News story

‘Fair deal’ rewards councils that lead drive for growth

Finalised local government settlement delivers 1.3% change.

Local Government Minister Brandon Lewis today (4 February 2013) confirmed that this year’s innovative local government settlement is built on the principle of fairness, which means councils that deliver for their communities will make more.

Last year English councils budgeted to spend £114.5 billion, accounting for a quarter of all public spending, which means they have a role to play reducing the inherited deficit. The final settlement represents a dramatic shift in spending power from Whitehall to the town hall. An estimated 70% of council income will now be raised locally, compared with 56% under the previous centrally distributed formula grant system.

The settlement is a fair one – fair to north and south, fair to rural and urban areas and fair to shires and metropolitan areas. It establishes the starting point for all local authorities in the new business rate retention scheme and sets their individual funding deals.

Councils will now retain nearly £11 billion of business rates instead of returning it to government. This new incentive lets local authorities grow their income by supporting new firms and jobs, which could deliver an extra £10 billion to the wider economy by 2020.

All councils have considerable spending power worth on average £2,216 per household. The overall reduction in spending power, taking into account the new Public Health Grant is just 1.3%. In 2012 it was 3.3%.

More weighting has been given to areas with the highest levels of assessed need. For example, Newcastle has a spending power per dwelling of £2,516 or £700 more than Wokingham, which has £1,815.

Ministers acknowledge that local government has shown great skill in reducing its budgets. Committed local authorities have protected frontline services. The 50 ways to save report sets out more practical ways for councils big and small to save money and gives councils best-practice ideas.

Local democracy has also been strengthened with the confirmation of the 2% referendum principle that will protect residents by ensuring that a local authority has to go to the polls if they want to raise Council Tax and ignore the offer of a government grant to freeze it.

The government has set aside £450 million for local government in England to freeze Council Tax in 2013 to 2014, which will be the third successive year in which a freeze scheme applies. So far 115 councils have pledged to freeze.

Brandon Lewis said:

“Councils account for a quarter of all public spending. This year English councils will spend £114.5 billion, that’s a bigger budget than the NHS, twice the entire defence budget and more than double the national debt interest, so it is vital they continue to play their part tackling the inherited budget deficit by making sensible savings in 2013.

“In the past month we have met and listened to councils across the board and we recognise they have made great efforts to reduce their budgets. This final settlement is a fair one - fair for the north and the south, fair for rural and urban, fair for city and shire. It delivers an average spending power per household of £2,216 that can be increased further by turning the business rate retention incentive to your advantage.

“I encourage all authorities and Police and Crime Commissioners to take up the grant offer and freeze their element of the Council Tax. Those that do will be providing real help to families and those on fixed incomes, such as pensioners, with their cost of living.”

A number of changes have been made following representations. Ministers concluded that more needs to be done to support rural areas. On top of confirming the increases already proposed to the sparsity weighting and top-ups, ministers have today announced £8.5 million of additional funding in 2013 to 2014 as a separate new transitional grant to help authorities secure efficiencies in services for sparsely populated areas.

Further information

The local government settlement is available to view on DCLG’s local government finance website.

We have also published data on this site showing spending power by local authority and details of the Efficiency Support Grant 2013 to 2014.

The overall reduction in spending power next year is just 1.3% when taking into account the new Public Health Grant; without that it is 1.7%, less than last year’s comparable figure of 3.3%. No council will face a revenue spending power reduction of more than 8.8% in 2013 to 2014 as a result of the new Efficiency Support Grant.

Spending power is the aggregate of:

  • council tax (excluding parish precepts)
  • start-up funding assessment
  • other specific grants
  • NHS funding for spend on social care.

The 2013 to 2014 Council Tax freeze grant amount is based on the assumption that councils are freezing or reducing their Council Tax in 2013 to 2014. The baseline funding level included within the start-up funding assessment (SUFA) is an indication rather than a guaranteed cash amount.

Despite the huge pressures on public finances, the government has presented local government with a good deal in 2013 to 2014. We have taken unprecedented steps to protect those councils most reliant on central government funding and to freeze Council Tax. The settlement implements the Autumn Statement commitment that local government would be exempt from the 1% top slice in 2013 to 2014. This important protection gives local authorities time to drive through further service redesign that will deliver the efficient and sustainable services that citizens expect.

During the consultation almost 200 written responses from local authorities, fire and rescue authorities, formal and informal groupings of authorities were received. In addition, ministers met delegations from representative bodies including the Local Government Association and London Councils as well as a large number of individual local authorities.

We’ve also produced a plain English guide to cut through Whitehall jargon and explain the new settlement system.

The government has set aside £450 million over the next 2 years to help local government in England to freeze its Council Tax in 2013 to 2014, which will be the third successive year in which a freeze scheme applies. Authorities and Police and Crime Commissioners which do not increase their basic amount of Council Tax in 2013 to 2014 will receive a grant equivalent to the revenue they would have generated by increasing their basic amount of Council Tax by 1%.

You can also read Brandon Lewis’s written ministerial statement.

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