Press release

Greg Clark confirms historic 4-year settlement for local government

Historic settlement for town halls - councils to have greater financial freedom - funding adult social care a key priority.

Town Hall

Greg Clark today (8 February 2016) confirmed an historic settlement for town halls, paving the way for councils to have greater financial freedom from Whitehall, while at the same time responding to calls from local government to make funding adult social care a key priority.

The 4-year financial settlement transforms the relationship between central and local government – this is something councils have been calling for over a number of decades. By the end of this decade, councils will be funded from revenues they raise locally, rather than central government grants.

To help councils transform from dependence on central government grants to greater financial autonomy, local government will receive £300 million transitional funding over the next 2 years, after which other resources will grow.

The settlement also recognises the importance of funding adult social care, with up to £3.5 billion of additional funds being made available to local government for these services by 2019 to 2020.

Communities Secretary Greg Clark said:

These are important times for local government. The devolution of power and resources from Whitehall is gathering momentum.

Today’s settlement means every council will have, for the financial year ahead, at least the resources allocated by the provisional settlement. In addition, we will provide transitional funding for the first 2 years of the Spending Review period for councils as they move from dependence on central government grants to greater financial autonomy.

The government will continue to keep bills down with Council Tax still expected to be lower in real terms in 2019 to 2020 than it was in 2009 to 2010.

Read Greg Clark’s full statement.

Moving towards greater financial autonomy

Today’s settlement follows extensive consultation with councils during which the government received around 280 responses, and Mr Clark and the wider ministerial team met with local authority leaders from all types of authority from across the country.

In particular, local government has welcomed:

  • the offer of a 4-year budget, allowing them to plan ahead, and protecting the resources available to councils

  • extra funds available for care for the elderly and vulnerable, putting more money into the agreed priority of adult social care

  • fulfilling the long-held ambition for councils to be financed from locally-raised resources rather than central government grant - a vote of confidence in the power of devolution

Councils also recognised the need for further savings to be made – at 7% over the course of the Spending Review, compared to the 14% announced at Spending Review 2010, and 29% savings the Department for Communities and Local Government is making.

Today, Mr Clark also implemented a number of suggestions that councils have made during the course of the consultation:

  • councils with the sharpest grant reductions will receive £150 million a year in transitional funding for each of the first 2 years of the settlement, easing the pace of funding reductions – in line with recommendations from the County Councils Network and the Local Government Association

  • in recognition of the particular costs of providing services in sparse rural areas, the Rural Services Delivery Grant will increase from £15.5 million this year to £80.5 million next year. This is in addition to the transition grant and, taken together makes available an extra £93.2 million to rural councils in 2016 to 2017, and means that there is no increase in the gap in government funding per head between urban and rural areas

  • the government will conduct a review of what the needs assessment formula should be in a world in which all local government spending is funded by local resources not central grant

Further information

Councils will now consider how to take advantage of this historic 4-year settlement to make even greater efficiency savings. The deadline for responses is 14 October 2016.

What the historic settlement includes:

Keeping bills down

The government will maintain the 2% Council Tax threshold in order to keep bills down for hardworking people (with a separate 2% dedicated precept where councils have adult social care responsibilities). Even if all councils make use of the new precept the average bill in 2019 to 2020 will still be lower in real terms than it was in 2009 to 2010.

Long-term funding certainty

To give councils further financial certainty before the 100% devolution of business rates by 2020, the government has offered an unprecedented 4-year settlement to any council that wishes to plan ahead with confidence. A £300 million transition grant will also help them move from dependence on central government grants to greater financial autonomy.

Support for rural authorities

In recognition of the particular costs of providing services in sparse rural areas, the Rural Services Delivery Grant will increase from £15.5 million this year to £80.5 million next year. Over the course of the 4-year settlement rural areas will benefit from a total of £260.5 million Rural Services Delivery Grant.

Government protects overall resource available

The Spending Review set out that based on Office for Budget Responsibility forecasts, overall local government spending would be higher in 2019 to 2020 than in 2015 to 2016 – total local government spend will increase from £40.3 billion to £40.5 billion

Extra £3.5 billion for adult social care

Up to £2 billion will come from a 2% social care precept – the equivalent of £23 a year on an average Band D home in 2016 to 2017 – to provide dedicated caring for the growing elderly population. A further £1.5 billion will be available to councils to work with the NHS to ensure that care is available for older and vulnerable people, including following hospital treatment through the Better Care Fund.

Further incentives for growth

In addition to keeping all business rates by 2020, the New Homes Bonus will be retained and reformed to provide greater encouragement for housebuilding.

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Published 8 February 2016