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Autumn Statement 2013: Grant Thornton comments on the impact...

...of the announcement on local government

Paul Dossett, Head of Local Government at Grant Thornton UK LLP commented:

"Recent Autumn Statements, Spending Rounds and Budgets have not been happy occasions for local government, and today provided mixed fortunes for the sector.

"The LGA's call for the Chancellor to lift the borrowing cap to increase capital investment, in particular to kick-start a programme of house building must have been heard, at least in part. The Chancellor announced house building loans of £1bn to unlock sites across the country, and an increase in the Housing Revenue Account (HRA) borrowing limit by £300m, but not a removal of the cap. In our view, local government must be at the heart of developing housing opportunities for its communities.

"Disappointingly, CIPFA's call for an end to the Council Tax freeze, an increase in localism, and the establishment of an independent commission into local government funding fell on deaf ears. Instead, the Chancellor has complemented the Council Tax freeze with a 2% cap on Business Rates for 2014/15, as well as extending existing business rate relief to small firms for a further year from next April.

"Encouraging greater economic activity locally - particularly via SMEs, the heart of our economy - is crucial. The below inflation level 2% cap on business rate increases, along with other measures announced today, should provide much needed economic impetus.  However, the savings to businesses could impact on the level of business rates that can be retained by councils. In addition, the monthly payment facility announced by the Chancellor today may impact on councils' cash flow and interest generated via their investments.

"The Audit Commission and Joseph Rowntree Foundation recently highlighted that the biggest reductions to funding for local authorities had fallen on the most deprived authorities. The business rate cap may be a particular issue for these authorities, where economic growth is more challenging and income from retained business rates is critical as an alternative to the on-going reduction to government grant funding.  We feel there is much more scope to join up decision making so that both local government and local business can share the benefits of growth in a more structured way.

"The Chancellor has already indicated that austerity will be with us permanently, including a further 10% funding reduction to local government in 2015/16. In today's Autumn Statement local government was not part of the further £3 billion savings announced by the Chancellor. This is based on the assumption that councils agree a further Council Tax freeze for 2014/15 and 2015/16.

"I think local government (belatedly) joining education, health and international development by being exempt from this next round of savings recognises the scale of savings already announced for local government, the sector's ability to deliver these savings so far, and the risks of imposing an even greater level of grant reduction. However, it is not currently clear what will happen to those authorities who do not freeze their council tax in 2014/15 or 2015/16. The ability for local politicians to decide on local taxes is, in our view, vital if local government is indeed to remain local, vibrant and accountable, and not just perceived  as a second string Whitehall outpost."