments, this is effectively funded by a cut to revenue support grant.

In addition, this year will see a surplus on the central share of business rates for the first time. It is not clear which specific grants to local government are being funded from this.

The government should publish a regular breakdown of all resource DELs that provide funding to local government; the main departments being:the DCLG, the Department for Education, the Department of Health, the Department for Work & Pensions, and the Home Office. This is the only way of knowing if a ‘new’ funding stream is actually new.

Until then, the smoke and mirrors will continue.

Transparency and certainty must underpin the finance system if local government is to cope with the forthcoming cuts, however large they may be. 

Paul Honeyben, acting strategic lead – finance, performance and procurement, London Councils

 

 

 

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