Local government funding is caught in limbo. Somewhere between the imbalances of the old needs based formula and the arrival of the system based on local taxation. The government has put in place a number of short term fixes in the interim attempting to address the old weaknesses, without adding to the significant financial challenges councils are facing.
Data on local government revenue budgets has been released by the Department for Communities and Local Government (DCLG) for the 2016/2017 financial year. There were some small but significant changes to local government funding. Using our CFO Insights tool we explored their impacts, the greatest of which will be on county and single tier authorities.
Key changes included:
- A change to the way reductions in Revenue Support Grant (RSG) were allocated between councils, as the government phases out this funding by 2020. The largest reductions were to councils who derive more of their income from local taxation (ie business rates and council tax) and are least reliant on grants. This came as a shock to a number of councils – particularly some of the southern counties – and DCLG subsequently announced transitional funding to ensure that improved management of any sudden financial shortfalls it generated.
- Most council areas are facing significant demand pressures, particularly in adult social care that are absorbing increasing amounts of council spending power. DCLG announced, as part of the Autumn Statement in 2015, a new adult social care precept of up to 2% of council tax collected, that could be raised to support these services without requiring a local referendum.
Words: Thomas Foster, Senior Manager, Local Government Advisory, Grant Thornton