Impact assessment

Final local government finance settlement 2023 to 2024: policy impact statement

Published 6 February 2023

Applies to England

This impact statement covers the government’s local government finance settlement for 2023-24. It focuses on the impact of proposals on people who share protected characteristics.

Explanation of the measures announced in the Settlement can be found in the following documents:

• Local Government Finance Report
• Council Tax Referendum Principles Report
• Provisional Local Government Finance Settlement 2023 to 2024 consultation: government response

The explanation of the measures can also be found in the associated documentation: final local government finance settlement 2023 to 2024.

In summary, the key policy proposals within the local government finance settlement for 2023-24 are:

a) For the Core Settlement:

• The Autumn Statement announced the freezing of the Business Rates Multiplier for 2023-24 at 49.9p. We will compensate local authorities for the reduction in income as a consequence of this decision. From 2023-24 we will align this level of compensation, including the increase in baseline funding levels, with the default link, established by government policy in 2018-19, between the Business Rates Multiplier and the standard Consumer Price Index (CPI) measure rather than the Retail Price Index (RPI);
• We will increase Revenue Support Grant (RSG) in line with CPI;
• We will continue to eliminate so-called ‘negative Revenue Support Grant’.

b) For council tax, the government is giving local authorities in England additional flexibility in setting council tax by:

• Protecting local taxpayers from excessive increases in council tax, by setting the referendum threshold at 3% per year from April 2023 for shire counties, unitary authorities, London boroughs, and the Greater London Authority, without a local referendum. Councils can set higher increases if they wish, via consent of a local referendum.
• In addition, local authorities with social care responsibilities will be able to set an adult social care precept of up to 2% per year, without a referendum.
• A bespoke council tax referendum principle of up to 3% or £5, whichever is higher, for shire districts.
• A bespoke additional council tax flexibility of up to £20 on Band D bills for the Greater London Authority.
• Setting no council tax referendum principles for Mayoral Combined Authorities (MCAs).
• Setting no council tax referendum principles for town and parish councils.
• A £5 referendum principle on Band D bills for all fire and rescue authorities. A £15 referendum principle on Band D bills for police and crime commissioners.

c) For Social Care:

• The Autumn Statement announced additional funding of up to £2.8 billion in 2023-2024 in England and £4.7 billion in 2024-2025 for social care and discharge. This includes £1 billion of new grant funding in 2023-24 and £1.7 billion in 2024-25, further flexibility for local authorities on council tax and delaying the rollout of adult social care charging reform from October 2023 to October 2025:
• Funding from delaying charging reform:
  • £1.265 billion in 2023-24 and £1.877 billion in 2024-25 will be distributed to local authorities through the Social Care Grant for adult and children’s social care. This is in addition to the existing Social Care Grant. We will continue to equalise against the adult social care precept.
• New grant funding:
  • £600 million will be distributed in 2023-24 and £1 billion in 2024-25 through the Better Care Fund to get people out of hospital on time into care settings, freeing up NHS beds for those who need them. The funding will be split 50:50 between the Department for Levelling Up Housing and Communities’ Local Government DEL and the Department for Health and Social Care DEL, meaning Local Government DEL will allocate and distribute £300 million in 2023-24 and £500 million in 2024-25. This will be in addition to the existing improved Better Care Fund, for which the current distribution will remain.
  • £400 million in 2023-24 and £683 million in 2024-25 will be distributed through a grant ringfenced for adult social care which will also help to support capacity and discharge. Alongside this, the funding package for adult social care retains £162 million per year of Fair Cost of Care funding and its distribution to reflect the progress councils and providers have made this year on fees and cost of care exercises.
• The government expects this new grant funding to enable local authorities to make tangible improvements to adult social care in particular to address discharge delays, social care waiting times, low fee rates and workforce pressures in the adult social care sector. There will be reporting requirements placed on the new Adult Social Care Grant and the Better Care Fund regarding performance and use of funding to support improvement against these objectives.

d) Remaining Settlement Grants

• Increasing the Rural Services Delivery Grant from £85 million to £95 million.
• The Services Grant will reduce in 2023-24. This is in part because there will no longer be an increase in National Insurance Contributions, therefore the government will not be compensating local government for these contributions from 2023-24. In addition, some funding will go to increase the funding for the Supporting Families programme. The same as last year, the remainder of the Services Grant will be distributed by the Settlement Funding Assessment.
• In recognition of the inflationary pressures across the sector, we will repurpose the Lower Tier Services Grant and a proportion of the expired New Homes Bonus legacy payments to create a new one-off, funding guarantee. This will ensure that all authorities will see at least a 3% increase in their Core Spending Power before any decision they make about organisational efficiencies, use of reserves, and council tax levels.
• There will be new rounds of New Homes Bonus (NHB) payments in 2023-24. Although, as with last year, these will not attract new legacy payments. NHB allocations for 2023-24 will continue to be paid for in the usual way. There will be no changes to the calculation process from 2022-23 except the expiration of legacy payments.
• The government will be extending the Statutory Override for the Dedicated Schools Grant for the next three years from 2023-24 to 2025-26.

e) Other areas of the Settlement

• We will be consolidating four grants totalling £239 million into the Local Government Finance Settlement. All of the four grants will keep their existing distribution. These are the Independent Living Fund; Council Tax Discounts – Family Annexe; Local Council Tax Support Administration Subsidy; and Natasha’s Law.
• All current 100% business rates retention areas will continue for 2023-24. During this time the government will review the role of such arrangements as a source of income for areas and its impact on local economic growth, and as part of deeper devolution commitments as set out in the Levelling Up White Paper.
• Where requested, we will proceed with Business Rates Pooling for 2023-24.

The majority of the proposals set out above have remained the same between the provisional and final Settlement. For completeness, following the consultation and engagement process on the provisional Settlement, we have made the following changes:

• Alongside the provisional Settlement, we ask local authorities to check the accuracy of homebuilding data they have returned to us and tell us if it is inaccurate. Following these representations, we have increased New Homes Bonus allocations by £0.63 million.
• Increasing the Rural Services Delivery Grant by £10 million, bringing the total value to £95 million as a response to the inflationary pressures faced by rural areas.
• Increasing Services Grant by £19.1m above the provisional Settlement proposals, by distributing unused contingency back into local government as proposed at the provisional Settlement, through the Services Grant.
• The Funding Guarantee has been recalculated to account for any additional grant funding within Core Spending Power for local authorities. Any grant funding no longer going to the Funding Guarantee has been allocated back through the Services Grant.
• Every authority in England also stands to benefit from increased growth in business rates income, which has generated a surplus in the business rates levy account in 2022-23. We can confirm that £100 million will be returned to the sector on a one-off basis to be distributed based on each local authority’s 2013-14 Settlement Funding Assessment.
• Following requests from Thurrock, Croydon and Slough, the government has agreed to provide these councils with additional flexibility to raise council tax, by applying higher referendum principles. In line with their requests, Thurrock and Slough will be able to raise council tax by an additional 5% above referendum principles applied to other councils, and Croydon will be able to raise an additional 10%. The requests for additional flexibility follows significant past failures in local leadership and financial management in each council.

It is our assessment that minor changes made between the provisional and final Settlement have had no significant impact on those with protected characteristics.

1. Foreseeable impacts of policy proposals on people who share protected characteristics

The government has considered the impacts of the funding distribution on protected characteristics by assessing the distribution of Core Spending Power (CSP) between local authorities and the characteristics of the people that live in the local authorities.

Across all protected characteristics there is a significant funding increase in CSP per capita from comparing the 2022-23 funding distribution to the 2022-23 funding distribution.

Councils provide various services which persons that share a protected characteristic will benefit from. Changes in the amount of flexible funding available to local authorities – whether an increase or a reduction – will affect a local authority’s ability to provide these services, and therefore impact those persons sharing protected characteristics.

Local authorities decide how their resources are allocated. It is not, therefore, possible to say for certain how changes in funding will affect specific groups of persons sharing a protected characteristic, as this will be dependent on decisions that are made locally.

In exercising their functions, including when making policy and spending decisions, local authorities must have due regard to Public Sector Equality Duty (“PSED”) under section 149(1) of the Equality Act 2010.

Local authorities understand the needs of their communities best and will have discretion on how to allocate this funding. In 2023-24, we estimate that local government will see up to a 9% cash increase in Core Spending Power, compared to 2022-23. This increase in resources will support the delivery of core services across local government.

Alongside these impacts, the government has now carefully considered all consultation responses, there were 157 consultation representations from a wide range of stakeholders. Of these responses, 94 (59.9%) provided further evidence or comments with regards to equalities in response to question 9. This question asked respondents if they had any comments on the impact of the proposals for the 2023-24 Settlement outlined in the consultation and on the draft policy impact statement we published. In particular, this question requested evidence of impacts to be provided.

The most common protected characteristic raised in the consultation was age; with 8 respondents arguing that more funding should go towards protecting the elderly and 14 respondents arguing that more funding should go towards supporting children.

In addition to this, Fire and Rescue Authorities highlighted differences in fire-related deaths for different age groups. Accordingly, they flagged concerns over not being explicitly mentioned in the draft policy impact statement, the government has responded by taking this into account in Section 4 below.

When assessing impacts of the proposals via the consultation, some respondents flagged concerns about the impact of the Settlement of those from lower socioeconomic backgrounds. Whilst this is not a protected characteristic, the government has taken this into consideration in its assessment. Eleven (7.0%) respondents argued that the Local Government Finance Settlement has a negative impact on poorer or more deprived persons, where they also have protected characteristics, including age, race, sex and disability. Nine respondents (5.7%) argued that council tax increases place further cost of living pressures on residents. We respond to the concerns raised in Section 3 below.

2. Do you need any more information to assess Q2 above? If so, how will you obtain it?

The government has now completed the consultation on 2023-24 policy proposals; however we will continue to consider correspondence received throughout the Settlement year and take any evidence provided to the department into account as we approach the 2024-25 Local Government Finance Settlement.

3. In light of the overall policy objectives, are there ways to avoid or mitigate any negative impacts you have noted in Q2 above?

As per the previous policy impact statement released at the provisional Settlement, important mitigations remain. For example, the government is increasing the funding available to local authorities. We are providing local authorities with a funding guarantee that ensures all councils see at least a 3% increase in their Core Spending Power before any decision they make about organisational efficiencies, use of reserves, and council tax. This can be used to help mitigate any potential impacts on members of protected groups by ensuring there is an increase in funding for local authorities to assist members of protected groups.

The government continues to note that this Settlement makes available additional funding of up to £2.8 billion in 2023-2024 in England and £4.7 billion in 2024-2025 for social care and discharge, where pressures are greatest. This includes £1 billion of new grant funding in 2023-24 and £1.7 billion in 2024-25. The government expects this new grant funding to enable local authorities to make tangible improvements to adult social care in particular to address discharge delays, social care waiting times, low fee rates and workforce pressures in the adult social care sector. The government continues to note some perceived impacts on children’s services and for individuals with the protected characteristics of age 65+, who account for a large proportion of the need for adult social care services. As much of this additional funding is distributed through the Social Care Grant, and we have been clear that the funding is for both adult and children’s services, we also expect to improve outcomes for both the elderly and children services as well.

We recognise concerns that increases to council tax place further pressures on residents. Any decisions to raise council tax will be taken by local authorities, and we expect them to take into account the impact of those decisions on people with protected characteristics when doing so. The government continues to maintain a referendum threshold to protect residents from excessive increases.

Furthermore, in order to support the most vulnerable households, many of whom will be members of protected groups, we are providing £100m of funding for local authorities to support the most vulnerable households in England. Councils will be given the resources to deliver a reduction in council tax bills by up to £25 for households in receipt of local council tax support in 2023-24 and flexibility to determine their local approaches to support other vulnerable households in their area.

Further to the considered consultation responses, the government recognises the importance of funding for Fire and Rescue Authorities and their role in protecting those with protected characteristics, and have therefore considered the impact of our policy on expanding the £5 referendum flexibility on Band D bills for all fire and rescue authorities in this light.

As noted above, any potential impacts would be dependent on local decisions on the allocation of funding to particular local services. Therefore, specific impacts have not been identified at local authority level. The government is committed to designing new policies in a way that gives local government more control over their own funding and reduces their reliance on central government funding. This funding could be used to meet the needs of persons who share one or more of the protected characteristics set out in the PSED.

4. In light of this analysis, what is recommended and why?

The government has not identified any compelling evidence that the 2023-24 Settlement will have a substantial impact on those who share protected characteristics. We will continue to review the impacts of proposals throughout the Settlement year.

The extent of any impacts will also depend on the decisions made by local authorities in response to a number of central and local policies. As noted in section 1 above, we would recommend that each local authority assess the equalities impacts of their service provision choices.

5. Where impacts are or could be significant, when and how will they be reviewed?

The consultation for this year’s Local Government Finance Settlement has now closed and we have reviewed the responses. The Department has not identified any significant impacts of these policies on those who share protected characteristics, however we will continue to monitor and review their impact over the course of the Settlement year.

However, the government is publishing this statement alongside the final Local Government Finance Settlement consultation, and actively welcomes the views of interested parties. Representations and supporting evidence received by the department throughout the Settlement year will be considered in advance of the 2024-25 Local Government Finance Settlement.

This analysis was undertaken by:

Name/Title: Mehr Panjwani, Policy Advisor (Local Government Finance Settlement)

Directorate/Unit: Local Government Finance

Date: 06/02/2023

SCS Sign off: Evi Bell, Deputy Director, Head of Local Government Funding Strategy

I have read the available evidence and I am satisfied with the above analysis.